|UNITED STATES 
      SECURITIES AND EXCHANGE COMMISSION
      
      Washington, D.C. 20549
|-------------------------------------------------------------------------------------------



|FORM 10-K
|---------



|[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
      
      OF THE SECURITIES EXCHANGE ACT OF 1934
|-----------------------------------------------------------------------------------------------



|For the Fiscal yearDecember 31, 2002
|------------------------------------



|[__] TRANSITION REPORT PURSUANT TO SECTION
      13 OR 15(d) 
      OF THE SECURITIES ACT OF 1934
|-------------------------------------------------------------------------------------------------



|Commission File Number 0-18881
|------------------------------



|BRADLEY PHARMACEUTICALS, INC.                               
|------------------------------------------------------------
|(Exact name of registrant as specified in
      its charter)

| | DELAWARE                                                                    |  | 22-2581418                                     | 
| | --------------------------------------------------------------------------- |  | ---------------------------------------------- | 
| | (State or other jurisdiction of
      
      incorporation or organization) |  | (I.R.S. Employer 
      Identification Number) | 
| |                                                                             |  |                                                | 
| | 383 Route 46 W., Fairfield, NJ                                              |  | 07004                                          | 
| | (Address of principal executive
      offices)                              |  | (Zip Code)                                     | 





|Registrants
telephone number including area code: 973-882-1505
|---------------------------------------------------------------



|Securities registered pursuant to Section 12(b)
of the Act: None  Securities registered pursuant to Section 12(g) of the Act: Common
Stock,  $.01 Par Value Per Share
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Indicate by check mark whether the registrant
(1) has filed all reports required  to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during  the preceding 12 months (or for such shorter period that the
registrant was  required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Yes    X | No   ___
|-------- | --------



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

|Yes    X | No   ___
|-------- | --------





|Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act Rule 12b-2).
|--------------------------------------------------------------------------------------------------------------

|Yes    X | No   ___
|-------- | --------





|The aggregate market value of the Common Stock
voting stock held by  nonaffiliates of the Registrant as of March 10, 2003 was
approximately  $98,960,000 (calculated by excluding all shares held by executive
officers,  directors and holders known to the registrant of five percent or more of the
voting power of the registrants Common Stock, without conceding that such  persons are
affiliates of the registrant for purposes of the federal  securities laws).
This amount does not include any value for the Class B Common  Stock, for which there is
no established United States public trading market.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of March 10, 2003, there were outstanding
9,225,276 shares of Common Stock,  $.01 par value, and 429,752 shares of Class B Common
Stock, $.01 par value.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------



|Documents incorporated by reference:    None
|--------------------------------------------



| |  | 
| |  | 



---





|TABLE OF CONTENTS
|-----------------

|PART I  
|--------
|        
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|PART II 
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|        
|PART III
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|        
|PART IV 
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| | 2 | 
| | - | 



---





|PART I
|------



|FORWARD-LOOKING STATEMENTS
|--------------------------



|This Form 10-K contains forward-looking
      statements within the meaning of the Private Securities Litigation
      Reform Act of 1995. These forward-looking statements include statements
      that address activities, events or developments that Bradley expects, believes
      or anticipates will or may occur in the future, such as earnings estimates
      and predictions of future financial performance. All forward-looking statements
      are based on assumptions made by Bradley based on its experience and perception
      of historical trends, current conditions, expected future developments and
      other factors it believes are appropriate under the circumstances. These
      statements are subject to numerous risks and uncertainties, many of which
      are beyond Bradleys control, including Bradleys ability to maintain
      CARMOL® sales and bear the outcome
      of related pending litigation, effectively purchase or integrate new products
      into its portfolio or effectively react to other risks described in this
      Form 10-K and from time to time in Bradleys other SEC filings. Further,
      Bradley cannot predict the impact on its business of any future approvals
      of generic versions of its products or of other competing products. No forward-looking
      statement can be guaranteed, and actual results may differ materially from
      those projected. Bradley undertakes no obligation to publicly update any
      forward-looking statement, whether as a result of new information, future
      events or otherwise.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 1:  BUSINESS
|-----------------



|Bradley
Pharmaceuticals, Inc. and its wholly owned subsidiaries  (Bradley, the
Company, we, us or our) markets
over-the-counter and  prescription pharmaceutical and health related products. Our
product lines  currently include dermatological brands, marketed by our wholly owned
subsidiary, Doak Dermatologics, Inc., and nutritional, respiratory, and internal
medicine brands marketed by our Kenwood Therapeutics division. We are currently  actively
promoting products in the dermatology and gastroenterology and, to a  lesser extent,
nutritional markets. All of our product lines are manufactured  and supplied by
independent contractors who operate under our quality control  standards. Our products
are marketed primarily to wholesalers, which distribute  the products to retail outlets
and healthcare institutions throughout the United  States and selected international
markets.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our growth
strategy involves acquisitions, including co-marketing and  licensing agreements, of
products from major pharmaceutical organizations that  we believe require intensified
marketing and promotional attention. We have  acquired, and intend to acquire, rights to
manufacture and market pharmaceutical  and health related products that studies have
shown to be effective and for  which a demonstrated market exists, but which are not
actively promoted and  where the surrounding competitive environment does not necessarily
include major  pharmaceutical companies. In addition to acquisitions, our growth strategy
involves our introduction of new products through modest research and  development of
existing chemical entities.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We were
incorporated in New Jersey in January 1985 and subsequently  reincorporated in Delaware
in July 1998. Our principal executive offices are  located at 383 Route 46 West,
Fairfield, New Jersey 07004, and our telephone  number is (973) 882-1505.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our Material Product Acquisitions
|---------------------------------



|We commenced
operations in January 1985 and, through December 2002, we  acquired more than 16 product
lines from many leading pharmaceutical companies.  During this time, we acquired products
from Schering AG, Aventis Healthcare,  Inc., Wyeth, Upsher-Smith Laboratories, Inc.,
Pharmacia Corporation, Novartis  Pharmacueticals Corporation and Procter & Gamble
Pharmaceuticals, Inc, among  other companies.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In March 1993, we acquired
      from Tsumura Medical, a division of Tsumura International, Inc., all technical
      and proprietary and distribution rights to a specialized dermal patch product,
      TRANSVERSAL®, currently
      used in the treatment of warts.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In December 1993, we acquired
      from Berlex Laboratories, a subsidiary of Schering AG, all technical, proprietary
      rights, including trademarks and registrations to DECONAMINE®,
      a chlorpheniramine maleate
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3 | 
| | - | 



---





|d-pseudoephedrine HCl  prescription product line
used in connection with coughs, colds and allergies.
|-----------------------------------------------------------------------------------------------------



|In February 1994,
we acquired from the Pharmacia Corporation, all U.S.  manufacturing, packaging and
proprietary rights, including all trademarks and  registrations, to PAMINE®, a
methscopolamine bromide tablet used in connection  with the treatment of peptic ulcers.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June 1994, we
acquired from Hoffmann-La Roche, Inc., all  manufacturing, packaging, quality control,
stability, drug experience, file  history, customers and marketing rights, titles and
interests, including all  trademarks, to CARMOL® 10 and CARMOL® 20 nonprescription
urea-based  moisturizers and CARMOL® HC, a prescription moisturizer containing
hydrocortisone, in the United States and the remaining countries in the Western
Hemisphere.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In May 1996, we
acquired the trademark rights to the ACIDMANTLE® skin  treatment line from Novartis
Pharmaceuticals Corporation, and the exclusive  ACIDMANTLE® manufacturing, marketing
and distribution rights for the United  States and Puerto Rico.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In October 1998,
we acquired from Procter & Gamble Pharmaceuticals, the  U.S. manufacturing, packaging
and proprietary rights, including all trademarks  and registrations, to BRONTEX®, a
potent cough reliever.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our Acquisition of DOAK Subsidiary
|----------------------------------



|During February
1994, we acquired from Doak Dermatologics principal  stockholders, a controlling
interest in Doak. The remaining capital stock of  Doak was acquired pursuant to a merger
consummated in January 1995. Total  consideration paid by the Company for Doak was
approximately $1.4 million.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our Products
|------------



|The following is a
list of major products, by therapeutic category,  that we market and distribute as of
March 1, 2003. Our prescription products are  ANAMANTLE®HC, BRONTEX®, DECONAMINE®,
CARMOL® HC, CARMOL® 40, CARMOL®  SCALP LOTION, CARMOL® SCALP TREATMENT KIT,
GLUTOFAC® -ZX, GLUTOFAC® -MX,  LIDAMANTLE®, LIDAMANTLE® HC, PAMINE®, ROSULA®
and TYZINE®; our  remaining products are available over-the-counter.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|DermatologicalProducts                                            |  | Uses                                                                                                                                  
|----------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|                                                                  |  |                                                                                                                                       
|ACIDMANTLE®/ LIDAMANTLE®/HC                                       |  | Skin pH balancer / Rx Topical Anesthetic                                                                                              
|                                                                  |  |                                                                                                                                       
|CARMOL® 10/20/40/HC                                               |  | Rx and OTC urea-based
      family of products for a variety of dermatological conditions                                             
|                                                                  |  |                                                                                                                                       
|CARMOL® SCALP LOTION/
        
           CARMOL® SCALP TREATMENT |  | Rx and OTC urea-based
      family of products for a variety of scalp conditions                                                      
|                                                                  |  |                                                                                                                                       
|FORMULA 405®/A·
        H· A /LE PONT®                            |  | Variety of topical products for the skin, hair and nails                                                                              
|                                                                  |  |                                                                                                                                       
|ROSULA®                                                           |  | Rx product with sodium
      sulfacetamide and sulfur in a urea vehicle for the treatment of rosacea
      and acne-related conditions
|                                                                  |  |                                                                                                                                       
|TRANS  VER  SAL®
        Wart Remover Kit                       |  | Unique dermal patch delivery system
      for wart removal                                                                            
|(6mm, 12mm, 20mm sizes)                                           |  |                                                                                                                                       



| | 4 | 
| | - | 



---





|Nutritional Products      |  | Uses                                                                                                                                                 
|------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|                          |  |                                                                                                                                                      
|GLUTOFAC®-ZX/MX           |  | Rx and OTC vitamin/mineral
      supplements                                                                                                         
|                          |  |                                                                                                                                                      
|Gastroenterology Products |  | Uses                                                                                                                                                 
|                          |  |                                                                                                                                                      
|PAMINE®                   |  | RxAnticholinergic/antispasmodic                                                                                                                      
|                          |  |                                                                                                                                                      
|ANAMANTLE®HC              |  | Rx Skin acidifier
      with topical anesthetic and hydrocortisone in a novel package design for
      the treatment of hemorrhoids and anal fissures
|                          |  |                                                                                                                                                      
|Respiratory Products      |  | Uses                                                                                                                                                 
|                          |  |                                                                                                                                                      
|BRONTEX®                  |  | Rx Antitussive/expectorant                                                                                                                           
|(Tablets/Syrup)           |  |                                                                                                                                                      
|                          |  |                                                                                                                                                      
|DECONAMINE®
      FAMILY  |  | RxAntihistamine/decongestant                                                                                                                         
|(SR/Syrup/Tablets)        |  |                                                                                                                                                      
|                          |  |                                                                                                                                                      
|TYZINE®                   |  | RxTopicalnasal
      decongestant                                                                                                                    
|(Solution/ Nasal Drops)   |  |                                                                                                                                                      

|Our principal
branded pharmaceutical products the we are currently  actively promoting are described
below:
|-----------------------------------------------------------------------------------------------------------



|ANAMANTLE®HC
cream, launched in January 2003 and U.S. patent pending, is a prescription pH balancer
with a topical anesthetic and hydrocortisone in a novel package indicated for the
topical treatment of hemorrhoids and anal fissures. ANAMANTLE®HC works with a unique
mode of action that has been shown to improve healing of the skin, reduce the likelihood
of infections, reduce swelling and soothe irritation. We believe this unique mode of
action with a novel package design of single dosage treatments makes ANAMANTLE®HC an
appropriate choice for topical treatment alone, or as concomitant treatment. The most
frequently prescribed topical prescription products for the treatment of hemorrhoids and
anal fissures other than ANAMANTLE®HC include ProctoFoam®HC, Analpram®HC and
Anusol®HC.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|CARMOL® 40, a
U.S. patented, internally developed, urea-based topical therapy prescribed for the
treatment of numerous forms and varying degrees of dry skin or xerosis. CARMOL®40
removes the surface layer of dead cells and improves skin moisture. CARMOL®40 is
available in three formulations, a cream, lotion, and gel. The cream formulation is
available in 1oz, 3oz, and 7oz tubes, the lotion formulation is available in an 8oz
bottle and the gel formulation is available in a 15ml bottle. The lotion is marketed for
mild to moderate dry skin, the cream is marketed for moderate to severe dry skin, while
the gel is marketed for site specific dry skin, nail debridement and as a nail softener.
The most frequently prescribed topical prescription products for the treatment of dry
skin or xerosis other than CARMOL®40 are the market leader Lac-Hydrin® and
Lac-Hydrin®s generic equivalent products. We estimate CARMOL®40 currently has
approximately 25% of the market for severe dry skin. Bradley sponsored studies have
shown that 80% of patients rate CARMOL®40 more effective than Lac-Hydrin®. Net sales
for CARMOL®40 cream for 2002, 2001 and 2000 were $12,103,000, $8,068,000 and
$5,818,000, respectively. Net sales for CARMOL®40 lotion, launched in Fourth Quarter
2001, for 2002 and 2001 were $4,694,000 and $1,336,000, respectively. Net sales for
CARMOL®40 gel, launched in First Quarter 2002, during 2002 was $4,400,000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5 | 
| | - | 



---





|GLUTOFAC®
product line is comprised of three nutritional products, which contain multivitamin or
multimineral formulas. GLUTOFAC®-ZX is a multivitamin prescription product,
GLUTOFAC®-MX is a multimineral prescription product, and GLUTOFAC® is a multivitamin
sold over-the-counter. Net sales for GLUTOFAC® for 2002, 2001 and 2000 were $195,000,
$159,000 and $248,000, respectively. Net sales for GLUTOFAC®-ZX for 2002, 2001 and
2000 were $1,216,000, $1,378,000 and $1,293,000, respectively. Net sales for
GLUTOFAC®-MX for 2002, 2001 and 2000 were $173,000, $175,000 and $191,000,
respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|LIDAMANTLE®
cream, available in 1oz and 3oz tubes, is a prescription skin acidifier with a topical
anesthetic that helps relieve pain, soreness, itch and irritation caused by insect
bites, pruritus, irritated skin and eczema. LIDAMANTLE® helps reduce the likelihood of
infections and soothe irritation. Net sales for LIDAMANTLE® for 2002, 2001 and 2000
were $937,000, $757,000 and $297,000, respectively.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|LIDAMANTLE®HC
cream, available in 1oz and 3oz tubes, is a prescription pH balancer with a topical
anesthetic and hydrocortisone that helps relieve pain, soreness, itch, irritation and
inflammation caused by insect bites, pruritus, irritated skin and eczema.
LIDAMANTLE®HC works with a unique mode of action that has been shown to reduce the pH
level of the skin, reduce the likelihood of infections, reduce inflammation and soothe
irritation. We believe this unique mode of action makes LIDAMANTLE®HC an appropriate
choice for topical treatment alone or as concomitant treatment. The topical anesthetic
market is comprised of products such as Emla® and Ela-max®. Net sales for
LIDAMANTLE®HC, launched in 2001, for 2002 and 2001 were $1,493,000 and $389,000,
respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|PAMINE® is a
prescription lactose-free, antispasmodic anticholinergic therapy that provides relief
from gastrointestinal pain and related gastrointestinal tract problems. The most
frequently prescribed antispasmodic anticholinergic prescription products for the relief
of gastrointestinal pain in addition to PAMINE® are Bentyl®, Robinul® and
NuLev®. We estimate PAMINE® has approximately less than 5% of the market. PAMINE®
works with a mode of action that has been shown to reduce colon spasm while not crossing
the blood-brain barrier, which makes PAMINE® an appropriate choice for treatment
alone, or as concomitant treatment. We recently completed a Company-sponsored study for
PAMINE®, which demonstrated antispasmodic efficacy through the use of PAMINE® as a
pre-treatment to a colonoscopy examination in 40 patients in comparison to the control
group. Net sales for PAMINE® for 2002, 2001 and 2000 were $3,157,000, $4,454,000 and
$1,609,000, respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ROSULA®,
launched in January 2003, is an internally developed and patented topical prescription
product for the treatment of rosacea and acne-related conditions. Rosacea is a chronic
skin condition causing inflammation and redness of the face. ROSULA® is designed to be
used in conjunction with other prescription rosacea therapies. The active ingredients in
ROSULA® are sodium sulfacetamide and sulfur. ROSULA® is the first and only
prescription therapy for the treatment of rosacea that utilizes the benefits of sodium
sulfacetamide sulfur with the moisturizing effects of urea. The topical acne rosacea
market is comprised of products such as MetroGel®, MetroCream®, MetroLotion®,
Plexion® and Rosanil®.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Product Liability Insurance
|---------------------------



|We maintain
$5,000,000 of product liability insurance on our products.  This insurance is in addition
to required product liability insurance maintained  by the manufacturers of our products.
We believe that this amount of insurance  coverage is adequate and reasonable, although
we cannot assure that product  liability claims will not exceed that coverage. To date no
product liability  claim has been made against us and we are not aware of any pending or
threatened  claim.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Manufacturers and Suppliers
|---------------------------



|We do not own or
operate any manufacturing or production facilities.  Rather, approximately 20 independent
companies manufacture and supply all of our  products. Many of these companies also
manufacture and supply products for some  of our competitors. We do not have licensing or
other supply agreements with  many of
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6 | 
| | - | 



---





|these manufacturers or suppliers for our
products and, therefore, many  of them could terminate their relationship with us at any
time, thereby  hampering our ability to deliver and sell the manufactured product to our
customers and negatively affecting our operating margins. From time to time, we  have
experienced minor delays in shipments from some of our vendors due to  production
management problems, which were subsequently shipped without a  material impact on our
profitability. Although we believe we can obtain  replacement manufacturers, the absence
of such agreements with our present  suppliers may interrupt our ability to sell our
products and seriously affect  our present and future sales. Currently, all of the
CARMOL® product lines,  except CARMOL® HC, are contract manufactured by Groupe
Parima, Inc. in Canada.  Any delays in manufacturing or shipping products by Groupe
Parima may affect our  product supply and ultimately have a negative impact on our sales
and  profitability.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We generally
purchase products from approximately 20 different vendors  on open credit terms, which
are generally payable in 30 days. For the year ended  December 31, 2002, 5 vendors that
manufacture and package products for us each  accounted for approximately 41%, 12%, 8%,
6%, and 5% of our cost of goods sold.  For the year ended December 31, 2001, 5 vendors
that manufacture and package  products for us each accounted for approximately 34%, 13%,
10%, 10%, and 8% of  our cost of goods sold. No other vendor, packager or manufacturer
accounted for  more than 5% and 8% of the Companys cost of goods sold for 2002 and 2001,
respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|With the exception of arrangements
      relative to ANAMANTLE®HC, BRONTEX®,
      CARMOL® 10, CARMOL®
      20, CARMOL® 40, CARMOL®
      SCALP TREATMENT, LIDAMANTLE®, LIDAMANTLE®
      HC, LUBRIN®, PAMINE®,
      ROSULA® and TRANSVERSAL®,
      we do not have any licensing, manufacturing or other supply agreements with
      manufacturers or suppliers.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Marketing and Sales
|-------------------



|We have acquired
established products and product lines, developed  line extensions for products, licensed
existing technologies and internally  developed new products. We concentrate our
marketing efforts on the continued  promotion of acquired product lines, line extensions
to established customers  and the expansion of distribution to new customers. Our overall
marketing  philosophy is to intensify and enhance the promotion of acquired products, new
products and line extensions throughout the United States and, where feasible,  in
selected international markets.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We market and sell
products through full time sales personnel and a  network of distributors and brokers.
Our dedicated sales force, consisting of  approximately 90 employees, focuses on high
prescribing dermatologists,  gastroenterologists and podiatrists. Our dermatology and
podiatric sales force  consists of approximately 56 employees who call on approximately
4,500  dermatologists and 4,500 podiatrists. Our gastroenterology sales force consists
of approximately 34 employees who call on approximately 18,000  gastroenterologists. We
believe we have created an attractive incentive program  for our sales force that is
based upon goals in prescription growth, market  share achievement, and the growth in
value for our shareholders.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We cultivate
relationships of trust and confidence with high  prescribing dermatologists,
gastroenterologists, and podiatrists in the U.S. In  addition, we use a variety of
marketing techniques to promote our products,  including sampling, journal advertising,
promotional materials, specialty  publications, convention participation, focus groups,
educational conferences,  telemarketing and informational websites.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Non-prescription
products are sold primarily to drug wholesalers,  chain and independent pharmacies, chain
and independent food stores, mass  merchandisers, physician supply houses and hospitals.
Prescription products are  sold primarily to wholesalers, retail chains and managed care
providers. We  currently have approximately 1,590 active accounts, of which there are
approximately 200 wholesalers, 890 retail chains and stores, 400 doctors and
institutional accounts, 30 government entities and 70 managed care providers.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our DECONAMINE®
product line (categorized below as respiratory  products) accounted for approximately 7%,
7%, 12%, 24% and 37%, respectively, of  2002, 2001, 2000, 1999 and 1998 net sales. Our
BRONTEX® product line  (categorized below as respiratory products) accounted for 1%,
2%, 3%, 9% and 7%,  respectively, of 2002, 2001, 2000, 1999 and 1998 net sales,
respectively.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7 | 
| | - | 



---





|Doaks CARMOL®
      product line accounted for approximately 61%, 45%, 41%, 22%, and 15% of
      our 2002, 2001, 2000, 1999, and 1998 net sales, respectively. Changes in
      the performance of our CARMOL® product
      line, consequently, will have a material effect on future operations. The
      TRANSVERSAL® product line
      accounted for approximately 4%, 5%, 7%, 8%, and 8% of our 2002, 2001, 2000,
      1999 and 1998 net sales, while the ACIDMANTLE®
      product line, including ACIDMANTLE®,
      LIDAMANTLE® and LIDAMANTLE®HC,
      accounted for approximately 8%, 8%, 4%, 6%, and 6% of our 2002, 2001, 2000,
      1999 and 1998 net sales. Doaks other products accounted for approximately
      2%, 3%, 6%, 7%, and 9% of our 2002, 2001, 2000, 1999 and 1998 net sales.
      All of Doaks products are categorized below as dermatologic products.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our 2002, 2001,
2000, 1999 and 1998 net sales volume percentages by  category were as follows:
|----------------------------------------------------------------------------------------------

|                 | 2002 | 2001 | 2000 | 1999 | 1998
|---------------- | ---- | ---- | ---- | ---- | ----
|                 |      |      |      |      |     
|Dermatology      | 75%  | 60%  | 59%  | 43%  | 40% 
|Gastroenterology | 8%   | 17%  | 9%   | 8%   | 2%  
|Respiratory      | 11%  | 14%  | 19%  | 39%  | 49% 
|Nutritional      | 5%   | 8%   | 12%  | 8%   | 6%  
|Hygiene          | 1%   | 1%   | 1%   | 2%   | 3%  

|Sales of our
DECONAMINE® and BRONTEX® product lines and other  cough/cold/flu products are
primarily concentrated in the fall and winter  months. Consequently, revenues from these
products generally are, and will be,  determined by the severity of the cough/cold/flu
season.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our principal
marketing focus is on the sales of branded pharmaceutical  products. We have a national
sales force of approximately 90 sales  representatives, which is comprised of both full
and part time employees as well  as independent contractors whose sole focus is the
distribution of samples. Our  marketing and sales promotions principally target key high
volume prescribing  doctors through detailing and sampling to encourage physicians to
prescribe or  recommend our products.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The sales force is
supported and supplemented chiefly by telemarketing  and direct mail, and to a lesser
extent through advertising in trade  publications and participation at regional and
national medical conventions. We  identify and target high potential physicians through
data available from such  companies as IMS America, Ltd. and NDC Health, suppliers of
prescriber  prescription data. We intend to seek new markets in which to promote our
product  lines and will continue expansion of our field sales force as product growth or
product acquisitions warrant.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In the past couple
of years, we have made a strategic decision to  concentrate selling and marketing
resources on five principal brands (which  represented 85%, 82%, 72%, 50% and 26% of
2002, 2001, 2000, 1999 and 1998 net  sales, respectively) as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Kenwood Brands                       |  | Specialty                               
|------------------------------------ |  | ----------------------------------------
|                                     |  |                                         
|PAMINE®                              |  | Gastroenterologists, Internal Medicine  
|                                     |  |                                         
|                                     |  |                                         
|GLUTOFAC® FAMILY                     |  | General Practitioners, Internal Medicine
|                                     |  |                                         
|                                     |  |                                         
|Doak Brands                          |  | Specialty                               
|                                     |  |                                         
|CARMOL® FAMILY                       |  | Dermatologists,Podiatrists              
|TRANS  VER  SAL®                   | 
|ACIDMANTLE®/ LIDAMANTLE®/
        HC | 

|To facilitate
sales of our products internationally (sales into Puerto  Rico were terminated in 2002),
we have entered into agreements with 28  international pharmaceutical distributors to
provide for distribution and  promotion
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8 | 
| | - | 



---



|of these products. Approximately 4%, 7%, 11%, 9%
and 11%,  respectively, of our 2002, 2001, 2000, 1999 and 1998 net sales were from
international business.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------



|We continue to
seek out new distributors and are currently in the  process of obtaining market approvals
in at least 10 new countries. Although we  anticipate receiving the necessary approvals
to market our products in these  countries, there can be no assurance that such approvals
will be received.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We or our
international distributions have received product  registrations to distribute products
in certain international markets as  follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------

|OUR INTERNATIONAL MARKETING
      STATUS
|----------------------------------------
|CURRENTLY MARKETING                     
|Andorra                                 
|                                        
|Argentina                               
|                                        
|Belgium                                 
|                                        
|Brunei                                  
|                                        
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|Canada                                  
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|Chile                                   
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|Dominican Republic                      
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|El Salvador                             
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|Finland                                 





| | 9 | 
| | - | 



---





|Customers
|---------



|Our customers
include certain of the nations leading wholesale  pharmaceutical distributors, such as
Cardinal Health, Inc., McKesson  Corporation, Quality King Distributors,
AmerisourceBergen Corporation and major  drug chains. Our four largest customers listed
below, who are wholesalers,  accounted for an aggregate of approximately 86% and 92% of
accounts receivable  at December 31, 2002 and 2001, respectively. On December 31, 2002,
McKesson  Corporation owed approximately $2,653,000 to the Company or approximately 45%
of  our accounts receivable. On December 31, 2001, Quality King Distributors owed
approximately $3,090,000 to the Company or 56% of our accounts receivable. The  following
table presents a summary of sales to significant customers, who are  also wholesalers, as
a percentage of the Companys total gross sales:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Customer                      | 2002 | 2001 | 2000
|----------------------------- | ---- | ---- | ----
|AmerisourceBergen Corporation | 17%  | 12%  | 23% 
|Cardinal Health, Inc.         | 24%  | 20%  | 27% 
|McKesson Corporation          | 26%  | 11%  | 11% 
|Quality King Distributors     | 23%  | 40%  | 18% 



|Competition
|-----------



|The pharmaceutical
industry is highly competitive. We compete primarily  in the dermatology and
gastroenterology markets, and to a lesser extent, in  respiratory and nutritional
supplements. In dermatology, we estimate that  currently the market share for CARMOL®
40 is approximately 25% for xerosis. In  gastroenterology, we estimate that currently the
market share for Pamine® is  less than 5% for prescription antispasmodics
anticholinergics.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Many of our
competitors are large, well-established companies in the  fields of pharmaceuticals,
chemicals, cosmetics and health care. Our competitors  include Wyeth, Schering-Plough,
Bristol-Myers, Elan Corporation, First Horizon  Pharmaceuticals, Galderma, Dermik Labs,
King Pharmaceuticals, Medicis  Pharmaceutical, Ortho Pharmaceuticals, ICN
Pharmaceuticals, GlaxoSmithKline,  Pharmacia, Pfizer and others. Many of these companies
have greater resources  than we do to devote to marketing, sales, research and
development and  acquisitions. As a result, they have a greater ability than us to
undertake more  extensive research and development, marketing and pricing policy programs.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition to our
facing competition from existing products, it is  also possible that our competitors may
develop and bring new products to market  before us, or may develop new technologies to
improve existing products, new  products to provide the same benefits as existing
products at less cost, or new  products to provide benefits superior to those of existing
products. These  competitors also may develop products which make our current or future
products  obsolete. Our competitors may also make technological advances reducing their
cost of production so that they may engage in price competition through  aggressive
pricing policies to secure a greater market share to our detriment.  Any of these events
could have a significant negative impact on our business and  financial results,
including reductions in our market share and gross margins.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Additionally,
since our current products are generally established and  commonly sold, they are subject
to competition from products with similar  qualities. Our pharmaceutical products may be
subject to competition from  alternate therapies during the period of patent protection,
if applicable, and  thereafter from generic equivalents. The manufacturers of generic
products  typically do not bear the related research and development costs or the
invested  capital in acquired brands and consequently are able to offer such products at
considerably lower price. There are, however, a number of factors that enable  products
to remain profitable once patent protection has ceased, including the  establishment of a
strong brand image with the prescriber or the consumer,  supported by the development of
a broader range of alternative formulations than  the manufacturers of generic products
typically supply.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|See ITEM 3:
Legal Proceedings for a description of certain litigation against Dermik
Laboratories, Inc. and its  parent, Aventis Pharmaceuticals Inc., a wholly owned
subsidiary of Aventis Pharma AG.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10 | 
| | -- | 



---





|Government Regulation
|---------------------



|Virtually all
aspects of our activities are regulated by federal and  state statutes and government
agencies. The manufacturing, processing,  formulation, packaging, labeling, distribution
and advertising of our products,  and disposal of waste products arising from these
activities, are subject to  regulation by one or more federal agencies, including the
FDA, the Drug  Enforcement Agency, the Federal Trade Commission, the Consumer Product
Safety  Commission, the U.S. Department of Agriculture, the Occupational Safety and
Health Administration and the Environmental Protection Agency, as well as by  foreign
governments in countries where we distribute some of our products.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Noncompliance with
applicable FDA policies or requirements could  subject us to enforcement actions, such as
suspensions of distribution, seizure  of products, product recalls, fines, criminal
penalties, injunctions, failure to  approve pending drug product applications or
withdrawal of product marketing  approvals. Similar civil or criminal penalties could be
imposed by other  government agencies or various agencies of the states and localities in
which  our products are manufactured, sold or distributed and could have ramifications
for our contracts with government agencies such as the Veterans Administration  or the
Department of Defense. These enforcement actions would detract from  managements ability
to focus on our daily business and would have an adverse  effect on the way we conduct
our daily business, which could severely impact  future profitability.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|All manufacturers,
marketers and distributors of human pharmaceutical  products are subject to regulation by
the FDA. New drugs must be the subject of  an FDA-approved new drug application before
they may be marketed in the United  States. Some prescription and other drugs are not the
subject of an approved  marketing application but, rather, are marketed subject to the
FDAs regulatory  discretion and/or enforcement policies. Any change in the FDAs
enforcement  discretion and/or policies could alter the way we have to conduct our
business  and any such change could severely impact our future profitability.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The FDA has the
authority and discretion to withdraw existing marketing  approvals and to review the
regulatory status of marketed products at any time.  For example, the FDA may require an
approved marketing application or additional  studies for any drug product marketed if
new information reveals questions about  a drugs safety or efficacy. All drugs must be
manufactured in conformity with  current agency regulations, and drug products subject to
an approved application  must be manufactured, processed, packaged, held and labeled in
accordance with  information contained in the approved application.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Although we
believe that all of our currently marketed pharmaceutical  products comply with FDA
enforcement policies, our marketing is subject to  challenge by the FDA at any time.
Through various enforcement mechanisms, the  FDA can ensure that noncomplying drugs are
no longer marketed. In addition,  modifications, enhancements or changes in manufacturing
sites of approved  products are in many circumstances subject to additional FDA approvals
which may  or may not be received and which may be subject to a lengthy FDA review
process.  Our third-party manufacturers are continually subject to inspection by
governmental agencies. Manufacturing operations could be interrupted or halted  in any of
those facilities if a government or regulatory authority is  dissatisfied with the
results of an inspection. Any interruptions of this type  could stop or slow the delivery
of our products to our customers.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Certain of our
pharmaceutical products are sold over-the-counter.  These products are subject to FDA
regulations known as monographs, which specify  permissible active ingredients, labeling
and indications. The monographs are  subject to change. No assurance can be given that
future FDA enforcement or  regulatory decisions or changes to monographs will not hamper
our marketing  efforts or render our products unlawful for commercial sale, causing us to
withdraw our products from the marketplace or spend substantial funds  reformulating the
products.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Once the FDA, in respect to
      a product, issues a final monograph, the product is required to convert
      from prescription status to over-the-counter status. Recently, the final
      monograph for our DECONAMINE® and BRONTEX®
      immediate release products has been issued thereby requiring some of our
      DECONAMINE® and
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11 | 
| | -- | 



---





|BRONTEX® immediate release
      products to convert from prescription status to over-the-counter status
      by December 31, 2004. We currently intend to continue to market and distribute
      the DECONAMINE® and BRONTEX®
      immediate release products line of products as prescription only as long
      as we may lawfully continue to do so. We are presently exploring our marketing
      and distribution strategy relating to the DECONAMINE®
      and BRONTEX® immediate release products
      after these products are converted from prescription status to over-the-counter
      status, and it is not currently possible to predict how our operations and
      financial condition will be affected.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Further, we may be required
      to file an Abbreviated New Drug Application, an ANDA, with the FDA for our
      DECONAMINE® SR, extended release product.
      The project is being deferred until regulatory and competitive circumstances
      warrant completion and submission to the FDA.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We currently are
the registered holders of one New Drug Application  for PAMINE® and two Abbreviated New
Drug Applications for TYZINE® and  CARMOL® HC. These applications, approved by the
FDA, permit companies to  market products either considered by the FDA to be new drugs or
drugs previously  approved by the FDA.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We currently
market, sell, and distribute ANAMANTLE®HC, CARMOL®40,  CARMOL® SCALP TREATMENT,
LIDAMANTLE®, LIDAMANTLE®HC, and ROSULA® as  exempt drugs not requiring a NDA or an
ANDA because these products have been  considered by us to be identical, related, and
similar to products that existed  on the market prior to 1962. The FDA has set 1962 as
the cut off year for  determining new technologies to be included in products or drugs
for which NDA  or ANDA filings would be required prior to commercialization.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Managed Care Organizations
|--------------------------



|Our operating
results and business success depend in large part on  the availability of adequate
third-party payor reimbursement to patients for our  prescription-brand products. These
third-party payors include governmental  entities, such as Medicaid, private health
insurers and managed care  organizations, such as Advance PCS, Aetna, Cigna, Harvard
Pilgram, and  Merck-Medco. A majority of the U.S. population now participates in some
version  of managed care. Because of the size of the patient population covered by
managed care organizations, marketing of prescription drugs to it and the  pharmacy
benefit managers that serve many of these organizations are important  to our business.
Managed care organizations and other third-party payors try to  negotiate the pricing of
medical services and products to control their costs.  Managed care organizations and
pharmacy benefit managers typically develop  formularies to reduce their cost for
medications. Formularies can be based on  the prices and therapeutic benefits of the
available products. Due to their  lower costs, generic products are often favored. The
breadth of the products  covered by formularies varies considerably from one managed care
organization to  another, and many formularies include alternative and competitive
products for  treatment of particular medical conditions. Exclusion of a product from a
formulary can lead to its sharply reduced usage in the managed care organization  patient
population. Payment or reimbursement of only a portion of the cost of  our prescription
products could make our products less attractive, from a  net-cost perspective, to
patients, suppliers and prescribing physicians. Changes  in the reimbursement policies of
these entities could prevent our branded  pharmaceutical products from competing on a
price basis. If our products are not  included within an adequate number of formularies
or if adequate reimbursement  levels are not provided, or if reimbursement policies
increasingly favor generic  products, our market share, our gross margins and our overall
business and  financial condition could be negatively affected.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Moreover, some of
our products are not of a type generally eligible for  reimbursement, primarily due to
either the products market share being too low  to be considered, cheaper generics being
available or because the product is  considered over-the-counter. It is also possible
that products manufactured by  others could have the same effects as our products and be
subject to  reimbursement. If this were the case, some of our products might be unable to
compete on a price basis.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 12 | 
| | -- | 



---





|Patents and Trademarks
|----------------------



|The products
currently sold by us, with the exception of  ANAMANTLE®HC, CARMOL® 40, ENTSOL®
Adaptor, and ROSULA® are not patented  or patent pending in the U.S. We intend to
pursue patents where cost-effective  and practical, although we do not currently intend
to apply for patents for all  of our products. Products with benefits similar to those
marketed by us could  easily be developed by other companies.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We currently own
the following patents that were issued by the United  States Patent and Trademark Office:
|----------------------------------------------------------------------------------------------------------

|Title                                                                                | Patent Number | Expiration Date    | Products Covered
|------------------------------------------------------------------------------------ | ------------- | ------------------ | ----------------
|DermatologicalComposition                                                            | US #5,919,470 | April 2, 2018      | CARMOL® 40      
|                                                                                     |               |                    |                 
|Method of TreatingOnychomycosis                                                      | US #6,281,239 | April 12, 2020     | CARMOL® 40      
|                                                                                     |               |                    |                 
|Method of TreatingOnychomycosis                                                      | US #6,380,236 | April 12, 2020     | CARMOL® 40      
|                                                                                     |               |                    |                 
|Nasal Irrigation System                                                              | US #5,899,878 | June 24, 2018      | ENTSOL® Adaptor 
|                                                                                     |               |                    |                 
|Composition ContainingAntimicrobials/Urea forthe Treatment ofDermatologicalDisorders | US #6,429,231 | September 24, 2021 | ROSULA®         
|                                                                                     |               |                    |                 
|Novel Topical withAntipruritus and/orAnti-Inflammatory Drug                          | US #6,495,602 | December 13, 2021  | None            



|We currently maintain patents
      for TRANSVERSAL®
      in other countries with various expiration dates. In addition, we have eleven
      patents pending with the United States Patent Office.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We own trademarks
associated with each of our products, including  certain national and international
trademark registrations, or common law  rights, for each of our material products. No
assurance can be given as to the  extent or scope of the trademarks or other proprietary
protection secured by us  on our products. To our knowledge, none of the trademarks owned
by us infringe  on any trademarks owned or used by others.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Human Resources
|---------------



|As of March 1,
2003, we employed 132 full and 49 part-time employees.  We also maintain active
independent contractor relationships with various  individuals with whom we have
consulting agreements. We believe that our  relationships with our employees are good.
None of our employees are subject to  a collective bargaining agreement.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Web Site Access to Filings with the
Securities and Exchange Commission
|----------------------------------------------------------------------



|All of our
electronic filings with the Securities and Exchange  Commission (SEC),
including the Annual Report on Form 10-K, Quarterly Reports  on Form 10-Q, Current
Reports on Form 8-K and amendments to these reports filed  or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act  of 1934, are made available at no
cost through our web site, www.bradpharm.com,  as soon as reasonably practicable after we
file such material with, or furnish  it to, the SEC. Our SEC filings are also available
through the SECs web site at  www.sec.gov.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Scientific Advisors
|-------------------



|We have formed a
group of scientific advisors having extensive  experience in the areas in which we market
our products to advise us in  long-range planning and product development. The following
sets forth  information with respect to our Scientific Advisors:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 13 | 
| | -- | 



---





|Boni E. Elewski,
M.D. is Director of Clinical Research for the Department of Dermatology and a professor
at the University of Alabama at Birmingham. Dr. Elewski was awarded a B.A. from Miami
University and received her M.D. from Ohio State University College of Medicine. Dr.
Elewski serves as President of the American Academy of Dermatology, the largest and most
influential dermatologic association. She has authored more than 130 publications and is
a member of the editorial board of the Journal of the American Academy of Dermatology.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Cory A. Golloub,
M.D. is a doctor of internal medicine and pediatrics  currently practicing in Montville,
New Jersey. Dr. Golloub received his B.S.  from SUNY Stony Brook and his M.D. from the
University of Medicine, Tampico,  Mexico with postgraduate affiliations with SUNY
Downstate - Brookdale Hospital  and UMDNJ - New Jersey Medical School. Dr. Golloub is
currently affiliated with  UMDNJ-NJMS, University Hospital and Chilton Memorial Hospital
in New Jersey.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Stephen M. Gross,
Ed.D. is Dean of the Arnold and Marie Schwartz  College of Pharmacy & Health
Sciences, and of the School of Health Professions,  Long Island University. Dr. Gross was
awarded a B.S. degree in pharmacy in 1960,  and earned his M.A. and Ed.D. degrees in
college and university administration  in 1969 and 1975, respectively, from Columbia
University. Dr. Gross expertise  is in the area of pharmacy administration, where he has
authored numerous  articles on a variety of subjects, including cost-effectiveness of
drug therapy,  pharmaceutical advertising, and other educational and pharmacy practice
topics.  Dr. Gross is also a member of the New York State Board of Pharmacy.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|James J. Leyden, M.D. is a
      board certified dermatologist currently on the staff of the Department of
      Dermatology in the Hospital of the University of Pennsylvania. Dr. Leyden
      received his B.A. from Saint Josephs College and his M.D. from The
      University of Pennsylvania School of Medicine. Dr. Leyden has authored more
      than 300 publications and served as an editor for publications such as theJournal of the American Academy of Dermatology and The Journal of
      Microbial Ecology in Health and Disease and has held the position of
      Editor-in-Chief of Cutaneous Aging and Cosmetic Dermatology. Dr.
      Leyden is a member of the American Academy of Dermatology, the Society of
      Investigative Dermatology and the Society of Pediatric Dermatology.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Bryan Craig
Markinson, D.P.M. is Chief of Podiatric Medicine and  Surgery and Assistant Clinical
Professor of Orthopedics and Pathology at Mount  Sinai School of Medicine. Dr. Markinson
also is an adjunct professor, Division  of Medical Sciences, for the New York College of
Podiatric Medicine. Dr.  Markinson was awarded a B.S. from Long Island University and a
D.P.M. from the  New York College of Podiatric Medicine.. Dr. Markinson has served on the
staffs  of Metropolitan Hospital, New York Methodist Hospital, New York Community
Hospital of Brooklyn and Foot Clinics of New York. He is a member of the  American
Podiatric Medical Association, the New York State Podiatric Medical  Association and a
Fellow of the American Society of Podiatric Dermatology.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Alan R. Shalita,
M.D. is a board certified dermatologist and currently Professor and Chairman of the
State University of New York Health Science Center at Brooklyn. Dr. Shalita received his
B.S. from University of  Brussels, Belgium and M.D. from Bowman Gray School of Medicine.
Dr. Shalita is licensed in  New Jersey, North Carolina, California and Florida.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Mitchell J. Spirt,
M.D. is a doctor of internal medicine currently on faculty as Assistant Clinical
Professor of Medicine at the UCLA School of Medicine, California.  Dr. Spirt received his
B.S. from University of  New York at Binghamton and received his M.D. from Mount Sinai
Medical Center in New York. Dr. Spirt performed his  internship and residency at Mount
Sinai Medical Center, New York, and was a Fellow at the University of  California at Los
Angeles (UCLA).
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Gerald N. Wachs,
M.D. is a doctor of dermatology currently practicing in Millburn, New Jersey.  Dr.  Wachs
received his B.S. and M.D. from the University of Illinois.  Dr. Wachs is currently
affiliated with  St. Barnabas Hospital and Overlook Hospital in New Jersey and is a
consulting dermatologist for the New Jersey  Nets and New Jersey Devils.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 14 | 
| | -- | 



---





|Risk Factors That May Affect Future Results
|-------------------------------------------



|We provide the
following discussion of risks and uncertainties relevant  to our business. These are
factors that we think could cause our actual results  to differ materially from expected
and historical results. We could also be  adversely affected by other factors besides
those listed here.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Risks Related To Our Business
|-----------------------------



|We derive a majority of our prescription volume from
      our core branded products, and any factor adversely affecting the prescription
      volume related to these products could harm our business, financial condition
      and results of operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We derive a
majority of our prescription volume from our core  branded products. We believe that the
prescription volume of our core branded  products will constitute the majority of our
prescription volume for the  foreseeable future. Accordingly, any factor adversely
affecting our prescription  volume related to our core products, individually or
collectively, could harm  our business, financial condition and results of operations.
Many of our core  branded products are subject to generic competition currently or may be
in the  near future. Each of our core branded products could be rendered obsolete or
uneconomical by regulatory or competitive changes. Prescription volume related  to our
core branded products could also be adversely affected by other factors,  including:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | manufacturing
or supply interruptions;
| | - |  | --------------------------------------

| |  |  | the
development of new competitive pharmaceuticals and technological advances to treat the
conditions  addressed by our core branded products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | marketing
or pricing actions by one or more of our competitors;
| | - |  | ---------------------------------------------------------------

| |  |  | legal
or regulatory action by the FDA and other government regulatory agencies;
| | - |  | -------------------------------------------------------------------------------

| |  |  | changes
in the prescribing practices of dermatologists, gastroenterologists and/ or podiatrists;
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | restrictions
on travel affecting the ability of our sales force to market to prescribing physicians in
person;
| | - |  | --------------------------------------------------------------------------------------------------------------

| |  |  | changes
in the reimbursement or substitution policies of third-party payors or retail pharmacies;
| | - |  | -------------------------------------------------------------------------------------------------

| |  |  | product
liability claims; and
| | - |  | -----------------------------

| |  |  | the
outcome of disputes relating to trademarks, patents, license agreements and other rights.
| | - |  | ---------------------------------------------------------------------------------------------



|Failure to maintain CARMOL® as a
significant portion of revenue could reduce  our profitability.
|------------------------------------------------------------------------------------------------



|Our lead product
line is the CARMOL® family of products for the  treatment of a variety of
dermatological conditions. CARMOL® 40, the lead  product in the group, is a potent
tissue softener for the treatment of skin  conditions associated with the thickening and
hardening of the skin including  xerosis. The CARMOL® product line predominantly
competes in the $150 million  mild-to-moderate skin-softening product class, which
includes the products  Lac-Hydrin®, Eucerin®, Amlactin®, Aquaphor® and others.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the fiscal
years ended December 31, 2002, 2001, and 2000, sales of  our CARMOL® product line
accounted for approximately 61%, 45%, and 41%,  respectively, of our net sales. Thus, we
depend on our ability to market and  sell the CARMOL® product line. The concentration
of our net sales in a single  product line makes us particularly dependent on that line.
If demand for the  CARMOL® product line or any other material product line decreases
and we fail  to replace those sales, our revenues and profitability would decrease.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 15 | 
| | -- | 



---





|If we lose our  lawsuit  against  Dermik
Laboratories,  Inc.  and  Aventis  Pharmaceuticals,  Inc.,  our sales and  profitability
from CARMOL®40 could decrease.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------



|On January 29,
2003, we commenced legal proceedings against Dermik  Laboratories, Inc. and its parent,
Aventis Pharmaceuticals Inc., a wholly owned  subsidiary of Aventis Pharma AG, alleging,
among other things, the infringement  by Dermik and Aventis of three patents owned by us
relating to 40% urea  dermatological compositions and therapeutic uses. 40% urea is the
key component  of CARMOL® 40, our patent-protected dermatological treatment. For the
fiscal  years ended December 31, 2002, 2001, and 2000, sales of our CARMOL®40 products
accounted for approximately 59%, 40%, and 32%, respectively, of our net sales.  The
timing and the ultimate final outcome of our patent infringement lawsuit are  uncertain.
If a competing 40% urea product is launched, whether as a result of  our current
litigation against Dermik and Aventis or otherwise, our CARMOL®40  sales and profits
could materially suffer. See ITEM 3: Legal Proceedings.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our operating results and financial condition may fluctuate.
|------------------------------------------------------------



|Our operating
results and financial condition may fluctuate from  quarter to quarter and year to year
depending upon the relative timing of events  or uncertainties which may arise. The
following events or occurrences, among  others, could cause fluctuations in our financial
performance from period to  period:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | changes
in the amount we spend to develop, acquire or license new products, technologies or
businesses;
| | - |  | -------------------------------------------------------------------------------------------------------

| |  |  | changes
in the amount we spend to promote our products;
| | - |  | -------------------------------------------------------

| |  |  | delays
between our expenditures to acquire new products, technologies or businesses and the
generation  of revenues from those acquired products, technologies or businesses;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | changes
in treatment practices of physicians that currently prescribe our products;
| | - |  | -----------------------------------------------------------------------------------

| |  |  | changes
in reimbursement policies of health plans and other similar  health insurers, including
changes that affect newly developed or  newly acquired products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | increases
in the cost of raw materials used to manufacture our products;
| | - |  | ------------------------------------------------------------------------

| |  |  | manufacturing
and supply interruptions, including failure to comply with manufacturing specifications;
| | - |  | ------------------------------------------------------------------------------------------------------

| |  |  | development
of new competitive products by others;
| | - |  | --------------------------------------------------

| |  |  | the
mix of products that we sell during any time period;
| | - |  | --------------------------------------------------------

| |  |  | our
responses to price competition;
| | - |  | -----------------------------------

| |  |  | expenditures
as a result of legal actions;
| | - |  | ------------------------------------------

| |  |  | market
acceptance of our products;
| | - |  | ----------------------------------

| |  |  | the
impairment and write-down of goodwill or other intangible assets;
| | - |  | ---------------------------------------------------------------------

| |  |  | implementation
of new or revised accounting, securities, tax, or corporate responsibility rules,
policies, regulations or laws;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

| |  |  | disposition
of non-core products, technologies and other rights;
| | - |  | ----------------------------------------------------------------



| | 16 | 
| | -- | 



---





| |  |  | termination
or expiration of, or the outcome of disputes relating to, trademarks, patents, license
agreements and other rights;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

| |  |  | increases
in insurance rates for existing products and the cost of insurance for new products;
| | - |  | ----------------------------------------------------------------------------------------------

| |  |  | general
economic and industry conditions, including changes in  interest rates affecting returns
on cash balances and investments,  that affect customer demand;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | seasonality
of demand for our products; and
| | - |  | -------------------------------------------

| |  |  | our
level of research and development activities.
| | - |  | -------------------------------------------------



|Because we rely on independent manufacturers
for our products, any regulatory or  production problems could affect our product supply.
|--------------------------------------------------------------------------------------------------------------------------------------



|We do not own or
operate any manufacturing or production facilities.  Instead, approximately 20
independent companies manufacture and supply all of  our products. Many of these
companies also manufacture and supply products for  some of our competitors. We do not
have licensing or other supply agreements  with many of these manufacturers or suppliers
for our products, and therefore,  many of them could terminate their relationship with us
at any time, thereby  hampering our ability to deliver and sell the manufactured product
to our  customers and negatively affecting our operating margins. From time to time, we
have experienced minor delays in shipments from some of our vendors due to  production
management problems, which were subsequently shipped without a  material impact on our
profitability. Although we believe we can obtain  replacement manufacturers, the absence
of such agreements with our present  suppliers may interrupt our ability to sell our
products and seriously affect  our present and future sales. Currently, all of the
CARMOL® product lines,  except CARMOL® HC, are contract manufactured by Groupe
Parima, Inc. Any delays  in manufacturing or shipping products by Groupe Parima may
affect our product  supply and ultimately have a negative impact on our sales and
profitability.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under our supply
agreements that we do have, with certain exceptions,  we must purchase certain of our
product supply from specific manufacturers. If  any of these exclusive manufacturer or
supplier relationships were terminated,  we would be forced to find a replacement
manufacturer or supplier. The FDA  requires that all manufacturers used by pharmaceutical
companies comply with the  FDAs regulations, including the cGMP regulations applicable
to manufacturing  processes. The cGMP validation of a new facility and the approval of
that  manufacturer for a new drug product may take a year or more before manufacture  can
begin at the facility. Delays in obtaining FDA validation of a replacement  manufacturing
facility could cause an interruption in the supply of our  products. Although we have
business interruption insurance covering the loss of  income for up to 12 months, which
may mitigate the harm to us from the  interruption of the manufacturing of our products
caused by certain events, the  loss of a manufacturer could still cause a reduction in
our sales, margins and  market share, as well as harm our overall business and financial
results.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our reliance on third-party manufacturers and suppliers
      can be disruptive to our inventory supply.
|--------------------------------------------------------------------------------------------------------



|We, and the
manufacturers of our products, rely on suppliers of raw  materials used in the production
of our products. Some of these materials are  available from only one source and others
may become available from only one  source. Any disruption in the supply of raw materials
or an increase in the cost  of raw materials to our manufacturers could have a
significant effect on their  ability to supply us with our products.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We try to maintain
inventory levels that are no greater than  necessary to meet our current projections. Any
interruption in the supply of  finished products could hinder our ability to timely
distribute finished  products. If we are unable to obtain adequate product supplies to
satisfy our  customers orders, we may lose those orders and our customers may cancel
other  orders and stock and sell competing products. This, in turn, could cause a loss
of our market share and reduce our revenues.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We cannot be
certain that supply interruptions will not occur  or that our inventory will always be
adequate.
|-------------------------------------------------------------------------------------------------------------



| | 17 | 
| | -- | 



---





|Numerous factors could cause  interruptions in
the supply of our finished products including:
|---------------------------------------------------------------------------------------------

| |  |  | timing,
scheduling and prioritization of production by our current manufacturers;
| | - |  | ---------------------------------------------------------------------------------

| |  |  | labor
interruptions;
| | - |  | --------------------

| |  |  | changes
in our sources for manufacturing;
| | - |  | -----------------------------------------

| |  |  | the
timing and delivery of domestic and international shipments;
| | - |  | ----------------------------------------------------------------

| |  |  | our
failure to locate and obtain replacement manufacturers as needed on a timely basis; and
| | - |  | -------------------------------------------------------------------------------------------

| |  |  | conditions
affecting the cost and availability of raw materials.
| | - |  | ----------------------------------------------------------------



|We estimate
customer demand for our products primarily through use of  third party syndicated data
sources which track prescriptions written by health  care providers and dispensed by
licensed pharmacies. These data are  extrapolations from information provided only by
certain pharmacies, and are  estimates of historical demand levels. We observe trends
from these data, and,  coupled with certain proprietary information, and prepare demand
forecasts that  are the basis for purchase orders for finished and component inventory
from our  third party manufacturers and suppliers. Our forecasts may fail to accurately
anticipate ultimate customer demand for products. Overestimates of demand may  result in
excessive inventory production; underestimates may result in  inadequate supply of our
products in channels of distribution.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We sell our
products primarily to major wholesalers and retail  pharmacy chains. Consistent with
pharmaceutical industry patterns, approximately  90% of our revenues are derived from
four major drug wholesalers. While we  attempt to estimate inventory levels of our
products at our major wholesale  customers, using historical prescription information and
historical purchase  patterns, this process is inherently imprecise. Rarely do wholesale
customers  provide us complete inventory levels at regional distribution centers, or
within  their national distribution systems. We rely wholly upon our wholesale and drug
chain customers to effect the distribution allocation of our products. There can  be no
assurance that these customers will adequately manage their local and  regional
inventories to avoid spot outages. Based upon historically consistent  purchasing
patterns of our major wholesale customers, we believe our estimates  of trade inventory
levels of our products are reasonable. We further believe  that inventories of our
products among wholesale customers, taken as a whole,  are similar to those of other
specialty pharmaceutical companies, and that our  trade practices, which periodically
involve volume discounts and early payment  discounts, are typical of the industry.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We cannot control
or influence greatly the purchasing patterns  of wholesale and retail drug chain
customers. These are highly sophisticated  customers that purchase our products in a
manner consistent with their industry  practices and perceived business interests. Our
sales are subject to the  purchase requirements of our major customers, which,
presumably, are based upon  their projected demand levels. Purchases by any given
customer, during any given  measurement period, may be above or below actual prescription
volumes of one or  more of our products during the same measurement period, resulting in
increases  or decreases in product inventory existing in the distribution channel, which
are managed presumably in accordance with such customers business practices.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|If we cannot purchase or integrate new
companies or products, our business may  suffer.
|---------------------------------------------------------------------------------------



|Our principal
strategy is to continue to expand our business by  acquiring companies and new products,
as well as product line extensions, new  product development, and increased marketing and
distribution activities. We  seek products and companies that we believe can be
profitable under our  management and which are not subject to adverse Food and Drug
Administration  rulings. There are several factors, which could limit or restrict our
ability to  implement this acquisition strategy:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | We
may not have the financing to acquire an available product, in part because our existing
lender has a  security interest in all of our assets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| | 18 | 
| | -- | 



---





| |  |  | We
may not be able to achieve our targeted profit margins with certain products available
for  acquisition;
| | - |  | -----------------------------------------------------------------------------------------------------------

| |  |  | Because
we must be able to maintain adequate operational,  financial and management information
systems and motivate and  effectively manage an increasing number of employees, we may
not  manage our acquisitions effectively;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | We
may not be able to retain or hire the necessary qualified employees.
| | - |  | -----------------------------------------------------------------------



|Sales of newly
acquired products may not be profitable and we may not  achieve anticipated sales levels
for such products. Moreover, while we  anticipate making future acquisitions in
accordance with our strategic plan, we  might be unable to consummate any future
acquisitions or we may not be able to  achieve the same rates of return and historical
sales levels of any acquired  product. Our failure to do so could have a negative effect
on the growth of our  sales and profitability, and on our operations.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|To implement our
expansion strategy, we will need to finance new  product acquisitions from either:
|---------------------------------------------------------------------------------------------------

| |  |  | Our
acquisition credit facility with Wachovia Bank;
| | - |  | ---------------------------------------------------

| |  |  | Existing
working capital and positive cash flow from operations;
| | - |  | ----------------------------------------------------------------

| |  |  | New
borrowings;
| | - |  | ---------------

| |  |  | Issuance
of equity securities; or
| | - |  | ---------------------------------

| |  |  | a
combination of the above.
| | - |  | ---------------------------



|Although we are
not currently prohibited from other borrowings of  money, our loan agreement with
Wachovia restricts our ability to grant liens  upon, and security interests in, our
assets. Wachovias security interest could  limit our ability to secure new asset-based
borrowings if necessary.  Accordingly, we may not be able to borrow, on commercially
reasonable terms or  otherwise, any additional funds necessary to finance further
acquisitions or  support operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our continued growth depends upon our ability
to develop new products.
|----------------------------------------------------------------------



|We currently have
a variety of new products in various stages  of development and are working on possible
improvements, extensions and  reformulations of some existing products. These development
activities, as well  as the clinical testing and regulatory approval process, which must
be completed  before commercial quantities of these developments can be sold, will
require  commitments of personnel and financial resources. Delays in the research,
development, testing or approval processes will cause a corresponding delay in  revenue
generation from those products. Regardless of whether they are ever  released to the
market, the expense of such processes will have already been  incurred.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We reevaluate our
research and development efforts regularly  to assess whether our efforts to develop a
particular product or technology are  progressing at a rate that justifies our continued
expenditures. On the basis of  these reevaluations, we have abandoned in the past, and
may abandon in the  future, our efforts on a particular product or technology. Products
we are  researching or developing may never be successfully released to the market. If
we fail to take a product or technology to market on a timely basis, we may  incur
significant expenses without a near-term financial return.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We may in the
future supplement our internal research and  development by entering into research and
development agreements with other  pharmaceutical companies. We may, upon entering into
such agreements, be  required to make significant up-front payments to fund the project.
We cannot be  sure, however, that we will be able to locate adequate research partners or
that  supplemental research will be available on terms acceptable to us in the
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 19 | 
| | -- | 



---





|future.  If we are unable to enter into
additional research partnership arrangements, we  may incur additional costs to continue
research and development internally or we  may abandon certain projects.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We do not have proprietary protection for
most of our branded pharmaceutical  products, and our sales could suffer from competition
by generic substitutes.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------



|Although most of
our revenue is generated by products not subject to  competition from generic products,
there is no proprietary protection for most  of our branded pharmaceutical products, and
generic substitutes for most of  these products are sold by other pharmaceutical
companies. In addition,  governmental and other pressure to reduce pharmaceutical costs
may result in  physicians prescribing products for which there are generic substitutes.
Increased competition from the sale of generic pharmaceutical products may cause  a
decrease in revenue from our branded products, which could have an adverse  effect on our
business, financial condition and results of operations, which  would likely negatively
affect the market price of our stock. In addition, our  branded products for which there
are no generic form, available may face  competition from different therapeutic agents
used for the same indications for  which our branded products are used.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We depend on our trademarks, patents, and
proprietary rights and our ability to  compete could be limited if they are infringed
upon or if we fail to enforce  them.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The protection of
our trademarks and service marks is an  important factor in product recognition,
maintaining goodwill and in maintaining  or increasing market share. If we do not
adequately protect our rights in our  various trademarks and service marks from
infringement, those marks could be  lost or impaired.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We are pursuing
several U.S. patent applications covering new  and existing dermatology products, and
also have acquired rights under certain  patents and patent applications from certain of
our consultants and officers,  including patents issued or applied covering
ANAMANTLE®HC, CARMOL®40,  ENTSOL® Adaptor, and ROSULA®. The ownership of a patent
or an interest in a  patent does not always provide significant protection and the
patents and  applications in which we have an interest may be challenged as to their
validity  or enforceability. Others may independently develop similar technologies or
design around the patented aspects of our technology. Challenges may result in
potentially significant harm to our business. The cost of responding to these  challenges
and the inherent costs to defend the validity of our patents,  including the prosecution
of infringements and the related litigation, could be  substantial. Such litigation also
could require a substantial commitment of  managements time, which would detract from
the time available to be spent  maintaining and developing our business. We also rely
upon unpatented  proprietary know-how and continuing technological innovation in
developing and  manufacturing many of our principal products. We require all of our
employees,  consultants and advisors to enter into confidentiality agreements prohibiting
them from taking or using our proprietary information and technology elsewhere.
Nevertheless, these agreements may not provide meaningful protection for our  trade
secrets and proprietary know-how if they are used or disclosed. Despite  all of the
precautions we may take, people who are not parties to  confidentiality agreements may
obtain access to our trade secrets or know-how.  In addition, others may independently
develop similar or equivalent trade  secrets or know-how.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We could be sued regarding the intellectual
and proprietary rights of others,  which could seriously harm our business and cost us a
significant amount of time  and money.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We only conduct
patent searches to determine whether our products  infringe upon any existing patents
when we think such searches are appropriate.  As a result, the products and technologies
we currently market, and those we may  market in the future may infringe on patents and
other rights owned by others.  If we are unsuccessful in any challenge to the marketing
and sale of our  products or technologies, we may be required to license the disputed
rights, if  the holder of those rights is willing, or to cease marketing the challenged
products, or to modify our products to avoid infringing upon those rights.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have several
patents issued or applied covering ANAMANTLE®HC,  CARMOL®40, ENTSOL® Adaptor, and
ROSULA®. These patents and patent  applications may be subject to claims of rights by
third parties. If there are  conflicting claims to the same patent or patent application,
we may not prevail  and, even if we do have
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 20 | 
| | -- | 



---





|some rights in a patent or application, those
rights may  not be sufficient for the marketing and distribution of products covered by
the  patent or application.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------



|Although we
believe that our product lines do not infringe on the  intellectual property rights of
others, infringement claims may be asserted  against us in the future, and if asserted,
an infringement claim might not be  successfully defended. The costs of responding to
infringement claims could be  substantial and could require a substantial commitment of
managements time and  resources.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We depend on a limited number of customers,
and if we lose any of them, our  business could be harmed.
|------------------------------------------------------------------------------------------------------



|Our four largest
customers, who are wholesalers, accounted for an  aggregate of approximately 86% and 92%
of accounts receivable at December 31,  2002 and 2001, respectively. On December 31,
2002, McKesson Corporation owed  approximately $2,653,000 to the Company or 45% of our
accounts receivable. On  December 31, 2001, Quality King, Inc. owed approximately
$3,090,000 to the  Company or 56% of our accounts receivable. The following table
presents a  summary of sales to our four largest customers as a percentage of the
Companys  total gross sales:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Customer                      | 2002 | 2001 | 2000
|----------------------------- | ---- | ---- | ----
|AmerisourceBergen Corporation | 17%  | 12%  | 23% 
|Cardinal Health, Inc.         | 24%  | 20%  | 27% 
|McKesson Corporation          | 26%  | 11%  | 11% 
|Quality King, Inc.            | 23%  | 40%  | 18% 



|The loss of any of
these customers accounts or a reduction in their  purchases could harm our business,
financial condition or results of operations.  In addition, we may face pricing pressures
from our larger customers.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Consolidation of distributors of
pharmaceutical products can negatively affect  our distribution terms and sales of our
products.
|---------------------------------------------------------------------------------------------------------------------------------



|The distribution
network for pharmaceutical products has, in recent  years, been subject to increasing
consolidation. As a result, a few large  wholesale distributors control a significant
share of the market. As a  consequence, there are fewer channels for wholesale and retail
pharmaceutical  distribution than were historically available. Thus, we depend on fewer
distributors for our products and we are less able to negotiate price terms with
distributors. Although we believe that this consolidation among distributors  will
ultimately reduce our distribution costs, our inability to aggressively  negotiate price
terms with them over the long term, could inhibit our efforts to  achieve targeted profit
margins or sales levels. Notwithstanding our ability to  by-pass the wholesale
distribution network by distributing our products to  end-users directly, the continued
or future consolidation among pharmaceutical  distributors could limit our ability to
compete effectively. In addition, the  number of independent drug stores and small chains
has decreased as retail  consolidation has occurred. Further consolidation among, or any
financial  difficulties of, distributors or retailers could result in the combination or
elimination of warehouses which may result in product returns to our company,  cause a
reduction in the inventory levels of distributors and retailers, or  otherwise result in
reductions in purchases of our products, any of which could  harm our business, financial
condition and results of operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our officers and directors control our
business and can authorize certain  corporate transactions without the concurrence of our
other stockholders.
|----------------------------------------------------------------------------------------------------------------------------------------------------



|Our executive
officers and directors beneficially own 1,864,329 shares  of common stock and 394,634
shares of Class B common stock. The Class B common  stock has five votes per share except
for the election of directors. Provided  there are at least 325,000 shares of Class B
common stock issued and  outstanding, the holders of the Class B common stock, voting as
a separate  class, have the right to elect a majority of our board of directors.
Accordingly, our executive officers and directors currently have the ability,  and we
anticipate that they will continue to have the ability, to elect a  majority of directors
and thereby otherwise authorize certain corporate  transactions without concurrence of
our other stockholders.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 21 | 
| | -- | 



---





|If we become subject to a product liability
claim, we may not have adequate  insurance coverage.
|------------------------------------------------------------------------------------------------



|Pharmaceutical and
health related products, such as those we market,  may carry certain health risks.
Consequently, consumers may bring product  liability claims against us. We maintain a
product liability insurance policy  providing direct coverage in the aggregate amount of
$5,000,000 and our  manufacturers policies also insure us. Our present insurance may not
be  adequate in the event of an adverse judgment against us. If insurance does not  fully
fund any product liability claim, or if we are unable to recover damages  from the
manufacturer of a product that may have caused such injury, we must pay  such claims from
our own funds. Any such payment could have a detrimental effect  on our financial
condition. In addition, we may not be able to maintain our  liability insurance at
reasonable premium rates, if at all.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our business and growth strategy may cause
fluctuating operating results, which  could negatively affect the price of our stock.
|--------------------------------------------------------------------------------------------------------------------------------



|Our primary
strategy for growth is to acquire or license new product  lines that we believe require
intensive marketing and promotional attention. Our  growth strategy also includes
developing and introducing new products through  modest development of existing chemical
entities. Our operating results could be  negatively affected if the cost of developing,
acquiring or licensing new  product lines is more than we currently anticipate or if
unforeseen delays occur  between the time we spend money to acquire new product lines or
businesses, and  the time we begin to generate revenues from those products or businesses.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A large portion of
our business strategy involves intensively  marketing newly-acquired or newly-licensed
product lines by promoting our  products through journal advertising, direct mailings of
promotional materials  to physicians, field force personnel, telemarketing personnel and
sample  distribution. Changes in the amount we spend on such marketing could cause our
operating results to fluctuate, thereby negatively affecting the price of our  stock.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Unanticipated
changes in treatment practices of physicians who  currently prescribe our products, or
changes in the reimbursement policies of  health plans and other health insurers, could
have an impact on our operating  results and require us to revise our business strategy.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We are subject to chargebacks and rebates
when our products are resold to  governmental agencies and managed care buying groups,
which may reduce our  future profit margins.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Chargebacks and
rebates are the difference between the prices at which  we sell our products to
wholesalers and the sales price the end-users, such as  governmental agencies and managed
care buying groups, ultimately pay pursuant to  fixed price contracts. We record an
estimate of the amount either to be charged  back to us or rebated to the end-users at
the time of sale to the wholesaler.  Over recent years, the pharmaceutical industry in
general has accepted the  managed care system of chargebacks and rebates. Managed care
organizations  increasingly began using these chargebacks and rebates as a method to
reduce  overall costs in drug procurement. Levels of chargebacks and rebates have
increased momentum and caused a greater need for more sophisticated tracking and  data
gathering to confirm sales at contract prices to end-users with respect to  related sales
to wholesalers. We have implemented procedures, systems and  policies which we believe
more closely monitor the managed care and government  sales areas of our business. We
record an accrual for chargebacks and rebates  based upon factors including current
contract prices, historical chargeback  rates and actual chargebacks claimed. The amount
of actual chargebacks claimed  could, however, be higher than the amounts we accrue, and
could reduce our  profit margins.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 22 | 
| | -- | 



---





|We selectively outsource certain non-sales and non-marketing
      services, and cannot assure you that we will be able to obtain adequate
      supplies of such services on acceptable terms.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|To enable us to
focus on our core marketing and sales  activities, we selectively outsource certain
non-sales and non-marketing  functions, such as laboratory research, manufacturing and
warehousing. As we  expand our activities in these areas, additional financial resources
are  expected to be utilized. We typically do not enter into long-term manufacturing
contracts with third party manufacturers. Whether or not such contracts exist,  we cannot
assure you that we will be able to obtain adequate supplies of such  services or products
in a timely fashion, on acceptable terms, or at all.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The loss of our key personnel could limit our
ability to operate our business  successfully.
|--------------------------------------------------------------------------------------------



|We are highly
dependent on the principal members of our management  staff, the loss of whose services
we feel would impede the achievement of our  acquisition and development objectives.
Although we believe that we are  adequately staffed in key positions and that we will be
successful in retaining  skilled and experienced management, operational, scientific and
development  personnel, we may not be able to attract and retain key personnel on
acceptable  terms. Many of our key personnel, including Daniel Glassman, President, Chief
Executive Officer and Chairman, would be difficult to replace. The loss of our
personnels services could delay the development of contracts and products,  especially
in light of our recent growth. We do not maintain key-person life  insurance on any of
our employees. In addition, we do not have employment  agreements with any of our key
employees.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Risks Related To Our Industry
|-----------------------------



|We face significant competition within our
industry.
|----------------------------------------------------



|The pharmaceutical
industry is highly competitive. We compete  primarily in the dermatology and
gastroenterology product arenas, and to a  lesser extent in respiratory and nutritional
supplements. In dermatology, we  estimate that currently the market share for CARMOL®40
is approximately 25%  for xerosis. CARMOL® 40, a U.S. patented, internally developed
urea-based  topical therapy prescribed for the treatment of numerous forms and varying
degrees of dry skin or xerosis, removes the surface layer of dead cells and  improves
skin moisture. CARMOL® 40 competes in a $150 million market, which  includes the
product Lac-Hydrin®.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Many of our
competitors are large, well-established companies in the  fields of pharmaceuticals,
chemicals, cosmetics and health care. Our competitors  include Wyeth, Schering-Plough,
Bristol-Myers, Elan Corporation, First Horizon  Pharmaceuticals, Galderma, Dermik Labs,
King Pharmaceuticals, Medicis  Pharmaceutical, Ortho Pharmaceuticals, ICN
Pharmaceuticals, GlaxoSmithKline,  Pharmacia, Pfizer and others. Many of these companies
have greater resources  than we do to devote to marketing, sales, research and
development and  acquisitions. As a result, they have a greater ability than us to
undertake more  extensive research and development, marketing and pricing policy programs.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition to
facing competition from existing products, it is also  possible that our competitors may
develop and bring new products to market  before us, or may develop new technologies to
improve existing products, new  products to provide the same benefits as existing
products at less cost, or new  products to provide benefits superior to those of existing
products. These  competitors also may develop products which make our current or future
products  obsolete. Our competitors may also make technological advances reducing their
cost of production so that they may engage in price competition through  aggressive
pricing policies to secure a greater market share to our detriment.  Any of these events
could have a significant negative impact on our business and  financial results,
including reductions in our market share and gross margins.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Failure to comply with government regulations
could affect our ability to  operate our business.
|------------------------------------------------------------------------------------------------



|Virtually all
aspects of our activities are regulated by federal and  state statutes and government
agencies. The manufacturing, processing,  formulation, packaging, labeling, distribution
and advertising of our products,  and disposal of waste products arising from these
activities, are subject to  regulation by one or more federal agencies,
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 23 | 
| | -- | 



---





|including the FDA, the Drug  Enforcement Agency,
the Federal Trade Commission, the Consumer Product Safety  Commission, the U.S.
Department of Agriculture, the Occupational Safety and  Health Administration, and the
Environmental Protection Agency, as well as by  foreign governments in countries where we
distribute some of our products.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Noncompliance with
applicable FDA policies or requirements could  subject us to enforcement actions, such as
suspensions of distribution, seizure  of products, product recalls, fines, criminal
penalties, injunctions, failure to  approve pending drug product applications or
withdrawal of product marketing  approvals. Similar civil or criminal penalties could be
imposed by other  government agencies or various agencies of the states and localities in
which  our products are manufactured, sold or distributed and could have ramifications
for our contracts with government agencies such as the Veterans Administration  or the
Department of Defense. These enforcement actions would detract from  managements ability
to focus on our daily business and would have an adverse  effect on the way we conduct
our daily business, which could severely impact  future profitability.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|All manufacturers,
marketers, and distributors of human pharmaceutical  products are subject to regulation
by the FDA. New drugs must be the subject of  an FDA-approved new drug application before
they may be marketed in the United  States. Some prescription and other drugs are not the
subject of an approved  marketing application but, rather, are marketed subject to the
FDAs regulatory  discretion and/or enforcement policies. Any change in the FDAs
enforcement  discretion and/or policies could alter the way we have to conduct our
business  and any such change could severely impact our future profitability.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The FDA has the
authority and discretion to withdraw existing marketing  approvals and to review the
regulatory status of marketed products at any time.  For example, the FDA may require an
approved marketing application for any drug  product marketed if new information reveals
questions about a drugs safety or  efficacy. All drugs must be manufactured in
conformity with current agency  regulations, and drug products subject to an approved
application must be  manufactured, processed, packaged, held and labeled in accordance
with  information contained in the approved application.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Although we
believe that all of our currently marketed pharmaceutical  products comply with FDA
enforcement policies, our marketing is subject to  challenge by the FDA at any time.
Through various enforcement mechanisms, the  FDA can ensure that noncomplying drugs are
no longer marketed. In addition,  modifications, enhancements, or changes in
manufacturing sites of approved  products are in many circumstances subject to additional
FDA approvals which may  or may not be received and which may be subject to a lengthy FDA
review process.  Our third-party manufacturers are continually subject to inspection by
governmental agencies. Manufacturing operations could be interrupted or halted  in any of
those facilities if a government or regulatory authority is  unsatisfied with the results
of an inspection. Any interruptions of this type  could stop or slow the delivery of our
products to our customers.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Changes in the reimbursement policies of
managed care organizations and other  third-party payors may reduce our gross margins.
|-------------------------------------------------------------------------------------------------------------------------------



|Our operating
results and business success depend in large part on  the availability of adequate
third-party payor reimbursement to patients for our  prescription-brand products. These
third-party payors include governmental  entities, such as Medicaid, private health
insurers and managed care  organizations. A majority of the U.S. population now
participates in some  version of managed care. Because of the size of the patient
population covered  by managed care organizations, marketing of prescription drugs to it
and the  pharmacy benefit managers that serve many of these organizations has become
important to our business. Managed care organizations and other third-party  payors try
to negotiate the pricing of medical services and products to control  their costs.
Managed care organizations and pharmacy benefit managers typically  develop formularies
to reduce their cost for medications. Formularies can be  based on the prices and
therapeutic benefits of the available products. Due to  their lower costs, generic
products are often favored. The breadth of the  products covered by formularies varies
considerably from one managed care  organization to another, and many formularies include
alternative and  competitive products for treatment of particular medical conditions.
Exclusion  of a product from a formulary can lead to its sharply reduced usage in the
managed care organization patient population. Payment or reimbursement of only a  portion
of the cost of our prescription products could make our products less  attractive, from a
net-cost perspective, to patients,
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 24 | 
| | -- | 



---





|suppliers and prescribing  physicians. Changes
in the reimbursement policies of these entities could  prevent our branded pharmaceutical
products from competing on a price basis. If  our products are not included within an
adequate number of formularies or if  adequate reimbursement levels are not provided, or
if reimbursement policies  increasingly favor generic products, our market share, our
gross margins and our  overall business and financial condition could be negatively
affected.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Moreover, some of
our products are not of a type generally eligible for  reimbursement, primarily due to
either the products market share being too low  to be considered, cheaper generics being
available, or because the product is  considered over-the-counter. It is also possible
that products manufactured by  others could have the same effects as our products and be
subject to  reimbursement. If this were the case, some of our products might be unable to
compete on a price basis.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 2:   PROPERTIES
|--------------------



|During 2002, we
leased 24,000 square feet of office and warehouse  space at 383 Route 46 West, Fairfield,
New Jersey, pursuant to a lease expiring  on January 31, 2008 with Daniel Glassman,
Chairman and President, and his spouse  Iris Glassman, Treasurer. During 2001 and 2000 we
leased 14,100 square feet of  office and warehouse space at this location. Rent expense,
including our  proportionate share of real estate taxes, was approximately $349,000,
$223,000  and $225,000 in 2002, 2001 and 2000, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During 2002, 2001
and 2000, we rented 760 square feet of office space  in Chicago, Illinois at cost of
$15,000, $18,000 and $18,000, respectively. In  February 2002, the lease for this
facility expired.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During December
2002, we leased approximately 100 square feet of  office space in Boca Raton, Florida,
expiring on January 31, 2004. During 2002,  rent expense was $1,000 for this location.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The lease on our
Fairfield, New Jersey 6,000 square foot warehouse, is  for a period from March 1, 2002 to
February 28, 2003, with an option to renew  and also requires payments by us for
utilities and common area maintenance. We  renewed this lease for a term expiring on
February 28, 2004. Rent expense was  approximately $50,000, $52,000 and $50,000 for the
years ended December 31,  2002, 2001 and 2000, respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We believe that
the aforementioned facilities are sufficient to meet  our current requirements; however,
we anticipate that as we grow, we may require  additional facilities.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We also have a
distribution arrangement with a third party public  warehouse located in Tennessee to
warehouse and distribute substantially all of  our products. This arrangement provides
that we will be billed based on invoiced  sales of the products distributed by such
party, plus an additional charge per  order.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3: LEGAL PROCEEDINGS
|-------------------------



|On January 29, 2003, we commenced
      legal proceedings against Dermik Laboratories and its parent, Aventis Pharmaceuticals,
      a wholly owned subsidiary of Aventis Pharma AG, alleging, among other things,
      the infringement by Dermik and Aventis of three patents owned by us relating
      to 40% urea dermatological compositions and therapeutic uses. 40% urea is
      the key component of our CARMOL® 40 brand
      line.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In the complaint,
filed in the United States District Court for the  District of New Jersey, we state that
the marketing and sale by Dermik and  Aventis of the 40% urea cream, Vanamide®,
infringes three of our patents, a  composition patent for dermatological products
comprised of 40% urea and two  methodology patents for the therapeutic use of urea-based
products.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition to a
judicial determination that Dermik and Aventis have  infringed our patents, we are
seeking
|-----------------------------------------------------------------------------------------------------------



| | 25 | 
| | -- | 



---





|triple monetary damages for willful
infringement, disgorgement of all profits realized from the sale of the  infringing
products and an injunction against future infringements. The court  has scheduled a
mid-April 2003 hearing with respect to our request for a  preliminary injunction.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The timing and the
ultimate final outcome of our lawsuit against  Dermik and Aventis are uncertain. If a
competing 40% urea product is launched,  whether as a result of our current litigation
against Dermik and Aventis or  otherwise, our CARMOL®40 sales and profits could
materially suffer.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On February 25,
2003, we filed an action in the United States District  Court for the District of New
Jersey against DPT Lakewood, Inc., an affiliate of  DPT Laboratories Ltd. In this
lawsuit, we allege that DPT Lakewood breached a  confidentiality agreement and
misappropriated our trade secrets relating to  CARMOL® 40 cream. We further allege that
DPT Lakewood is infringing our  composition patent for dermatological products comprised
of 40% urea. During  1999, we provided, in accordance with a confidentiality agreement
entered into  for the possible manufacture of our CARMOL® 40 cream, substantial trade
secret  information to a company of which we believe DPT Lakewood is a successor,
including processing methods and formulations essential to the manufacture of  CARMOL®
40 cream. DPT Lakewood currently manufactures a 40% urea cream for  Dermik and Aventis.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition to a
judicial determination that DPT Lakewood infringed  our patent, we are seeking triple
monetary damages for willful infringement,  disgorgement of all profits resulting from
the infringement of our patent,  punitive and other appropriate damages for
misappropriation of our trade secrets  and preliminary and permanent injunctions
enjoining DPT Lakewood from  manufacturing any urea or other product that infringes our
patents.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On March 6, 2003, DPT Laboratories,
      Ltd. filed a lawsuit against us alleging defamation arising from our Press
      Release Announcing Commencement of the Litigation Against DPT Lakewood.
      We believe this suit is without merit. We intend to vigorously defend our
      position.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We and certain of
our subsidiaries are parties to other routine actions  and proceedings incidental to our
business. There can be no assurance that an  adverse determination on any such action or
proceeding could not have a material  adverse effect on our business, financial condition
or results of operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|-----------------------------------------------------------



|No issues were
submitted to a vote of the security holders during the  fourth quarter of 2002.
|----------------------------------------------------------------------------------------------



| | 26 | 
| | -- | 



---





|PART II
|-------



|ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
|-----------------------------------------------------------------------------



|Price Range of Common Stock
|---------------------------



|Shares of our
common stock are traded on The Nasdaq Stock MarketTM  under the trading symbol
BPRX. Our Class B common stock is not publicly  traded.
|------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth the high and low sales prices for  shares of our common stock on The
Nasdaq Stock MarketTM for the periods  indicated.
|-----------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  | High Sale | Low Sale
|----------------------------------- |  | --------- | --------
|Fiscal year ended December 31, 2002 |  |           |         
|First quarter                       |  | $24.00    |         
|Second quarter                      |  | 14.02     |         
|Third quarter                       |  | 13.28     |         
|Fourth quarter                      |  | 15.65     |         
|                                    |  |           |         
|Fiscal year ended December 31, 2001 |  |           |         
|First quarter                       |  | $ 2.50    |         
|Second quarter                      |  | 5.99      |         
|Third quarter                       |  | 10.77     |         
|Fourth quarter                      |  | 23.25     |         



|On March 7, 2003,
the last sale price for our shares of common stock  as reported by the Nasdaq National
Market was $12.15 per share. On March 7,  2003, there were 211 registered holders of
record of shares of common stock.  Based on information available, we believe that there
are approximately 2,900  beneficial holders of shares of common stock held in
street or other nominee  name at such date.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have an
aggregate of 900,000 authorized shares of Class B common  stock, $.01 par value per
share, of which 429,752 shares were issued and  outstanding at March 7, 2003. The Class B
common stock is not publicly traded.  The rights, preferences and limitations of the
common stock and Class B common  stock are equal and identical in all respects, except
that the holders of the  Class B common stock are entitled to elect a majority of our
directors and each  share of common stock entitles the holder thereof to one vote upon
any and all  matters submitted to the stockholders of the Corporation for a vote, and
each  share of Class B common stock entitles the holder thereof to five votes upon
certain matters (other than the election of directors) submitted to the  stockholders of
the Corporation for a vote.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|At March 7, 2003,
there were outstanding 10,172,004 shares of common  stock.
|----------------------------------------------------------------------------



|Dividends
|---------



|We have never
declared a cash dividend. We intend to retain any  earnings to fund future growth and the
operation of our business and, therefore,  we do not anticipate paying any cash dividends
in the foreseeable future.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 27 | 
| | -- | 



---





|ITEM 6: SELECTED FINANCIAL DATA
|-------------------------------



|The following
selected financial data has been derived from the  consolidated financial statements of
Bradley Pharmaceuticals for the fiscal  years 2002, 2001, 2000, 1999 and 1998. The
comparability of the years presented  is impacted by an intangible write-down and the
recording of deferred tax  benefits.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                           | December 31,
|---------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                           | 2002        
|Statements of Operations Data:                                                                             |             
|Net sales                                                                                                  | $39,668,973 
|Cost of sales                                                                                              | 4,568,461   
|                                                                                                           |             
|Gross profit                                                                                               | 35,100,512  
|                                                                                                           |             
|Selling, general and administrative                                                                        | 21,890,232  
|Depreciation and amortization                                                                              | 1,139,531   
|Interest expense (income)- net                                                                             | (359,261)   
|Losses on short-term investments                                                                           | 49,535      
|Other income                                                                                               |            
|Loss due to impairment of asset                                                                            |            
|                                                                                                           |             
|                                                                                                           | 22,720,037  
|                                                                                                           |             
|Income (loss) beforeincome tax expense (benefit)                                                           | 12,380,475  
|Income tax expense (benefit)                                                                               | 4,746,000   
|                                                                                                           |             
|Net income (loss)                                                                                          | $  7,634,475
|                                                                                                           |             
|Basic net income (loss) per  
             common share                                                    | $ 0.73      
|                                                                                                           |             
|Diluted net income (loss) per  
             common share                                                  | $ 0.67      
|                                                                                                           |             
|Number of shares used in computing 
           basic net income (loss) 
           per common share        | 10,470,000  
|                                                                                                           |             
|Number of shares used in computing 
             diluted net income (loss)  
             per common share | 11,440,000  
|                                                                                                           |             
|Balance Sheet Data:                                                                                        |             
|Cash, cash equivalents andshort-term investments                                                           | $26,008,816 
|Working capital                                                                                            | 28,162,830  
|Total assets                                                                                               | 43,917,100  
|Long-term debt                                                                                             | 155,362     
|Stockholders equity                                                                                       | $38,193,716 
|                                                                                                           |             
|Cash Flow Data:                                                                                            |             
|Net cash provided by (used in)operating activities                                                         | $  9,449,972



| | 28 | 
| | -- | 



---





|ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|---------------------------------------------------------------------------------------------



|You should read
the following discussion and analysis together with our  consolidated financial
statements, including the related notes, which are  included in this report on Form 10-K.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|OVERVIEW
|--------



|We market
over-the-counter and prescription pharmaceutical and health  related products. Our
product lines currently include dermatological brands,  marketed by our wholly owned
subsidiary, Doak Dermatologics, Inc., and  nutritional, respiratory, and internal
medicine brands marketed by our Kenwood  Therapeutics division. We promote products in
the dermatology and  gastroenterology and, to a lesser extent, nutritional markets. All
of our  product lines are manufactured and supplied by independent contractors who
operate under our quality control standards. Our products are marketed primarily  to
wholesalers, which distribute the products to retail outlets and healthcare  institutions
throughout the United States and selected international markets.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our growth
strategy involves acquisitions, including co-marketing and  licensing agreements, of
products from major pharmaceutical organizations that  we believe require intensified
marketing and promotional attention. We have  acquired, and intend to acquire, rights to
manufacture and market pharmaceutical  and health related products that studies have
shown to be effective and for  which a demonstrated market exists, but which are not
actively promoted and  where the surrounding competitive environment does not necessarily
include major  pharmaceutical companies. In addition to acquisitions, our growth strategy
involves our introduction of new products through modest research and  development of
existing chemical entities.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|RESULTS OF OPERATIONS
|---------------------



|Percentage of Net Revenues
|--------------------------



|The following table sets forth certain data as a
percentage of net revenues for  the periods indicated.
|-------------------------------------------------------------------------------------------------------

|                              | December 31,
|----------------------------- | ------------
|                              | 2002        
|Net sales                     | 100%        
|Gross profit                  | 88.5%       
|Operating expenses            | 58.2%       
|Operating income (loss)       | 30.3%       
|Interest expense (income)-net | (0.9%)      
|Income tax expense (benefit)  | 12.0%       
|                              |             
|Net income (loss)             | 19.2%       
|                              |             



|* |  | Included
in operating expenses are losses on short-term investments of  $700,000
|- |  | --------------------------------------------------------------------------------

|** |  | Included
in operating expenses is a loss due to impairment of asset  of $3,897,000.
|-- |  | -----------------------------------------------------------------------------------



| | 29 | 
| | -- | 



---





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



|Net Sales (net of
all adjustments to sales) for 2002 was $39,669,000,  representing an increase of
$13,966,000 from 2001. The increase during 2002  primarily reflects an increase in net
sales of Doak Dermatologics new product  sales from CARMOL® 40 Gel of $4,400,000 and
same product sales growth from  CARMOL® 40 Cream of $4,035,000, CARMOL® 40 Lotion of
$3,358,000, other  CARMOL® products of $938,000, ACIDMANTLE®/LIDAMANTLE® line of
products of  $1,318,000 and Kenwood Therapeutics respiratory products of $1,172,000. The
increase during 2002 was partially offset by a decline in PAMINE® net sales by  Kenwood
Therapeutics of $1,297,000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The overall
increases in respiratory products were primarily due to  negotiation of more favorable
managed care contracts and timing of wholesale  purchases. The overall increases in the
dermatology products, and in particular  CARMOL® 40 Cream, CARMOL® 40 Lotion and
ACIDMANTLE®/LIDAMANTLE® line  products, were primarily due to greater promotional
attention and the  utilization of market research data to ensure product messages are
received by  the most potentially productive audiences. Due to the offering of slight
discount and extended payment terms to wholesalers and increased demand for our
products, we shipped during December 2002, $2,653,000 to a major customer. The  sales
decline in PAMINE® was primarily due to the realignment of the field  force and
promotional efforts towards greater growth opportunities in the area  of dermatology.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Cost of Sales for
2002 was $4,568,000 representing an increase of $400,000 from 2001. The gross profit
percentage for 2002 was 88%, as compared to 84% during 2001. The increase in the gross
profit percentage reflects a change in our sales mix, with greater sales of Doaks
prescription products that carry a higher gross profit percentage.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Selling, General
and Administrative Expensesfor 2002 was $21,890,000, representing an increase of
$6,417,000 compared to 2001. The increase in selling, general and administrative
expenses reflect increased investment in our sales and marketing areas, with resulting
increases in promotional and advertising expenses in order to implement our strategy of
niche marketing Doak Dermatologics products and the hiring of additional executive
personnel in anticipation of continued revenue growth.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Depreciation and
Amortizationfor 2002 was $1,140,000, representing a decrease of $30,000 from 2001.
|---------------------------------------------------------------------------------------------------



|Interest Income,
Net for 2002 was $359,000, representing an increase of $286,000 from 2001. The
improvement was principally due to a decrease in borrowings under the revolving
asset-based credit facility and an increase in interest income from short-term
investments generated by investing excess cash flow from operations and proceeds from
the October 30, 2001 private equity placement.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Losses on
Short-Term Investmentsfor 2002 were $50,000 in comparison to $700,000 in 2001. During
2001, we recorded a $700,000 loss related to an impairment of an investment resulting
from a bank failure.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Income Tax Expense
for 2002 was $4,746,000, in comparison to $654,000 in 2001. The effective tax rate was
38% in 2002 as compared to 15% in 2001 due to the reduction of the valuation allowance
against our deferred tax assets of $1,043,000 recorded in 2001.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net Income for
2002 was $7,634,000, representing an increase of $4,023,000 from 2001.
|-------------------------------------------------------------------------------------



|Net income for
Kenwood Therapeutics for 2002 was $1,192,000,  representing a decrease of $263,000 from
2001. The decrease for 2002 was  principally due to a decrease in Kenwoods net sales of
$189,000 and the  recording of a deferred tax benefit in 2001, which was partially offset
by a  decrease in selling, general and administrative expenses of $447,000 and the
recording of a loss on investment of $700,000 in 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net income for
Doak Dermatologics for 2002 was $6,443,000,  representing an increase of $4,286,000 from
the prior year. The
|---------------------------------------------------------------------------------------------------------------------------



| | 30 | 
| | -- | 



---





|increase was  principally due to an increase in
net sales and gross profit percentage. The new  product sales of CARMOL® 40 Gel and
same product sales growth of CARMOL® 40  Cream and ACIDMANTLE®/LIDAMANTLE® line of
products primarily contributed to  the increase in net sales and the gross profit
percentage.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|Net Sales (net of
all adjustments to sales) for 2001 was $25,703,000, representing an increase of
$7,146,000, or approximately 39%, from 2000. This increase primarily reflects gains
resulting from Kenwoods PAMINE® of $2,845,000 and Doak products of CARMOL®40 of
$3,006,000, LIDAMANTLE® of $460,000 and new product sales from LIDAMANTLE® HC of
$389,000 and CARMOL®40 Lotion of $1,336,000. The increase was partially offset by a
decline in DECONAMINE® of $507,000 and BRONTEX® of $186,000. The increase in same
product sales of CARMOL® 40, PAMINE® and LIDAMANTLE® was primarily due to greater
promotional attention, increased sales force, the offering of slight discounts to
wholesalers to encourage stocking and the utilization of market research data to ensure
product messages are received by the most potentially productive audiences. Due to the
offering of slight discounts to wholesalers and increased demand for our products, we
shipped during December 2001, $3,090,000 of products to a major customer. The sales
decline of DECONAMINE® and BRONTEX® was primarily attributable to an increase in
therapeutic generic substitution, formulary restrictions, reduction in promotion, and
the launch of new competitive products.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Cost of Sales for
2001 was $4,168,000, representing a decrease from 2000 of $104,000. Our gross profit
percentage for 2001 was 84% as compared to 77% during 2000. The improvement in the gross
profit margin reflects a change in our sales mix with greater sales of prescription
products that historically carry a higher gross profit percentage. The change in the
sales mix represented an increase in prescription products of CARMOL® 40, PAMINE®
and LIDAMANTLE®. In addition, we benefited from cost savings due to outsourcing to
more cost efficient vendors.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Selling, General
and Administrative Expensesfor 2001 was $15,473,000, representing an increase of
$3,826,000 over 2000. The increase in selling, general and administrative expenses
reflect increased investment in our sales and marketing areas, with resulting increases
in promotional and advertising expenses of $1,398,000 in order to implement the
Companys strategy of niche marketing CARMOL® 40, GLUTOFAC® -ZX and PAMINE® and an
increase in variable compensation from the EVA® Financial Management System of
$498,000. In addition, the Company increased non-cash equity-based compensation charges
relating to consulting services during 2001 of approximately $317,000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Depreciation and
Amortization Expenses for 2001 was $1,169,000, representing an increase of $214,000 as
compared to 2000. The increase in depreciation and amortization expense was primarily
due to equipment purchases, specifically to upgrade and install a computer network and a
decrease in the remaining useful life of the BRONTEX® trademark.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Interest Income,
Net for 2001 was $74,000, representing an improvement of $322,000 from 2000s interest
expense of $248,000. The improvement was principally due to a decrease in borrowings
from the revolving asset-based credit facility, decrease in the acquisition note and an
increase in interest income from short-term investments due to the Companys investing
excess cash.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Loss Due to
Impairment of Assetfor 2000 was $3,897,000. We recorded an impairment loss relating to
the DECONAMINE® trademark. As a result of our strategic review process of our product
lines and related intangible assets, we determined that an event or circumstance
occurred. We changed our future sales forecast for the product during April 2000 after
it became apparent that significant marketing attention during the Fourth Quarter 1999
had minimal impact on the products sales. Consequently, the fair value of the
DECONAMINE® trademark was calculated on the basis of discounted estimated future cash
flows and resulted in a non-cash charge of $3,897,000. This charge, which has been
recorded in the consolidated statement of income, had no impact on the Companys cash
flow. No impairment loss was recorded for 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Loss on Investment
for 2001 was $700,000. We recorded a $700,000 pre-tax charge related to an impairment of
an investment resulting from a subsequent bank failure. A portion of our $1 million
certificate of
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31 | 
| | -- | 



---





|deposit  invested is unlikely to be collected.
The revised carrying amount of $300,000 is  comprised of (i) $100,000 representing the
amount we already collected on the  certificate of deposit and (ii) $200,000 representing
the estimated amount  realizable on the certificate of deposit based upon information we
obtained from  the FDIC. No investment loss was recorded for 2000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Income Tax Expense
for 2001 was $654,000, in comparison to an income tax benefit of $398,000 for 2000 or an
increase in income tax expense of $1,052,000. The increase was principally due an
increase in pre-tax income in fiscal 2001. During fiscal 2001 and 2000, we benefited
from a reduction of the valuation allowance against our deferred tax assets of
$1,043,000.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net Incomefor
2001 was $3,612,000 as compared to a net loss of $2,063,000 in 2000, representing an
increase of $5,675,000. The increase was principally due an increase in net sales, an
increase in gross profit percentage, an increase in interest revenue and a recording of
a loss due to impairment of asset of $3,897,000 in 2000, which was partially offset by
an increase selling, general, and administrative expenses, an increase in depreciation
and amortization and the recording of a loss on investment.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net income for
Kenwood Therapeutics for 2001 was $1,455,000,  representing an increase of $5,485,000
from 2000s net loss of $4,030,000. The  increase was principally due to an increase in
net sales of $2,513,000 and the  recording of loss due to impairment of asset in 2000,
which was partially offset  by the recording of the loss on investment. The product
PAMINE® primarily  contributed to the increase in net sales, which was partially offset
by a  decrease in DECONAMINE® and BRONTEX®.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net income for
Doak Dermatologics for 2001 was $2,157,000, representing  an increase of $190,000 from
2000. The increase was principally due to an  increase in net sales of $4,633,000 and an
increase in the gross profit  percentage from 82% to 86%. The same product sales of
CARMOL® 40 and  LIDAMANTLE® and new product sales of LIDAMANTLE® HC and CARMOL®40
Lotion  primarily contributed to the increase in net sales and gross profit percentage.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Liquidity and Capital Resources
|-------------------------------



|Our liquidity
requirements arise from working capital requirements,  debt service and funding of
acquisitions. We have historically met these cash  requirements through cash from
operations, proceeds from our line of credit,  bank borrowings for product acquisitions
and the issuance of common stock.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our cash and cash
equivalents and short-term investments were  $26,009,000 and $17,315,000 at December 31,
2002 and 2001, respectively. Cash  provided by operating activities for 2002 was
$9,589,000. The sources of cash  primarily resulted from net income of $7,634,000 plus
non-cash charges for  depreciation and amortization of $1,140,000; a decrease in deferred
income taxes  of $284,000; noncash compensation for consulting services of $114,000; tax
benefit for exercise of non-qualified stock options and warrants of $413,000; an
increase in accrued expenses of $947,000, primarily due to an increase in the  rebate
liability; and a decrease in accounts receivable of $162,000 resulting  from increased
collections. The sources of cash were partially offset by an  increase in inventories of
$185,000; an increase in prepaid expenses and other  of $144,000; a decrease in accounts
payable of $121,000, primarily due to an  increase in cash payments to vendors; a
decrease in income taxes payable of  $704,000 due to increase in cash payments for taxes.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Cash provided by
investing activities for 2002 was $1,473,000, which  was primarily the result of proceeds
from the sale of short-term investments of  $12,369,000, partially offset by purchases of
short-term investments of  $10,491,000 and property and equipment of $405,000.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Cash used in
financing activities for 2002 was $579,000. The financing  activities for 2002 consisted
primarily of a payment of long-term debt of  $165,000; proceeds from exercise of stock
options and warrants of $268,000;  payment of financing costs of $139,000 for the new
asset-based credit facility  and acquisition facility with Wachovia Bank; payment of
registration costs of  $110,000; purchases of treasury stock of $517,000; and
distributions of treasury  stock of $84,000 to fund the 401(k) Plan contributions.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32 | 
| | -- | 



---





|On November 20,
2002, the Company entered into a loan agreement with  Wachovia Bank with respect to a $5
million revolving asset-based credit facility  and a $10 million acquisition facility for
future product acquisitions. Advances  under the revolving asset-based credit facility
are calculated pursuant to a  formula, which is based upon the Companys eligible
accounts receivable and  inventory levels. Advances under the $10 million acquisition
facility are  pursuant to the Company finding a potential acquisition, satisfying
financial  covenants and, depending upon the potential size of an acquisition, Wachovias
final approval. This loan agreement has an initial term of two years. Interest  accrues
on amounts outstanding at a rate equal to LIBOR plus 1.85% and the  commitment fee
accrues on the unused portion of the asset-based credit facility  and the acquisition
facility at a rate equal to .05% per annum. The Companys  obligations under this loan
agreement have been collateralized by the Companys  grant to Wachovia of a lien upon
substantially all the Companys assets.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|This loan
agreement with Wachovia Bank replaces the previous loan  agreement with LaSalle Business
Credit, Inc., which expired on November 6, 2002.  The principal differences between the
new loan agreement with Wachovia and  previous agreement with LaSalle is an increase in
the revolving asset-based  credit facility of $1.5 million, an increase in the
acquisition note of $8.5  million and lower interest rates.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of the date of
this report, the Company has not borrowed any funds  from the revolving asset-based
credit facility or the acquisition facility.
|--------------------------------------------------------------------------------------------------------------------------------------------------



|As of the date of
this report, we had the following contractual obligations  and commitments:
|---------------------------------------------------------------------------------------------

| | Year ending December 31, | Operating Leases | Capital Leases(a) | Other Debt
| | ------------------------ | ---------------- | ----------------- | ----------
| | 2003                     | $   542,604      |                   | $181,903  
| | 2004                     | 475,630          |                   | 111,957   
| | 2005                     | 462,874          |                   | 30,209    
| | 2006                     | 462,874          |                   | 22,748    
| | 2007                     | 462,874          |                   | -0-       
| | Thereafter               | 38,573           |                   | -0-       
| |                          |                  |                   |           
| |                          | $ 2,445,429      |                   | $346,817  
| |                          |                  |                   |           



| | (a) Lease
amounts include interest and minimum lease payments
| | -------------------------------------------------------------



|We believe that
our cash and cash equivalents and cash generated from  operations will be adequate to
fund our current working capital requirements for  at least the next 12 months. However,
in the event that we make or anticipate  significant acquisitions in the future, we may
be required to raise additional  funds through additional borrowings or the issuance of
debt or equity  securities.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Critical Accounting Estimates
|-----------------------------



|In preparing
financial statements in conformity with accounting  principles generally accepted in the
United States of America, we are required  to make estimates and assumptions that affect
the reported amounts of assets and  liabilities and the disclosure of contingent assets
and liabilities at the date  of the financial statements and revenues and expenses for
the reporting period  covered thereby. Actual results could differ from those estimates.
We believe  that the following critical accounting policies affect our more significant
estimates used in the preparation of financial statements. Management has  discussed the
development and selection of the critical accounting estimates  discussed below with the
Audit Committee and the Audit Committee has reviewed  the Companys disclosures relating
to these estimates.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 33 | 
| | -- | 



---





|Revenue
Recognition. Revenue from product sales, net of estimated provisions, is recognized when
the merchandise is shipped to an unrelated third party pursuant to Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements. Accordingly,
revenue is recognized when all four of the following criteria are met: (i) persuasive
evidence that an arrangement exists; (ii) delivery of the products has occurred; (iii)
the selling price is both fixed and determinable and; (iv) collectibility is reasonably
probable. Our customers consist primarily of large pharmaceutical wholesalers who sell
directly into the retail channel. Provisions for sales discounts, and estimates for
chargebacks, rebates, damaged product returns and exchanges for expired product, are
established as a reduction of product sales revenues at the time such revenues are
recognized, based on historical experience adjusted to reflect known changes in the
factors that impact such reserves. These revenue reductions are generally reflected
either as a direct reduction to accounts receivable through an allowance, or as an
addition to accrued expenses if the payment is due to a party other than the wholesale
or retail customer.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We do not provide
any forms of price protection to our wholesale  customers and we typically permit product
returns only if the product is damaged  or if it is returned within six to 12 months of
expiration and 12 months after  expiration.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Chargebacks and
rebates are based on the difference between the prices at which we sell our products to
wholesalers and the sales price ultimately paid by the end-user (often governmental
agencies and managed care buying groups) pursuant to fixed price contracts. We record an
estimate of the amount either to be charged back to us, or rebated to the end user, at
the time of sale to the wholesaler. We have recorded reserves for chargebacks, returns
and rebates based upon various factors, including current contract prices, historical
trends and future expectations. The amount of actual chargebacks, returns and rebates
claimed could differ (either higher or lower) from the amounts we accrued. Changes in
estimate would be recorded in the income statement in the period of the change.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Intangible assets
and goodwill.We have made acquisitions of products and businesses that include
goodwill, license agreements, product rights and other identifiable intangible assets.
We assess the impairment of identifiable intangibles (including goodwill prior to
January 1, 2002) whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Some factors we consider important which could trigger an
impairment review include the following, (i) significant underperformance relative to
expected historical or projected future operating results; (ii) significant changes in
the manner of our use of the acquired assets or the strategy for our overall business;
and (iii) significant negative industry or economic trends.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|When we determine
that the carrying value of intangible assets may not  be recoverable based upon the
existence of one or more of the above indicators  of impairment, we first perform an
assessment of the assets recoverability  based on expected undiscounted future net cash
flow, and if the amount is less  than the assets value, we measure any impairment based
on a projected  discounted cash flow method using a discount rate determined by our
management  to be commensurate with the risk inherent in our current business model.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of January 1,
2002, we adopted Statement of Financial Accounting  Standards No. 142, Goodwill and
Other Intangible Assets, which eliminated the  amortization of purchased goodwill,
resulting in an increase in pretax income of  approximately $119,000 for the fiscal year
ended December 31, 2002. Adoption of  this standard did not have a material effect on the
Companys financial  statements. Upon adoption of SFAS No. 142, we performed an
impairment test of  our goodwill (amounting to $289,328 at January 1, 2002) and
determined that no  impairment of the recorded goodwill existed. The fair value of the
reporting  unit was calculated on the basis of discounted estimated future cash flows and
compared to the related book value of such reporting units. Under SFAS No. 142,  goodwill
will be tested for impairment at least annually and more frequently if  an event occurs
which indicates the goodwill may be impaired. The Company  performed the test at December
31, 2002, and noted that no impairment existed.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of January 1,
2002, we also adopted SFAS No. 144, Accounting for the Impairment or Disposal of
Long-lived Assets, which supersedes SFAS No. 121, Accounting for the Impairment of
Long-lived Assets and for  Long-lived Assets to be Disposed Of.  The adoption of SFAS No.
144 had no effect on our financial statements.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 34 | 
| | -- | 



---





|Deferred income
taxes are provided for the future tax consequences attributable to the differences
between the financial statement carrying amounts of assets and liabilities and their
respective tax base. Deferred tax assets are reduced by a valuation allowance when, in
our opinion, it is more likely than not that some portion of the deferred tax assets
will not be realized. As of December 31, 2001, we determined that no deferred tax asset
valuation allowance was necessary and eliminated previously established valuation
allowance. We believe that our projections of future taxable income makes it more likely
than not that such deferred tax assets will be realized. If our projections of future
taxable income changes in the future, we may be required to reduce deferred tax assets
by a valuation allowance.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Impact of Inflation
|-------------------



|We have
experienced only moderate price increases under our agreements  with third-party
manufactures as a result of raw material and labor price  increases. We have passed these
price increases along to our customers. However,  there can be no assurance that possible
future inflation would not impact our  operations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Seasonality
|-----------



|Sales of certain
non-focused products, such as cough and cold products,  increase between October and
March due to the cold and flu season. We expect the  impact of seasonality to decrease as
we acquire or obtain licenses for products  that treat chronic conditions. However, we
anticipate that the seasonality may  continue to affect sales for the foreseeable future.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recent Accounting Pronouncements
|--------------------------------



|In April 2002, the
Financial Accounting Standards Board issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and  Technical
Corrections. SFAS No. 145  rescinds the requirement that all gains and losses from
extinguishment of debt be classified as an extraordinary  item. Additionally, SFAS No.
145 requires that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as sale-leaseback
transactions.  SFAS No. 145 is  effective for the Company beginning in 2003, and the
effect of adoption is not expected to have a material impact  on the consolidated
financial statements.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June 2002, the
FASB issued SFAS No. 146, Accounting for Costs  Associated with Exit and Disposal
Activities. This statement revises the  accounting for exit and disposal activities
under Emerging Issues Task Force  Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits  and Other Costs to Exit an Activity. Specifically,
SFAS 146 requires that  companies record the costs to exit an activity or dispose of
long-lived assets  when those costs are incurred. SFAS 146 requires that the measurement
of the  liability be at fair value. The provisions of SFAS 146 are effective
prospectively for exit or disposal activities initiated after December 31, 2002  and will
impact any exit or disposal activities initiated after such date.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In December 2002,
the FASB issued SFAS No. 148, Accounting for  Stock-Based Compensation - Transition
and Disclosure. This statement amends  SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative  methods of transition for an
entity that changes to the fair value method of  accounting for stock-based employee
compensation. In addition, SFAS 148 amends  the disclosure provisions of SFAS 123 to
require expanded and more prominent  disclosures in annual financial statements about the
method of accounting for  stock based compensation and the proforma effect on reported
results of applying  the fair value method for entities that use the intrinsic value
method. The  proforma disclosures are also required to be displayed prominently in
interim  financial statements. The Company does not intend to change to the fair value
method of accounting and has included the disclosure requirements of SFAS 148 in  the
accompanying financial statements.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In November 2002,
the FASB issued Interpretation No. 45, Guarantors  Accounting and Disclosure
Requirements for Guarantees, Including Indirect  Guarantees of Indebtedness of
Others (FIN 45). FIN 45 requires that upon  issuance of a guarantee,
the guarantor must recognize a liability for the fair  value of the obligation it assumes
under that guarantee. FIN 45 is effective on  a prospective basis to guarantees issued or
modified after December 31, 2002,  but has certain disclosure requirements effective for
financial statements of  interim or annual
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 35 | 
| | -- | 



---





|periods ending after December 15, 2002. We have
historically  not issued guarantees and we do not anticipate adoption disclosure
requirements  of FIN 45 to have a material effect on our financial position or results of
operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In January 2003,
the FASB issued FASB Interpretation 46 (FIN 46),  Consolidation of Variable Interest
Entities. FIN 46 clarifies the application of  Accounting Research Bulletin 51,
Consolidated Financial Statements, for certain  entities that do not have sufficient
equity at risk for the entity to finance  its activities without additional subordinated
financial support from other  parties or in which equity investors do not have the
characteristics of a  controlling financial interest (variable interest
entities). Variable interest  entities within the scope of FIN 46 will be required
to be consolidated by their  primary beneficiary. The primary beneficiary of a variable
interest entity is  determined to be the party that absorbs a majority of the entitys
expected  losses, receives a majority of its expected returns, or both. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that  date.
It applies in the first fiscal year or interim period beginning after June  15, 2003, to
variable interest entities in which an enterprise holds a variable  interest that it
acquired before February 1, 2003. The Company is in the process  of determining what
impact, if any, the adoption of the provisions of FIN 46  will have upon its financial
condition or results of operations. Certain  transitional disclosures required by FIN 46
in all financial statements  initially issued after January 31, 2003, have been included
in the accompanying  financial statements.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In November 2002,
the Emerging Issues Task Force reached a consensus  opinion on EITF 00-21, Revenue
Arrangements with Multiple Deliverables. The  consensus provides that revenue
arrangements with multiple deliverables should  be divided into separate units of
accounting if certain criteria are met. The  consideration for the arrangement should be
allocated to the separate units of  accounting based on their relative fair values, with
different provisions if the  fair value of all deliverables are not known or if the fair
value is contingent  on delivery of specified items or performance conditions. Applicable
revenue  recognition criteria should be considered separately for each separate unit of
accounting. EITF 00-21 is effective for revenue arrangements entered into in  fiscal
periods beginning after June 15, 2003. Entities may elect to report the  change as a
cumulative effect adjustment in accordance with APB Opinion 20,  Accounting Changes. The
Company has not determined the effect of adoption of  EITF 00-21 on its financial
statements or the method of adoption it will use.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 7A: Quantitative and Qualitative
Disclosures About Market Risk
|-------------------------------------------------------------------



|Our operating
results and cash flows are subject to fluctuations from  changes in foreign currency
exchange rates and interest rates. Our purchases of  ENTSOL® Spray are made in Euros.
We expect to make purchases several times per  year. While the effect of foreign currency
translations has not been material to  our results of operations to date, currency
translations on import purchases  could be adversely affected in the future by the
relationship of the U.S. dollar  to foreign currencies. In addition, foreign currency
fluctuations can have an  adverse effect upon exports, even though we recognize sales to
international  distributors in U.S. dollars. Foreign currency fluctuations can directly
affect  the marketability of our products in international markets.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|To the extent that
we borrow under our credit facility with Wachovia  Bank, we will experience market risk
with respect to changes in the applicable  interest rates and its effect upon our
interest expense. Because such rates are  variable, an increase in interest rates will
result in additional interest  expense and a reduction in interest rates will result in
reduced interest  expense.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 36 | 
| | -- | 



---





|As of the date of
this report, we had the following outstanding debt  with fixed rate interest and no
outstanding debt with variable interest rates.
|----------------------------------------------------------------------------------------------------------------------------------------------------

| | Year ending December 31, | Debt(a)  | Average Fixed 
          Rate Interest
| | ------------------------ | -------- | --------------------------------------
| | 2003                     | $243,381 |                                       
| | 2004                     | 111,957  |                                       
| | 2005                     | 30,209   |                                       
| | 2006                     | 22,748   |                                       
| | 2007                     | -0-      |                                       
| | Thereafter               | -0-      |                                       



| | (a) Debt
amounts include interest and minimum debt payments
| | -----------------------------------------------------------



|We are also
exposed to interest rate fluctuations on our short-term  investments that are comprised
of U.S. government treasury notes, which we hold  on an available-for-sale basis. We have
not entered into derivative financial  instruments.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Stock prices of
emerging growth pharmaceutical and micro-cap companies  such as ours fluctuate
significantly. In particular, our stock price during the  year 2002 has fluctuated from a
low of $6.80 to a high of $24. A variety of  factors that could cause the price of our
common stock to fluctuate, perhaps  substantially, include:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | announcements
of developments related to our business;
| | - |  | ------------------------------------------------------

| |  |  | quarterly
fluctuations in our actual or anticipated operating results;
| | - |  | ----------------------------------------------------------------------

| |  |  | general
conditions in the pharmaceutical and healthcare industries;
| | - |  | -------------------------------------------------------------------

| |  |  | new
products or product enhancements by us or our competitors;
| | - |  | --------------------------------------------------------------

| |  |  | developments
in patents or other intellectual property rights and litigation; and
| | - |  | ---------------------------------------------------------------------------------

| |  |  | developments
in our relationships with our customers and suppliers.
| | - |  | -------------------------------------------------------------------



|We will not be
able to control many of these factors, and we believe  that period-to-period comparisons
of our financial results will not necessarily  be indicative of our future performance.
If our revenues, if any, in any  particular period do not meet expectations, we may not
be able to adjust our  expenditures in that period, which could cause our operating
results to suffer  further. If our operating results in any future period fall below the
expectations of securities analysts or investors, our stock price may fall by a
significant amount.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition, in
recent years there have been extreme fluctuations in  the stock market in general and the
market for shares for small capitalization  and emerging growth pharmaceutical companies
in particular. These fluctuations  were sometimes unrelated to the operating performance
of the affected companies,  such as general market conditions and world events. Any such
fluctuations in the  future could reduce the market price of our common stock. We do not
know whether  the market price of our common stock will decline or not.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 8: FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
|---------------------------------------------------



|Our financial
statements and related financial statement schedule at  December 31, 2002 and 2001, and
for each of the three years ended December 31st  and the Independent Auditors Report
thereon, are contained on pages F-1 through  F-37 of this report on Form 10-K.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 37 | 
| | -- | 



---





|ITEM 9: CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|--------------------------------------------------------------------------------------------



|None.
|-----



|PART III
|--------



|ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT
|-----------------------------------------------------------



|Our directors and
executive officers are as follows:
|----------------------------------------------------

|                                     | Age |  | Position(s)                                                                
|------------------------------------ | --- |  | ---------------------------------------------------------------------------
|Daniel Glassman                      | 60  |  | Chairman of the Board, President and Chief Executive
          Officer     
|                                     |     |  |                                                                            
|Michael Bernstein                    | 43  |  | Director and Chairman of the Audit Committee                               
|                                     |     |  |                                                                            
|Andre Fedida, M.D.                   | 47  |  | Director                                                                   
|                                     |     |  |                                                                            
|Iris Glassman                        | 60  |  | Treasurer and Director                                                     
|                                     |     |  |                                                                            
|Bruce Simpson                        | 61  |  | Secretary and Director                                                     
|                                     |     |  |                                                                            
|Alan Wolin, Ph.D.                    | 70  |  | Director                                                                   
|                                     |     |  |                                                                            
|Dileep Bhagwat, Ph.D.                | 52  |  | Vice President, Research and Development                                   
|                                     |     |  |                                                                            
|Robert Corbo                         | 48  |  | Vice President, Quality Assurance and Regulatory Affairs                   
|                                     |     |  |                                                                            
|Edwin Diaz                           | 40  |  | Vice President, Operations                                                 
|                                     |     |  |                                                                            
|Bradley Glassman                     | 29  |  | Vice President, Sales and Marketing                                        
|                                     |     |  |                                                                            
|Gene Goldberg                        | 65  |  | Sr. Vice President, Marketing and Business Planning                        
|                                     |     |  |                                                                            
|Anthony Griffo                       | 52  |  | Vice President, Human Resources                                            
|                                     |     |  |                                                                            
|Ralph Landau, Ph.D.                  | 42  |  | Vice President, Chief Scientific Officer                                   
|                                     |     |  |                                                                            
|Kim Lazarus                          | 45  |  | Vice President, Creative Services                                          
|                                     |     |  |                                                                            
|R. Brent Lenczycki                   | 31  |  | Vice President, Chief Financial Officer                                    
|                                     |     |  |                                                                            
|H. Jurgen van den Woldenberg, Ph. D. | 45  |  | Executive Vice President, General Manager of Kenwood
          Therapeutics



|Daniel Glassman is
our founder and has served as our Chairman of the Board and Chief Executive Officer
since the Companys inception in January 1985.  Mr. Glassman has also served as our
President since February  1991.  Mr. Glassman, a registered pharmacist, is also Chairman
of the Board of Medimetrik, Inc. (formerly Banyan  Communications Group, Inc.), a
communications company founded by Mr. Glassman.  Mr. Glassman has had a 35 year  career
in the pharmaceutical industry, including executive managerial positions with companies
and major  specialty advertising agencies serving the largest pharmaceutical companies.
Mr. Glassman is also Chairman of  the Board, President and Chief Executive Officer of
Doak Dermatologics, Inc., Bradley Pharmaceuticals (Canada),  Inc. and Bradley
Pharmaceuticals, Overseas, Ltd., Inc., our subsidiaries.  In 1995, Mr. Glassman was
awarded the  Ernst & Young LLP Entrepreneur of the Year in New Jersey.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 38 | 
| | -- | 



---





|Michael Bernstein
has served as one of our Directors and the Chairman  of the Audit Committee since January
2003. Mr. Bernstein, who holds the position  of Managing Director for Geller and
Companys Emerging Business Group as of  2001, brings 21 years of experience with middle
market growth companies. Mr.  Bernstein was a partner with Grant Thornton from 1991 to
2001 and held the  positions of U.S. Resident Partner in the United Kingdom,
International Practice  Partner, Audit Department Head, and Partner-in-charge of Grant
Thorntons  National Technology Industry Practice. He is a frequent speaker at venture
and  other financial conferences and a published author. Mr. Bernstein is a member of
the Association for Corporate Growth, the New York Media Association, the  American
Institute of Certified Public Accountants, the New York Society of  Certified Public
Accountants, and the New Jersey Society of Certified Public  Accountants.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Andre Fedida, M.D.
has served as one of our directors since May 2002.  Dr. Fedida is a doctor of  internal
medicine currently practicing in Newark, New Jersey.  He is also currently on faculty as
Assistant  Professor of Medicine at Seton Hall University and Saint Michaels Medical
Center.  Dr. Fedida received his B.S.  from City University of New York at Queens College
and received his M.D. from Saint George University. Dr. Fedida  performed his internship,
residency and Fellowship at Saint Michaels Medical Center in Newark, New Jersey.  Dr.
Fedida is a member of the American Medical Association, American College of Physicians,
American College of  Gastroenterology and the American Society of Gastrointestinal
Endoscopy.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Iris Glassman has
served as our Treasurer since the Companys inception in 1985.  Mrs. Glassman, the
spouse of Mr. Daniel Glassman, has also served as one of our directors since January
1985.  Mrs. Glassman has  over 20 years of diversified administrative and financial
management experience.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Bruce Simpson has
served as our Secretary since June 2000 and one of our directors since January 2000.
Since August 1999, Mr. Simpson has headed a private consulting firm, B.W. Simpson & Associates,
that specializes  in marketing and business development in the healthcare industry.
Prior to founding his own healthcare  consulting firm, from July 1998 to July 1999, Mr.
Simpson was President of Genpharm, Inc. and subsequently the  President and CEO of Medeva
Pharmaceuticals.  Previous to those positions, Mr. Simpson served in the capacity of
Vice President of Sales & Marketing, and Executive Vice President of Ethical
Pharmaceuticals, for Fisons  Corporation.  Mr. Simpson received an M.B.A. from the
University of Hartford.  He has been affiliated with the  American Academy of Allergy and
was a Board Member of Menley & James Pharmaceuticals.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Alan Wolin, Ph.D.
has served as one of our directors since May 1997.  Since 1988, Dr. Wolin has served as
an independent consultant to various  companies in the food, drug and cosmetic
industries. Prior to 1987, Dr. Wolin  served M&M/Mars, the worlds largest candy
company, in various capacities,  including Director of Consumer Quality Assurance and
Quality Coordination. In  his capacity as Director of Consumer Quality Assurance and
Quality Coordination,  Dr. Wolin was responsible for ensuring consumer quality and
addressing public  health issues relating to M&M/Mars products.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dileep Bhagwat,
Ph.D. has served as our Vice President, Research and Development since January 2003.
From September 1999 to December 2002, Dr. Bhagwat served as our Vice President and Chief
Scientific Officer.  Previously, Dr. Bhagwat was employed at Penwest Pharmaceuticals from
1994 to 1999, in various capacities,  including Vice President, Scientific Development
and Regulatory Affairs.  Prior to that appointment, Dr. Bhagwat  was Assistant Director
of Pharmaceutical Development at Purdue Frederick Research Center.  Dr. Bhagwat holds an
M.S. and Ph.D. in Industrial Pharmacy from St. Johns University and an M.B.A. from Pace
University.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Robert Corbo has
served as our Vice President, Quality Assurance and  Regulatory Affairs, since July 2000.
From 1997 through June 2000, Mr. Corbo  served as our Vice President, Quality Assurance.
From March 1993 to December  1996, Mr. Corbo has also served as our Quality
Assurance/Control Director. From  1989 to 1993, Mr. Corbo served as Quality
Assurance/Control Manager for Par  Pharmaceuticals, a New York based generic
pharmaceutical manufacturer.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Edwin Diaz has
served as our Vice President, Operations, since  September 2002. From 2000 to 2002, Mr.
Diaz held the position of Vice President,  Finance, and Chief Financial Officer of MOVA
Laboratories in Cranbury, New  Jersey. Between 1996 and 2000, Mr. Diaz served as Vice
President and Chief  Financial Officer of Enamelon, Inc. Prior to joining Enamelon, Mr.
Diaz held the  position of Controller of Nycor, Inc., in Basking Ridge, NJ, from
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 39 | 
| | -- | 



---





|1994 to 1996,  and Lancer Industries, Inc., in
New York City, between 1990 and 1994.
|------------------------------------------------------------------------------------



|Bradley Glassman
has served as our Vice President, Sales and Marketing,  since July 2001. From April 2000
through June 2001, Mr. Glassman served as our  Vice President, Marketing. In addition,
from January 1998 to March 2000, Mr.  Glassman has served as our Director of Corporate
Development and as a Corporate  Development Analyst from May 1996 to December 1997. In
1996, Mr. Glassman  received a Masters of Business Administration from Tulane University.
Mr.  Glassman is the son of Daniel and Iris Glassman.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Gene Goldberg has
served as our Senior Vice President, Marketing and  Business Planning, since January
1997. From 1984 to 1996, Mr. Goldberg held the  position of Executive Vice President for
Daniel Glassman Advertising. From 1979  to 1984, Mr. Goldberg served as Vice President
and Account Supervisor for  William Douglas McAdams. Prior to 1979, Mr. Goldberg served
as Senior Product  Manager for USV Pharmaceutical Corporation, a division of Revlon
Healthcare  Group, and Project Director in Market Research at McAdams, Geigy
Pharmaceutical  Company and Lea-Mendota Research Group.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Anthony Griffo has
served as our Vice President, Human Resources, since  February 2002. Mr. Griffo has 20
years of experience in human resources  administration as well as compiling and
delivering image-enhancing training  programs. His responsibilities also include managing
Investor Relations. Mr.  Griffo joined Bradley in 1998 as Human Resources Manager. From
1989 to 1998, Mr.  Griffo was President and owner of Career Referral in North Haledon,
New Jersey.  Between 1975 and 1989, Mr. Griffo held the positions of Operations/Human
Resources Director, Director of Communications, Manager of Input/Output Control,
Director of Payroll, and Labor Relations Administrator for Vornado, Inc., in  Garfield,
New Jersey.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Ralph Landau,
Ph.D. has served as Vice President and Chief Scientific  Officer since January 2003. Dr.
Landau joined Bradley in October 2002 as Vice  President, Manufacturing. From 2001 to
2002, Dr. Landau served as Director,  Program Management/Business Development for Elan
Pharmaceutical Technologies.  From 1997 to 2001, Dr. Landau held the positions of
Associate Director, Drug  Supply Management, Associate Director, Project Management, and
Associate  Director, Process Technologies for Novartis Pharmaceuticals. Additionally, Dr.
Landau has published articles in 28 peer-reviewed publications and is a  sought-after
presenter. Dr. Landau holds a Ph.D. from the University of Delaware  and serves on the
advisory committees for Rutgers University and the New Jersey  Institute of Technology.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Kim Lazarus has
served as Vice President, Creative Services, since  February 2003. From 1993 to 2002, Ms.
Lazarus was with Novartis Consumer Health  where she held the position of Category
Director. During her tenure with  Novartis, Ms. Lazarus was responsible for OTC Business
Development, Rx to OTC  brand transition strategies, cough/cold/allergy/sinus brands, and
smoking  cessation brands. Ms. Lazarus began her career in 1980 with Proctor and Gamble
and has served as Product Manager for CPC International/Best Foods between 1985  and 1987
and Becton Dickinson between 1987 and 1991, and as Marketing Manager  and Manager,
Strategic Planning and New Business Development for Tambrands,  Inc., from 1991 to 1993.
Ms. Lazarus holds an MBA in Marketing from Owen  Graduate School and a BS in Economics
from Vanderbilt University.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|R. Brent
Lenczycki, CPA has served as Vice President and Chief  Financial Officer since January
2001. Since joining Bradley Pharmaceuticals in  1998, Mr. Lenczycki has held the
positions of Manager of Finance and Purchasing,  Director of Finance and Vice President,
Finance. From 1995 to 1998, Mr.  Lenczycki held positions in public accounting at Arthur
Andersen LLP in  Philadelphia, PA, and prior to 1995, as an internal auditor for Harrahs
Hotel  and Casino in Atlantic City, New Jersey. Mr. Lenczycki holds a Masters of
Business Administration from Tulane University.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|H. Jurgen van den Woldenberg,
      Ph. D. has served as Executive Vice President and General Manager of Kenwood
      Therapeutics since June 2002. Prior to joining Bradley, Dr. Woldenberg founded
      DIRECT Consulting in 2002, a process consulting company serving the pharmaceutical
      and biotech industries. Dr. Woldenberg began his career in 1987 with Hoechst,
      later Aventis Pharmaceuticals, where he remained until 2002. At Aventis,
      he held the positions of Product Manager, Regional Business Manager, Director,
      Global Marketing, Anti-Infectives, Director, Global Marketing, New Products
      Rheumatology, Immunology and Bone Disease, and Senior Director, Global Marketing,
      Head of Decision Analysis.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 40 | 
| | -- | 



---





|Our directors are
scheduled to hold office until the next Annual  Meeting of Stockholders and until their
respective successors shall have been  duly elected and qualified.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Board of
Directors has designated from among its members an Audit Committee, which currently
consists of Mr. Bernstein, Dr. Fedida, Mr. Simpson and Dr. Wolin.  The Audit Committee,
which reviews our  financial and accounting practices and controls, held six (6) meetings
during 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Board of
Directors has also designated from among its members a Compensation Committee, which
consists of Mr. Daniel Glassman, Mrs. Glassman and Dr. Wolin.  The Compensation
Committee, which approves  executive compensation, held one meeting during 2002.  Except
for Mr. and Mrs. Glassman, no member of the  Compensation Committee was at any time
during 2002, or formerly, an officer or employee of the Company or any  subsidiary of the
Company, nor had any relationship with the Company requiring disclosure under Item 404 of
Regulation S-K promulgated under the Securities Exchange Act of 1934.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Section 16(a) Beneficial Ownership Reporting
Compliance
|-------------------------------------------------------

|Based solely upon a review
      of Forms 3,4, and 5 and amendments thereto furnished to the Company for
      2002 pursuant to Rule 16a-3(e) of the Securities Exchange Act of 1934, as
      amended, and written representations from reporting persons that all required
      reports had been filed, the Company believes that all reporting persons
      filed the required reports on a timely basis.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Comparative Stock Performance
|-----------------------------



|The Comparative
Stock Performance graph below compares the cumulative  Stockholder return on the Common
Stock of the Company for the period from  December 31, 1997 through the year ended
December 31, 2002 with the cumulative  total return on (i) the Total Return Index for the
Nasdaq Stock market (U.S.  Companies) (the Nasdaq Composite Index), and (ii)
the Nasdaq Pharmaceutical  Index (assuming the investment of $100 in the Companys Common
Stock, the Nasdaq  Composite Index and the Nasdaq Pharmaceutical Index on December 31,
1997 and  reinvestment of all dividends). Measurement points are on the last trading day
of the Companys years ended December 31, 1997, 1998, 1999, 2000, 2001 and 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[GRAPHIC OMITTED]
|-----------------

|                             
|-----------------------------
|Bradley Pharmaceuticals, Inc.
|                             
|Nasdaq Composite Index       
|                             
|Nasdaq Pharmaceutical Index  
|                             



| | 41 | 
| | -- | 



---





|ITEM 11: EXECUTIVE COMPENSATION
|-------------------------------



|The following
table shows all of our cash compensation paid, as well as  certain other compensation
paid or accrued during the years ended December 31,  2002, 2001 and 2000, to Daniel
Glassman, President and Chief Executive Officer  and four other highest paid executive
officers. There were no restricted stock  awards, long-term incentive plan payouts or
other compensation paid during 2002  to the executive officers named in the following
table except as set forth  below:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Summary Compensation Table
|--------------------------

|                            | Annual Compensation | Long-Term 
      Compensation 
      Awards
|--------------------------- | ------------------- | -------------------------------------------
|Name and Principal Position | Year                | Salary                                     
|Daniel Glassman             | 2002                | $285,300                                   
|President and               | 2001                | $237,900                                   
|Chief Executive Officer     | 2000                | $192,500                                   
|                            |                     |                                            
|Dileep Bhagwat, Ph.D.       | 2002                | $134,900                                   
|Vice President              | 2001                | $125,300                                   
|Research and Development    | 2000                | $115,100                                   
|                            |                     |                                            
|Bradley Glassman            | 2002                | $146,200                                   
|Vice President              | 2001                | $121,000                                   
|Sales and Marketing         | 2000                | $  98,000                                  
|                            |                     |                                            
|Gene Goldberg               | 2002                | $172,000                                   
|Senior Vice President       | 2001                | $152,400                                   
|Marketing and Business      | 2000                | $149,200                                   
|Planning                    |                     |                                            
|                            |                     |                                            
|R. Brent Lenczycki          | 2002                | $119,600                                   
|Vice President              | 2001                | $100,200                                   
|Chief Financial Officer     | 2000                | $  84,500                                  
|                            |                     |                                            

|(1) |  | All of these options are exercisable into shares
      of common stock.
|--- |  | -----------------------------------------------------------------------

|(2) |  | These options are exercisable after March 22,
      2003, 2004, and 2005 for 105,000, 105,000 and 105,000 shares, respectively,
      at an exercise price of $13.126 per share, 110% of the fair market value
      for shares of common stock on the date of the grant. These options will
      expire on March 21, 2007.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Of these shares, 25,000 underlie options granted
      on February 23, 2001. These options are exercisable on the grant date with
      an exercise price of $2.17 per share, 110% of the fair market value for
      shares of common stock on the date of the grant. These options will expire
      on February 22, 2006. An additional 12,554 underlie options granted on July
      9, 2001. These options are exercisable after July 9, 2003, at an exercise
      price of $10.58 per share. These options will expire on July 8, 2006. The
      remaining 31,279 shares underlie options granted on July 9, 2001. These
      options are exercisable anytime prior to July 9, 2003 at an exercise price
      of $8.81 per share and will expire on July 8, 2004.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Of these shares, 18,000 underlie options granted
      on September 12, 2000 to replace a like number of options previously granted
      to Mr. Glassman, which expired by their terms. These options are exercisable
      after September 12, 2001, 2002, 2003 for 6,000, 6,000 and 6,000 shares,
      respectively, at an exercise price of $1.41 per share, 110% of the fair
      market value for shares of common stock on the date of the grant. These
      options will expire on September 11, 2005. The remaining 341,589 shares
      underlie options granted on December 15,2000 to replace like number of options
      previously granted to Mr. Glassman, which expired by their terms. These
      options are exercisable immediately at an exercise price of $1.44 per share,
      110% of the fair market value for shares of common stock on the date of
      grant. These options will expire on December 4, 2005.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 42 | 
| | -- | 



---





|(5) |  | Of these shares, 753 underlie options granted
      on July 9, 2001. These options are exercisable after July 9, 2003, at an
      exercise price of $10.58 per share and will expire on July 8, 2006. The
      remaining 1,877 shares underlie options granted on July 9, 2001. These options
      are exercisable anytime prior to July 9, 2003 at an exercise price of $8.81
      per share and will expire on July 8, 2004.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Of these shares, 60,000 underlie options granted
      on July 9, 2001. These options are exercisable after July 9, 2002, 2003,
      2004 for 20,000, 20,000 and 20,000 shares, respectively, at an exercise
      price of $7.05 per share, the fair market value for shares of common stock
      on the date of the grant. These options will expire on July 8, 2011. An
      additional 1,326 underlie options granted on July 9, 2001. These options
      are exercisable after July 9, 2003, at an exercise price of $10.58 per share.
      These options will expire on July 8, 2006. The remaining 3,305 shares underlie
      options granted on July 9, 2001. These options are exercisable anytime prior
      to July 9, 2003 at an exercise price of $8.81 per share and will expire
      on July 8, 2004.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | These options are exercisable after December
      8, 2001, 2002, 2003 for 6,000, 6,000 and 6,000 shares, respectively, at
      an exercise price of $1.38 per share, the fair market value for shares of
      common stock on the date of the grant. These options will expire on December
      8, 2010.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | These options are exercisable after July 26,
      2002 and June 23, 2003 for 9,000 and 9,000 shares, respectively, at an exercise
      price of $9.32 per share, the fair market value for shares of common stock
      on the date of the grant. These options will expire on July 25, 2012.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Of these shares, 3,494 underlie options granted
      on July 9, 2001. These options are exercisable after July 9, 2003, at an
      exercise price of $10.58 per share and will expire on July 8, 2006. The
      remaining 8,705 shares underlie options granted on July 9, 2001. These options
      are exercisable anytime prior to July 9, 2003 at an exercise price of $8.81
      per share and will expire on July 8, 2004.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Of these shares, 15,000 underlie options granted
      on March 30, 2001. These options are exercisable after March 30, 2002, 2003,
      2004 for 5,000, 5,000 and 5,000 shares, respectively, at an exercise price
      of $2.00 per share, the fair market value for shares of common stock on
      the date of the grant. These options will expire on March 30, 2011. An additional
      60,000 underlie options granted on July 9, 2001. These options are exercisable
      after July 9, 2002, 2003, 2004 for 20,000, 20,000 and 20,000 shares, respectively,
      at an exercise price of $7.05 per share, the fair market value for shares
      of common stock on the date of grant. These options will expire on July
      8, 2011. An additional 1,265 underlie options granted on July 9, 2001. These
      options are exercisable after July 9, 2003, at an exercise price of $10.58
      per share. These options will expire on July 8, 2006. The remaining 3,152
      shares underlie options granted on July 9, 2001. These options are exercisable
      anytime prior to July 9, 2003 at an exercise price of $8.81 per share and
      will expire on July 8, 2004.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have no defined
benefit or defined contribution retirement plans  other than the 401(k) Plan established
under Section 401(k) of the Internal  Revenue Code of 1986, as amended. Contributions to
the 401(k) plan are voluntary  and all employees are eligible to participate. The 401(k)
plan permits the  Company to match employee contributions, and the Company makes matching
contributions, at 25% of the first 6% of gross pay that each employee  contributes to the
plan.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 43 | 
| | -- | 



---





|Stock Options
|-------------



|Bradleys stock
option plans provide for the grant of stock  options to key employees and key
consultants. Options may be either incentive  stock options or non-qualified stock
options. The plans are administered by the  Stock Option and Compensation Committee
appointed by the Board of Directors.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth information concerning outstanding  options to purchase shares of our
common stock granted by us, to during 2002,  our executive officers listed in the Summary
Compensation Table above. Neither  options to purchase shares of Class B common stock nor
stock appreciation rights  were granted by us during 2002. The exercise prices for all
options reported  below are not less than 100% of the per share market prices for common
stock on  their dates of grant.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Option Grants in 2002 
Individual Grants
|----------------------------------------

|                      |                                                                                         |                                                                                         |                                                 |                            | Potential Realized Value
        at Assumed Annual Rates of
        Stock Price Appreciation (1)
|--------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------------- | -------------------------- | ------------------------------------------------------------------------------------------------
|Name                  | Number of
          Securities
          Underlying
          Options
          Granted | % of Total
          Options
          Granted to
          Employees
          in 2002 | Exercise or 
        Base 
        Price ($/Sh) | Expiration 
          Date | 0% ($)                                                                                          
|Daniel Glassman       | 315,000                                                                                 |                                                                                         | 64.22%                                          |                            | 13.126                                                                                          
|                      |                                                                                         |                                                                                         |                                                 |                            |                                                                                                 
|Dileep Bhagwat, Ph.D. | -0-                                                                                     |                                                                                         | 0%                                              |                            | N/A                                                                                             
|                      |                                                                                         |                                                                                         |                                                 |                            |                                                                                                 
|Bradley Glassman      | -0-                                                                                     |                                                                                         | 0%                                              |                            | N/A                                                                                             
|                      |                                                                                         |                                                                                         |                                                 |                            |                                                                                                 
|Gene Goldberg         | 18,000                                                                                  |                                                                                         | 3.67%                                           |                            | 9.32                                                                                            
|                      |                                                                                         |                                                                                         |                                                 |                            |                                                                                                 
|R. Brent Lenczycki    | -0-                                                                                     |                                                                                         | 0%                                              |                            | N/A                                                                                             
|                      |                                                                                         |                                                                                         |                                                 |                            |                                                                                                 

|(1) |  | The potential realizable value portion of the
      table illustrates amounts that might be realized upon exercise of the options
      immediately prior to the expiration of their term, assuming the specified
      compounded annual rates of stock price appreciation over the scheduled life
      of the options. This table does not take into account provisions of certain
      options providing for termination of the option following termination of
      employment, nontransferability or vesting schedules. The dollar amounts
      under these columns are the result of calculations at the 5% and 10% rates
      set by the SEC and are not intended to forecast possible future appreciation,
      if any, of our stock price. The column indicating 0% appreciation is included
      to reflect the fact that a zero percent gain in stock price appreciation
      from the market price of the common stock on the date of grant will result
      in zero dollars for the optionee. No gain to the optionees is possible without
      an increase in stock price, which will benefit all shareholders commensurately.
      Dollar amounts shown are not discounted to present value.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Options issued
typically vest over 3 years and have expiration dates  ten years after issuance for
employees and five years for board members and  employees that have over 10% ownership.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 44 | 
| | -- | 



---





|The following
table presents the value, on an aggregate basis, as of  December 31, 2002, of outstanding
stock options held and the stock options  exercised during the fiscal 2002 by our
executive officers listed in the Summary  Compensation Table above.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Aggregated Option Exercises in
2002  And Year-End Option Values
|---------------------------------------------------------------

|                   |                                                             |                   | Number of Securities Underlying
        
        Unexercised Options at 
        Year-End | Value of Unexercised
        In-the-Money Options 
        atYear-End(2)
|------------------ | ----------------------------------------------------------- | ----------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------
|Name               | Number of 
          Shares Acquired 
          on Exercise | Value Realized(1) | Exercisable                                                                               | Unexercisable                                                           
|Daniel Glassman    | -0-                                                         |                   | -0-                                                                                       |                                                                         
|                   |                                                             |                   |                                                                                           |                                                                         
|Dileep Bhagwat     | 4,000                                                       |                   | $81,145                                                                                   |                                                                         
|                   |                                                             |                   |                                                                                           |                                                                         
|Bradley Glassman   | 15,000                                                      |                   | $286,594                                                                                  |                                                                         
|                   |                                                             |                   |                                                                                           |                                                                         
|Gene Goldberg      | 2,400                                                       |                   | $21,510                                                                                   |                                                                         
|                   |                                                             |                   |                                                                                           |                                                                         
|R. Brent Lenczycki | -0-                                                         |                   | -0-                                                                                       |                                                                         
|                   |                                                             |                   |                                                                                           |                                                                         

|(1) |  | Value realized is calculated based on the closing
      price of the common stock of the underlying shares on the date of exercise,
      minus the exercise price and assumes the sale of all the underlying shares.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Value of unexercised in-the-money options is
      calculated based on the market value of the underlying shares, minus the
      exercise price and assumes the sale of all the underlying shares on December
      31, 2002, at a price of $13.03, which was the closing price of the common
      stock on that date.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 45 | 
| | -- | 



---





|Equity Compensation Plan
Information
|------------------------------------

|                                                                                   |  | (a)                                                                                                              | (b)                                                                      | (c)                                                                                                                                                                                                       
|---------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                   |  |                                                                                                                  |                                                                          |                                                                                                                                                                                                           
|Plan Category                                                                      |  | Number of 
      Securities 
      to be Issued 
      Upon 
      Exercise of 
      Outstanding 
      Options | Weighted-Average 
        Exercise Price of 
        Outstanding Options | Number of 
      Securities 
      Remaining 
      Available for 
      Future Issuance 
      Under Equity 
      Compensation Plans 
      (Excluding Securities 
      Reflected in 
      Column (a))
|Equity 
           compensation plans approved 
           by security holders     |  | 1,786,123                                                                                                        |                                                                          | $5.44                                                                                                                                                                                                     
|Equity 
           compensation plans not approved 
           by security holders |  | -0-                                                                                                              |                                                                          | N/A                                                                                                                                                                                                       
|                                                                                   |  |                                                                                                                  |                                                                          |                                                                                                                                                                                                           
|Total                                                                              |  | 1,786,123                                                                                                        |                                                                          | $5.44                                                                                                                                                                                                     



|Employment Contracts and Termination of
Employment and Change-in-Control Arrangements
|-------------------------------------------------------------------------------------



|We do not have any
employment contracts or termination of employment or  change-in-control arrangements with
any of our executive officers.
|-------------------------------------------------------------------------------------------------------------------------------------------



|Other Compensations Plans
|-------------------------



|In 1998, we
initiated the Stern Stewart EVA® Financial Management  System. EVA®, Economic Value
Added, is defined as essentially net income less  a charge for the capital that is
employed in the business. Based upon the change  in EVA® from the current year to the
previous year, a portion of the change in  profitability is distributed to all our
employees. All bonuses distributed to  executive officers listed in the Summary
Compensation Table above were based  upon the EVA® Financial Management System.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Compensation of Directors
|-------------------------



|Directors who are
not officers or employees receive a directors fee of  $750 for each meeting of the Board
of Directors, or a committee thereof,  attended by such director, plus out-of-pocket
costs. Directors who are also  officers or employees receive no additional compensation
for their services as  directors.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Compensation Committee Report
|-----------------------------



|The Compensation
Committee is responsible for the oversight of  the compensation of our executive officers
and administration of our stock  option plans. Our executive officers compensation is
composed of salary, stock  options and cash bonuses. Daniel Glassman, our Chairman and
Chief Executive  Officer, recommends the annual salary and any cash bonus for each
executive  officer other than himself. The Compensation Committee approves Daniel
Glassmans annual salary and stock option distributions. In the case of an  increase in
salary or bonus to other executive officers, Mr. Glassman approves  the increase. Mr.
Glassman applies the largely subjective and non-quantitative  criteria discussed below in
evaluating compensation and has not assigned any  particular numerical weight to these
factors. The salary of an executive officer  is determined by the significance of the
position to our company, individual  experience, talents and expertise, tenure with our
company, cumulative  contribution to our
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 45 | 
| | -- | 



---





|companys success, individual performance as it
relates to  effort and achievement of progress toward particular objectives for the
executive officer and to Bradleys immediate and long-term goals, and  information
gathered as to comparable companies in the same industry as the  Company. Due to
Bradleys phase of growth and development, in addition to its  goal of increasing
profitability, other elements of performance that are used in  structuring executive
compensation levels are increases in revenues, new product  introductions, progress in
research and development, raising new capital if  necessary, strategic alliances,
customer service values, cost-effective  operation and the personal commitment to
Bradleys ideals and mission. This  committee believes the compensation of our executive
officers is generally  comparable to the range of compensation data obtained when we
gathered data as  to comparable companies. However, this belief should be considered in
light of  the facts that the elements of compensation of such comparable companies are
not  necessarily directly comparable to those of our company. The amount awarded to a
particular executive officer is based upon Bradleys overall performance as  described
above, individual performance, the particular executive officers base  salary level, and
overall equity and fairness.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We grant stock
options to our executive officers to link the  interests and risks of our executive
officers with those of our shareholders.  The executive officers granted options receive
value as the price of our stock  increases. We base our decisions on Bradleys
performance and the individuals  performance as discussed above, base salary and bonus
levels, the amount of  prior option grants, length of service, and overall equity and
fairness.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For fiscal 2002,
Daniel Glassman, Chairman of the Board and  Chief Executive Officer, received an annual
salary of $285,300, was paid a bonus  of $218,800, and was granted options to purchase
315,000 shares of common stock  in fiscal 2002 (at an exercise price of $13.126 per
share, which was the fair  market value of Bradley shares on the date the options were
granted). We made  these decisions based upon a subjective analysis of his contributions
to Bradley  improved performance in the most recent fiscal year, and the above noted
criteria. The committee did not assign any particular numerical weight to any of  these
matters.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|March 28, 2003 | Compensation Committee
      Daniel Glassman 
      Iris Glassman
      Alan Wolin, Ph.D.
|-------------- | -----------------------------------------------------------------------------------------



|ITEM 12: SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
|-----------------------------------------------------------------------



|The following
table sets forth certain information as of December 31,  2002, regarding the ownership of
our common stock and Class B common stock by  (i) each director, (ii) the executive
officers named in the Summary Compensation  Table set forth elsewhere in this document,
(iii) each beneficial owner of more  than five percent of common stock and Class B common
stock known by us and (iv)  all directors and executive officers, as a group, and the
percentage of  outstanding shares of common stock and Class B common stock beneficially
held by  them on that date.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Since each share
of Class B common stock may be converted at any time  by the holder into one share of
common stock, the beneficial ownership rules  promulgated under the Securities Exchange
Act of 1934, as amended, require that  all shares of common stock issuable upon the
conversion of Class B common stock  by any stockholder be included in determining the
number of shares and  percentage of common stock held by such stockholder.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 47 | 
| | -- | 



---





|                                                                                                           | Amount and Nature of Beneficial Owner(1)(2)         | Percent
        of Class(2)
|---------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------
|Name of Address of 
        Beneficial Owner                                                               | Common Stock                                        |                            
|Daniel Glassman                                                                                            | 1,230,476(3)                                        |                            
|                                                                                                           |                                                     |                            
|Michael Bernstein                                                                                          | -0-                                                 |                            
|                                                                                                           |                                                     |                            
|Andre Fedida, M.D.                                                                                         | -0-                                                 |                            
|                                                                                                           |                                                     |                            
|Iris Glassman                                                                                              | 250,673(5)                                          |                            
|                                                                                                           |                                                     |                            
|Bruce Simpson                                                                                              | 2,606(7)                                            |                            
|                                                                                                           |                                                     |                            
|Alan Wolin, Ph.D.                                                                                          | 88,941(8)                                           |                            
|                                                                                                           |                                                     |                            
|Dileep Bhagwat,
      Ph.D.                                                                                | 12,502(9)                                           |                            
|                                                                                                           |                                                     |                            
|Robert Corbo                                                                                               | 6,531                                               |                            
|                                                                                                           |                                                     |                            
|Bradley Glassman                                                                                           | 104,379(10)                                         |                            
|                                                                                                           |                                                     |                            
|Gene Goldberg                                                                                              | 66,678(11)                                          |                            
|                                                                                                           |                                                     |                            
|Anthony Griffo                                                                                             | 10,445(12)                                          |                            
|                                                                                                           |                                                     |                            
|R. Brent Lenczycki                                                                                         | 43,666(13)                                          |                            
|                                                                                                           |                                                     |                            
|H. Jurgen
      van den Woldenberg, Ph. D.                                                                 | 32                                                  |                            
|                                                                                                           |                                                     |                            
|First Manhattan
      Capital 
      Management437 Madison Avenue, 31st
      FloorNew York, NY 10022-7297 | 524,200                                             |                            
|                                                                                                           |                                                     |                            
|All executive
      officers andDirectors as a group (13Persons)                                           | 1,816,929 (3)(5) (7) (8)(9) 
      (10)(11)(12)(13) |                            

|
|

|* |  | Represents less than one percent
|- |  | --------------------------------



| | 48 | 
| | -- | 



---





|(1) |  | Unless otherwise indicated, the stockholders
      identified in this table have sole voting and investment power with respect
      to the shares beneficially owned by them.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Each named person and all executive officers
      and directors, as a group, are deemed to be the beneficial owners of securities
      that may be acquired within 60 days through the exercise of options, warrants
      or exchange or conversion rights. Accordingly, the number of shares and
      percentage set forth opposite each stockholders name under the columns
      Common Stock includes shares of common stock issuable upon exercise of presently
      exercisable warrants and stock options and shares of common stock issuable
      upon conversion of shares of Class B common stock. The shares of common
      stock so issuable upon such exercise, exchange or conversion by any such
      stockholder are not included in calculating the number of shares or percentage
      of common stock beneficially owned by any other stockholder.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes 392,469 shares issuable upon conversion
      of a like number of shares of Class B common stock. Of these shares, 77,403
      shares are owned indirectly by Mr. Glassman through affiliates and 733,589
      shares underlie presently exercisable options owned by Mr. Glassman. Mr.
      Glassmans affiliates have disclaimed beneficial ownership over all
      of these shares. Mr. Glassman disclaims beneficial ownership over shares
      and options owned by his spouse, Iris S. Glassman.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes 25,738 shares owned indirectly by Mr.
      Glassman through affiliates. Mr. Glassmans affiliates have disclaimed
      beneficial ownership over these shares. Does not include 16,403 shares beneficially
      owned by Iris S. Glassman, Mr. Glassmans spouse.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes 16,403 shares issuable upon conversion
      of a like number of shares of Class B common stock, 4,000 shares owned indirectly
      by Mrs. Glassman through affiliates, 27,100 shares owned indirectly by Mrs.
      Glassman as trustee for her childrens and grandchildrens trusts
      and 150,878 shares underlying presently exercisable options, and 12,600
      shares underlying presently exercisable options which are indirect beneficial
      ownership by Mrs. Glassmans children (excluding Bradley Glassman).
      Mrs. Glassman disclaims beneficial ownership over all shares beneficially
      owned by her husband, Daniel Glassman.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Mrs. Glassman disclaims beneficial ownership
      over all shares of Class B common stock beneficially owned by her spouse,
      Daniel Glassman.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Includes 2,000 shares underlying presently exercisable
      options.
|--- |  | ---------------------------------------------------------------------

|(8) |  | Includes 20,300 shares underlying presently
      exercisable options.
|--- |  | ----------------------------------------------------------------------

|(9) |  | Includes 8,000 shares underlying presently exercisable
      options.
|--- |  | ---------------------------------------------------------------------

|(10) |  | Includes 20,880 shares issuable upon conversion
      of a like number of shares of Class B common stock. Of these shares 26,000
      shares underlie presently exercisable options.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Includes 51,296 shares underlying presently
      exercisable options.
|---- |  | ----------------------------------------------------------------------

|(12) |  | Includes 1,500 shares underlying presently exercisable
      options.
|---- |  | ---------------------------------------------------------------------

|(13) |  | Includes 31,000 shares underlying presently
      exercisable options.
|---- |  | ----------------------------------------------------------------------



|ITEM 13: CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
|-------------------------------------------------------



|During the years
ended December 31, 2002, 2001 and 2000, we received  administrative support services
(consisting principally of mailing, copying,  financial services, data processing and
other office services) which were  charged to operations from Medimetrik, Inc. (formerly
Banyan Communications  Group, Inc.), an affiliate, in the amount of $109,329, $167,377
and $215,190,  respectively. Daniel and Iris S. Glassman, directors and shareholders, are
majority owners of Medimetrik, Inc.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During 2002, we
leased 24,000 square feet of office and warehouse  space at 383 Route 46 West, Fairfield,
New Jersey, pursuant to a lease expiring  on January 31, 2008 with Daniel and Iris
Glassman. During 2001 and 2000 we  leased 14,100 square feet of office and warehouse
space at this location. Rent  expense, including our proportionate share of real estate
taxes, was  approximately $349,000, $223,000 and $225,000 in 2002, 2001 and 2000,
respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 49 | 
| | -- | 



---





|On January 3,
2000, we advanced $100,000 to Daniel Glassman, pursuant to  a promissory note bearing
interest at 8.25% per annum. The accrued interest and  principal was due in full, three
years from the execution date, except that  fifty percent of all future bonus payments
would be applied first to accrued  interest, then to principal. On January 1, 2002, Mr.
Glassman owed $71,420 in  principal and interest from this promissory note. During March
2002, Mr.  Glassman paid the remaining outstanding principal and interest in full.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Bruce Simpson, a
member of the Board of Directors, provides consulting  services to us with respect to
marketing, sales, and corporate development. His  related consultant expense was
approximately $24,000, $34,000 and $8,000 for the  years ended December 31, 2002, 2001
and 2000, respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 14: CONTROLS AND PROCEDURES
|--------------------------------



|Our management,
under the supervision and with the participation of our  Chief Executive Officer and
Chief Financial Officer, performed an evaluation of  the effectiveness of the design and
operation of our disclosure controls and  procedures. This evaluation was performed
within 90 days before the filing date  of this report. Our disclosure controls and
procedures are designed with the  objective of ensuring that information required to be
disclosed in our reports  filed under the Securities Exchange Act of 1934 is recorded,
processed,  summarized and reported within the time periods specified in the SECs rules
and  forms. Based on their evaluation, the CEO and CFO concluded that the companys
disclosure controls and procedures were effective in timely alerting them to  material
information required to be included in our periodic SEC reports. There  have been no
significant changes in our internal controls or in other factors  that could
significantly affect internal controls since their evaluation.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|PART IV
|-------



|ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|------------------------------------------------------------------------



|(a) | Financial
statement schedule See Schedule II located at  page S-1
|--- | -----------------------------------------------------------------





|(b) | Reports
on Form 8-K
|--- | -------------------





| | Form 8-K filed on December 12, 2002
      relating to the Companys credit facility with Wachovia Bank.
| | -------------------------------------------------------------------------------------------------------





|(c) | Exhibits
|--- | --------



|Exhibit 
          Number |  | Description of Document                                                                                                                                                                     
|------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1                       |  | Certificate of Incorporation of the Company, as amended
          (Incorporated by reference from the Companys Proxy Statement for the
          1998 Annual Meeting)                      
|                          |  |                                                                                                                                                                                             
|3.2                       |  | By-laws of the Registrant, as amended (Incorporated
          by reference to the Companys Proxy Statement for the 1998 Annual Meeting)                                                    
|                          |  |                                                                                                                                                                                             
|4.1                       |  | Placement Agents Unit Purchase Option (Incorporated
          by reference to the Companys Proxy Statement for the 1998 Annual Meeting)                                                   
|                          |  |                                                                                                                                                                                             
|10.1                      |  | 1990 Stock Option Plan, as amended (Incorporated by
          reference to Exhibit 10.1 to the Companys Annual Report on Form 10-KSB
          for the year ended December 31, 1996)       
|                          |  |                                                                                                                                                                                             
|10.28                     |  | Loan and Security Agreement with Wachovia Bank dated
          November 20, 2002 (Incorporated by reference to Exhibit 10.28 to the
          Companys Form 8-K filed on December 12, 2002)
|                          |  |                                                                                                                                                                                             
|21.1                      |  | Subsidiaries of the Registrant (Incorporated by reference
          to Exhibit 21.1 to the Companys Annual Report on Form 10-KSB for the
          year ended December 31, 1996)           
|                          |  |                                                                                                                                                                                             
|23.1                      |  | Consent of Independent Certified Public Accountants                                                                                                                                         
|                          |  |                                                                                                                                                                                             
|24.1                      |  | Power of Attorney (see signature page)                                                                                                                                                      
|                          |  |                                                                                                                                                                                             
|99.1                      |  | Certifications                                                                                                                                                                              



| | 50 | 
| | -- | 



---





|POWER OF ATTORNEY
|-----------------



|KNOW ALL MEN BY
THESE PRESENTS, that each person whose signature  appears below constitutes and appoints
Daniel Glassman and R. Brent Lenczycki,  or either of them, as his true and lawful
attorneys-in-fact and agents, with  full power of substitution and resubstitution, for
him and in his name, place  and stead, in any and all capacities, to sign any and all
amendments to this  Annual Report on Form 10-K and any documents related to this report
and filed  pursuant to the Securities and Exchange Act of 1934, and to file the same,
with  all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and  agents,
full power and authority to do and perform each and every act and thing  requisite and
necessary to be done in connection therewith as fully to all  intents and purposes as he
might or could do in person, hereby ratifying and  confirming all that said
attorneys-in-fact and agents, or their substitute or  substitutes may lawfully do or
cause to be done by virtue hereof.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|SIGNATURES
|----------



|BRADLEY PHARMACEUTICALS, INC. 
(REGISTRANT)
|-------------------------------------------

|Date: March 28, 2003 |  | /s/ Daniel Glassman                                                                                        
|-------------------- |  | -----------------------------------------------------------------------------------------------------------
|                     |  |                                                                                                            
|                     |  | Daniel GlassmanChairman of the Board, President andChief Executive Officer(Principal Executive Officer)    
|
|
|
|                     |  |                                                                                                            
|Date: March 28, 2003 |  | /s/ R. Brent Lenczycki, CPA                                                                                
|                     |  |                                                                                                            
|                     |  | R. Brent Lenczycki, CPAVice President andChief Financial Officer(Principal Financial andAccounting Officer)
|
|
|
|



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

|DATE           |  | SIGNATURE                                  |  | TITLE                                                                                                                  
|-------------- |  | ------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------
|March 28, 2003 |  | /s/ Daniel Glassman(Daniel Glassman)       |  | Chairman of the Board
          President and Chief
          Executive Officer
          (Principal Executive Officer)
|               |  |                                            |  |                                                                                                                        
|March 28, 2003 |  | /s/ R. Brent Lenczycki(R. Brent Lenczycki) |  | Vice President andChief Financial Officer(Principal Financial andAccounting Officer)                                   
|
|
|
|               |  |                                            |  |                                                                                                                        
|March 28, 2003 |  | /s/ Michael Bernstein(Michael Bernstein)   |  | Chairman of the Audit Committeeand Director                                                                            
|
|               |  |                                            |  |                                                                                                                        
|March 28, 2003 |  | /s/ Dr. Andre Fedida(Andre Fedida)         |  | Director                                                                                                               
|
|               |  |                                            |  |                                                                                                                        
|March 28, 2003 |  | /s/ Iris S. Glassman(Iris S. Glassman)     |  | Treasurer and Director                                                                                                 
|
|               |  |                                            |  |                                                                                                                        
|March 28, 2003 |  | /s/ Bruce W. Simpson(Bruce W. Simpson)     |  | Secretary and Director                                                                                                 
|
|               |  |                                            |  |                                                                                                                        
|March 28, 2003 |  | /s/ Alan G. Wolin(Dr. Alan Wolin)          |  | Director                                                                                                               
|



| | 51 | 
| | -- | 



---





|CERTIFICATIONS
|--------------



|CERTIFICATION BY CHIEF
EXECUTIVE OFFICER
|----------------------------------------



|I, Daniel Glassman, certify that:
|---------------------------------



|1. I have reviewed this annual report on Form
10-K of Bradley Pharmaceuticals,  Inc.;
|-------------------------------------------------------------------------------------



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



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



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



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





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





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





|5. The registrants other certifying officers
and I have disclosed, based on our  most recent evaluation, to the registrants auditors
and the audit committee of  registrants board of directors (or persons performing the
equivalent  functions):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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





|b) | any
fraud, whether or not material, that involves management or other  employees who have a
significant role in the registrants internal  controls; and
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|6. The registrants other certifying officers and I
      have indicated in this annual report whether there were significant changes
      in internal controls or in other factors that could significantly affect
      internal controls subsequent to the date of our most recent evaluation,
      including any corrective actions with regard to significant deficiencies
      and material weaknesses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: March 28, 2003
|--------------------



|/s/Daniel Glassman
      Daniel Glassman 
      President and Chief Executive Officer
|-------------------------------------------------------------------------------------





| | 52 | 
| | -- | 



---









|CERTIFICATION BY CHIEF
FINANCIAL OFFICER
|----------------------------------------



|I, R. Brent Lenczycki, certify that:
|------------------------------------



|1. I have reviewed this annual report on Form
10-K of Bradley Pharmaceuticals,  Inc.;
|-------------------------------------------------------------------------------------



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



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



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



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





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





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





|5. The registrants other certifying officers
and I have disclosed, based on our  most recent evaluation, to the registrants auditors
and the audit committee of  registrants board of directors (or persons performing the
equivalent  functions):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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





|b) | any
fraud, whether or not material, that involves management or other  employees who have a
significant role in the registrants internal  controls; and
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|6. The registrants other certifying officers and I
      have indicated in this annual report whether there were significant changes
      in internal controls or in other factors that could significantly affect
      internal controls subsequent to the date of our most recent evaluation,
      including any corrective actions with regard to significant deficiencies
      and material weaknesses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: March 28, 2003
|--------------------



|/s/R. Brent Lenczycki
|---------------------



|R. Brent Lenczycki Chief Financial Officer
|------------------------------------------





| | 53 | 
| | -- | 



---







|INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|Bradley Pharmaceuticals, Inc. and Subsidiaries                                                                               |           
|---------------------------------------------------------------------------------------------------------------------------- | ----------
|                                                                                                                             |           
|Report of Independent Certified
          Public Accountants                                                                 | F-2       
|                                                                                                                             |           
|Consolidated Balance Sheets
          at December 31, 2002 and 2001                                                          | F-3       
|                                                                                                                             |           
|Consolidated Statements of Operations
          for the 
              Years Ended December 31, 2002, 2001 and 2000          | F-5       
|                                                                                                                             |           
|Consolidated Statement of Shareholders
          Equity for the 
              Years Ended December 31, 2002, 2001 and 2000 | F-6       
|                                                                                                                             |           
|Consolidated Statements of Cash
          Flows for the 
              Years Ended December 31, 2002, 2001 and 2000          | F-7       
|                                                                                                                             |           
|Notes to Consolidated Financial
          Statements                                                                         | F-8  F-37



| | F-1 | 
| | --- | 



---





|REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
|--------------------------------------------------



|Board of Directors and Shareholders      Bradley
Pharmaceuticals, Inc.
|----------------------------------------------------------------------



|We have audited the accompanying consolidated
balance sheets of Bradley  Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2002
and 2001, and the  related consolidated statements of operations, shareholders equity
and  cash flows for each of the three years in the period ended December 31, 2002.  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 in accordance with
auditing standards
generally accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In our opinion, the financial statements
referred to above present
fairly, in all material respects, the consolidated financial position of Bradley
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the
consolidated results of their operations, and their consolidated
shareholders equity and their consolidated cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have also audited Schedule II for each of the
three years in the period
ended December 31, 2002. In our opinion, this schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information therein.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|GRANT THORNTON LLP
|------------------



|New York, New York February
24, 2003 (except for Note J.3 as to which the date is March 6, 2003)
|------------------------------------------------------------------------------------------------



| | F-2 | 
| | --- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|CONSOLIDATED BALANCE SHEETS
|---------------------------



|                                        |  | December 31,
|--------------------------------------- |  | ------------
|ASSETS                                  |  | 2002        
|CURRENT ASSETS                          |  |             
|Cash and cash equivalents               |  | $20,820,725 
|Short-term investments                  |  | 5,188,091   
|Accounts receivable - net of allowances |  | 3,096,433   
|Inventories                             |  | 2,165,727   
|Deferred tax asset                      |  | 1,339,755   
|Prepaid expenses and other              |  | 804,563     
|Prepaid income taxes                    |  | 315,558     
|                                        |  |             
|Total current assets                    |  | 33,730,852  
|PROPERTY AND EQUIPMENT, NET             |  | 915,681     
|INTANGIBLE ASSETS, NET                  |  | 6,059,143   
|GOODWILL                                |  | 289,328     
|DEFERRED TAX ASSET                      |  | 2,787,479   
|OTHER ASSETS                            |  | 134,617     
|                                        |  |             
|                                        |  | $43,917,100 
|                                        |  |             



|The accompanying notes are an integral part
of these statements.
|----------------------------------------------------------------



| | F-3 | 
| | --- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|CONSOLIDATED BALANCE SHEETS
|---------------------------



|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                         |  | December 31, 
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------
|CURRENT LIABILITIES                                                                                                                                          |  | 2002         
|Current maturities of long-term debt                                                                                                                         |  | $     224,510
|Accounts payable                                                                                                                                             |  | 1,750,901    
|Accrued expenses                                                                                                                                             |  | 3,592,611    
|Income taxes payable                                                                                                                                         |  |             
|                                                                                                                                                             |  |              
|Total current liabilities                                                                                                                                    |  | 5,568,022    
|                                                                                                                                                             |  |              
|LONG-TERM DEBT, less current maturities                                                                                                                      |  | 155,362      
|                                                                                                                                                             |  |              
|COMMITMENTS AND CONTINGENCIES                                                                                                                                |  |              
|                                                                                                                                                             |  |              
|SHAREHOLDERS EQUITY                                                                                                                                         |  |              
|Preferred stock, $.01 par value; authorized, 
               2,000,000 shares; issued - none                                                                 |  |             
|Common stock, $.01 par value, authorized,
          26,400,000 
               shares; issued 10,836,018 shares in 2002,
          10,701,739 shares in 2001 |  | 108,360      
|Common stock, Class B, $.01 par value,
          authorized, 
                900,000 shares; issued 429,752 shares
          in 2002 and 2001               |  | 4,298        
|Additional paid-in capital                                                                                                                                   |  | 31,153,596   
|Accumulated other comprehensive gain
          (loss)                                                                                                        |  | 98,323       
|Retained earnings                                                                                                                                            |  | 8,569,062    
|Treasury stock - common stock - at
          cost 
                (793,195 shares in 2002 and 747,725 shares
          in 2001)                             |  | (1,739,923)  
|                                                                                                                                                             |  |              
|                                                                                                                                                             |  | 38,193,716   
|                                                                                                                                                             |  |              
|                                                                                                                                                             |  | $43,917,100  
|                                                                                                                                                             |  |              



|The accompanying notes are an integral part
of these statements.
|----------------------------------------------------------------



| | F-4 | 
| | --- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|CONSOLIDATED STATEMENTS OF
OPERATIONS
|-------------------------------------



|                                                      |  | Years ended December 31,
|----------------------------------------------------- |  | ------------------------
|                                                      |  | 2002                    
|Net sales                                             |  | $39,668,973             
|Cost of sales                                         |  | 4,568,461               
|                                                      |  |                         
|                                                      |  | 35,100,512              
|                                                      |  |                         
|Selling, general and administrative expenses          |  | 21,890,232              
|Depreciation and amortization                         |  | 1,139,531               
|Interest expense (income)  net                       |  | (359,261)               
|Losses on short-term investments                      |  | 49,535                  
|Loss due to impairment of asset                       |  |                        
|                                                      |  |                         
|                                                      |  | 22,720,037              
|                                                      |  |                         
|Income (loss) before                                  |  |                         
|income tax expense (benefit)                          |  | 12,380,475              
|Income tax expense (benefit)                          |  | 4,746,000               
|                                                      |  |                         
|NET INCOME (LOSS)                                     |  | $   7,634,475           
|                                                      |  |                         
|Net income (loss) per common share                    |  |                         
|Basic                                                 |  | $            0.73       
|                                                      |  |                         
|Diluted                                               |  | $            0.67       
|                                                      |  |                         
|Weighted average number of
             common shares |  |                         
|Basic                                                 |  | 10,470,000              
|                                                      |  |                         
|Diluted                                               |  | 11,440,000              
|                                                      |  |                         



|The accompanying notes are an integral part
of these statements.
|----------------------------------------------------------------



| | F-5 | 
| | --- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|CONSOLIDATED STATEMENT OF
SHAREHOLDERS EQUITY
|----------------------------------------------



|                                                                      |        | Common stock,  
        $.01 par value |        | Class B  
        common stock,  
        $.01 par value | Additional  
        paid  
        in capital |         | Accumulated  
        other  
        comprehensive  
        gain (loss) |        | Retained  
        earnings  
        (accumulated  
        deficit) |             | Treasury stock |              | Total
|--------------------------------------------------------------------- | ------ | -------------------------------------- | ------ | -------------------------------------------------------- | ---------------------------------------------- | ------- | ------------------------------------------------------------------------- | ------ | --------------------------------------------------------------------- | ----------- | -------------- | ------------ | -----
|                                                                     
|                                                                     
|                                                                      | Shares |                                        | Amount |                                                          | Shares                                         |         | Amount                                                                    |        | Shares                                                                |             | Amount         |             
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Balance at December 31, 1999                                          |        | 8,199,683                              |        | $ 81,997                                                 |                                                | 431,552 |                                                                           | $4,316 |                                                                       | $15,518,146 |                | $           |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Stock options exercised                                               |        | 5,000                                  |        | 50                                                       |                                                |         |                                                                           |        |                                                                       | 3,387       |                |              |      
|Shares issued for consulting services                                 |        | 1,944                                  |        | 19                                                       |                                                |         |                                                                           |        |                                                                       | 4,194       |                |              |      
|Warrants issued for consulting services                               |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       | 15,262      |                |              |      
|Purchase of treasury stock                                            |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Distribution of treasury stock                                        |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       | (3,292)     |                |              |      
|Net loss                                                              |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Balance at December 31, 2000                                          |        | 8,206,627                              |        | $ 82,066                                                 |                                                | 431,552 |                                                                           | $4,316 |                                                                       | $15,537,697 |                | $           |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Stock options/ warrants exercised                                     |        | 972,820                                |        | 9,729                                                    |                                                |         |                                                                           |        |                                                                       | 3,522,298   |                |              |      
|Shares issued for consulting services                                 |        | 475                                    |        | 5                                                        |                                                |         |                                                                           |        |                                                                       | 2,974       |                |              |      
|Warrants and options issued for 
           consulting services       |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       | 332,185     |                |              |      
|Private placement                                                     |        | 1,520,017                              |        | 15,200                                                   |                                                |         |                                                                           |        |                                                                       | 10,846,629  |                |              |      
|Warrants issued for proceeds                                          |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       | 150,000     |                |              |      
|Stock conversion                                                      |        | 1,800                                  |        | 18                                                       |                                                | (1,800) |                                                                           | $(18)  |                                                                       | -           |                |              |      
|Purchase of treasury stock                                            |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Distribution of treasury stock                                        |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       | 8,989       |                |              |      
|Other compehensive income/ (loss):                                    |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Net income                                                            |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Net unrealized losses on  
            available-for-sale  securities |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                | (39,293)     |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Total comprehensive income                                            |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Balance at December 31, 2001                                          |        | 10,701,739                             |        | $ 107,018                                                |                                                | 429,752 |                                                                           | $4,298 |                                                                       | $30,400,772 |                | $ (39,293)   |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Stock options/ warrants exercised                                     |        | 133,599                                |        | 1,335                                                    |                                                |         |                                                                           |        |                                                                       | 679,459     |                |              |      
|Shares issued for consulting services                                 |        | 680                                    |        | 7                                                        |                                                |         |                                                                           |        |                                                                       | 9,029       |                |              |      
|Options issued for consulting services                                |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       | 104,649     |                |              |      
|Registration cost                                                     |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       | (110,057)   |                |              |      
|Purchase of treasury stock                                            |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Distribution of treasury stock                                        |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       | 69,744      |                |              |      
|Other compehensive income/ (loss):                                    |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Net income                                                            |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Net unrealized gains on  
             available-for-sale  securities |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                | 137,616      |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Total comprehensive income                                            |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      
|Balance at December 31, 2002                                          |        | 10,836,018                             |        | $108,360                                                 |                                                | 429,752 |                                                                           | $4,298 |                                                                       | $31,153,596 |                | $98,323      |      
|                                                                      |        |                                        |        |                                                          |                                                |         |                                                                           |        |                                                                       |             |                |              |      



|The accompanying notes are an integral part
of these statements.
|----------------------------------------------------------------



| | F-6 | 
| | --- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|CONSOLIDATED STATEMENTS OF CASH
FLOWS
|-------------------------------------



|                                                                                                              |  | Years ended December 31,
|------------------------------------------------------------------------------------------------------------- |  | ------------------------
|                                                                                                              |  | 2002                    
|Cash flows from operating activities                                                                          |  |                         
|Net income (loss)                                                                                             |  | $  7,634,475            
|Adjustments to reconcile net income (loss)
        
             to net cash provided by operating activities |  |                         
|Depreciation and amortization                                                                                 |  | 1,139,531               
|Deferred income taxes                                                                                         |  | 284,408                 
|Allowance for doubtful accounts                                                                               |  |                        
|Inventory provision                                                                                           |  |                        
|Losses on short-term investments                                                                              |  | 49,535                  
|Loss due to impairment of asset                                                                               |  |                        
|Noncash compensation for consulting
        services                                                          |  | 113,685                 
|Tax benefit due to exercise of
        non-qualified 
               options and warrants                     |  | 412,734                 
|Changes in operating assets and
        liabilities                                                           |  |                         
|Accounts receivable                                                                                           |  | 161,822                 
|Inventories                                                                                                   |  | (185,359)               
|Prepaid expenses and
        other                                                                            |  | (144,083)               
|Accounts payable                                                                                              |  | (121,183)               
|Accrued expenses                                                                                              |  | 947,113                 
|Income taxes payable                                                                                          |  | (703,843)               
|                                                                                                              |  |                         
|Net cash provided by operating activities                                                                     |  | 9,588,835               
|                                                                                                              |  |                         
|Cash flows from investing activities                                                                          |  |                         
|Investments in trademarks, patents and other
        
             intangible assets                          |  |                        
|Proceeds from short-term investments                                                                          |  | 12,369,442              
|Purchase of short-term investments                                                                            |  | (10,491,464)            
|Purchase of property and equipment                                                                            |  | (404,598)               
|                                                                                                              |  |                         
|Net cash provided by (used in) investing activities                                                           |  | 1,473,380               
|                                                                                                              |  |                         
|Cash flows from financing activities                                                                          |  |                         
|Payment of notes payable                                                                                      |  | (164,764)               
|Proceeds from acquistion note                                                                                 |  |                        
|Payment of revolving credit line, net                                                                         |  |                        
|Proceeds from private placement                                                                               |  |                        
|Proceeds from exercise of stock options and
        warrants                                                  |  | 268,060                 
|Proceeds from warrant sale                                                                                    |  |                        
|Financing costs                                                                                               |  | (138,863)               
|Registration costs                                                                                            |  | (110,057)               
|Purchase of treasury stock                                                                                    |  | (517,013)               
|Distibution of treasury stock                                                                                 |  | 83,933                  
|                                                                                                              |  |                         
|Net cash provided by (used in) financing activities                                                           |  | (578,704)               
|                                                                                                              |  |                         
|NET INCREASE IN CASH AND CASH
        
               EQUIVALENTS                                             |  | 10,483,511              
|                                                                                                              |  |                         
|Cash and cash equivalents at beginning of year                                                                |  | 10,337,214              
|                                                                                                              |  |                         
|Cash and cash equivalents at end of year                                                                      |  | $20,820,725             
|                                                                                                              |  |                         
|Supplemental disclosures of cash flow information:                                                            |  |                         
|Cash paid during the year for:                                                                                |  |                         
|Interest                                                                                                      |  | $       78,000          
|Income taxes                                                                                                  |  | $  4,758,000            



|The Company entered into capital leases of
$19,353 in 2002 and $503,176 in 2001 (See Note G)
|--------------------------------------------------------------------------------------------



|Deferred tax assets and additional paid-in
capital have been increased by $2,042,045 for the tax benefit relating to the exercise
of warrants in 2001 (See Note F)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The accompanying notes are an integral part
of these statements.
|----------------------------------------------------------------



| | F-7 | 
| | --- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|NOTE A - ORGANIZATION, NATURE OF OPERATIONS
AND SUMMARY OF ACCOUNTING POLICIES
|------------------------------------------------------------------------------



|Bradley Pharmaceuticals,
Inc. (the Company) is a Delaware corporation originally founded in
1985. The Companys primary business activity is the marketing of various
pharmaceutical products (primarily dermatology, nutritional, respiratory, and
internal medicine), which primarily have been acquired through the purchase of
trademark rights and patents. The products are sold either over-the-counter or
by prescription only throughout the United States and to distributors in
selected international markets.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A summary of the
significant accounting policies of the Company applied in the preparation of the
accompanying consolidated financial statements follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------



|1.  Principles of Consolidation
|-------------------------------



|The consolidated  financial statements include
the accounts of Bradley  Pharmaceuticals,  Inc. and its wholly-owned  subsidiaries,  Doak
Dermatologics  Inc.  (Doak),  Bradley  Pharmaceuticals  Overseas,  Ltd.  (a
foreign  sales  corporation),  and Bradley  Pharmaceuticals  (Canada) Inc. All
intercompany  transactions  have been eliminated in  consolidation.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. Cash and Cash Equivalents
|----------------------------



|Cash and cash equivalents
include investments in highly liquid securities having an original maturity of
three months or less at the time of purchase.
|------------------------------------------------------------------------------------------------------------------------------------------------------



|3.  Short-term Investments
|--------------------------



|The Company accounts for
investments under Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
The Companys debt and equity securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value as
determined through quoted market prices with the unrealized gains and losses
reported in stockholders equity. The amortized cost of debt securities in
this category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income. The
cost of securities sold is based upon the specific identification method.
Held-to-maturity investments in the accompanying balance sheet represents
investments in AAA rated commercial paper maturing in January 2003. It is the
Companys intention to hold these securities to maturity.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.  Accounts Receivable and Material Customers
|----------------------------------------------



|The Company extends credit on an uncollateralized basis primarily
      to wholesale drug distributors. Historically, the Company has not experienced
      significant credit losses on its accounts. The Companys four largest
      customers accounted for an aggregate of approximately 86% and 92% of accounts
      receivable at December 31, 2002, and 2001, respectively. On December 31,
      2002, McKesson Corporation owed approximately $2,653,000 to the Company
      or 45% of accounts receivable. On December 31, 2001, Quality King Distributors
      owed approximately $3,090,000 to the Company or 56% of accounts receivable.
      Deferred revenue of $228,815 at December 31, 2001 represents the proportionate
      sales value of undelivered promotional goods to such customer. The following
      table presents a summary of sales to significant customers as a percentage
      of the Companys total revenues:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-8 | 
| | --- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|Customer                      |  | 2002 | 2001 | 2000
|----------------------------- |  | ---- | ---- | ----
|AmerisourceBergen Corporation |  | 17%  | 12%  | 23% 
|Cardinal Health, Inc.         |  | 24%  | 20%  | 27% 
|McKesson Corporation          |  | 26%  | 11%  | 11% 
|Quality King Distributors     |  | 23%  | 40%  | 18% 



|Supplemental information on
the accounts receivable balances at December 31, 2002 and 2001 are as follows:
|----------------------------------------------------------------------------------------------------------



| |                                        |  | 2002       | 2001
| | -------------------------------------- |  | ---------- | ----
| | Accounts receivable                    |  |            |     
| | Trade                                  |  | $5,851,759 |     
| | Other                                  |  | 89,029     |     
| |                                        |  |            |     
| |                                        |  | 5,940,788  |     
| |                                        |  |            |     
| | Less Allowances:                       |  |            |     
| | Chargebacks                            |  | 2,147,128  |     
| | Returns                                |  | 364,236    |     
| | Discounts                              |  | 137,001    |     
| | Allowance for doubtful accounts        |  | 195,990    |     
| |                                        |  |            |     
| |                                        |  | 2,844,355  |     
| |                                        |  |            |     
| | Accounts receivable, net of allowances |  | $3,096,433 |     
| |                                        |  |            |     



|Trade receivables consist
of sales of product primarily to wholesale customers. Other receivables
primarily consist of receivables from vendors.
|------------------------------------------------------------------------------------------------------------------------------------------------



|5. Allowances for returns, chargebacks,
discounts and doubtful accounts
|-----------------------------------------------------------------------



|Chargebacks are based on the difference between the prices
      at which the Company sells its products to wholesalers and the sales price
      ultimately paid by the end-user (often governmental agencies and managed
      care buying groups) pursuant to fixed price contracts. The Company records
      an estimate of the amount to be charged back to the Company at the time
      of sale to the wholesaler. Management estimates its reserves for chargebacks,
      based upon factors including current contract prices, historical chargeback
      rates and actual chargebacks claimed. The amount of actual chargebacks claimed
      could differ (either higher or lower) in the near term from the amounts
      accrued by the Company.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company records an
estimate of the discount amount deducted from customers payments at the
time of sale. Typically, the Company offers 2% discount based upon customer
prompt payments. Management estimates its reserves for discounts, based upon
historical discounts claimed. The amount of actual discounts claimed could
differ (either higher or lower) in the near term from the amounts accrued by the
Company.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company also maintains
a provision for doubtful accounts, which the Company believes the probability of
collecting the accounts receivable is remote. Based upon specific analysis of
the Companys accounts, the Company maintains a reserve. The amount of
actual customer defaults claimed could differ (either higher or lower) in the
near term from the amounts accrued by the Company.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-9 | 
| | --- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|6. Inventories
|--------------



|The Company purchases raw
materials and packaging components for some third party manufacturing vendors.
The Company utilizes third parties to manufacture and package finished goods
held for sale, takes title to certain finished inventories once manufactured,
and warehouses such goods until final distribution and sale. Finished goods
consist of salable products held at the Companys warehouses. Inventories
are valued at the lower of cost or market using the first-in, first-out method.
The Company provides valuation reserves for estimated obsolescence or
unmarketable inventory in an amount equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about future
demand and market conditions.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Supplemental information on
inventory balances at December 31, 2002 and 2001 are as follows:
|--------------------------------------------------------------------------------------------



|                  |  | 2002       |  | 2001      
|----------------- |  | ---------- |  | ----------
|Finished goods    |  | $1,820,609 |  | $2,012,926
|Raw materials     |  | 622,945    |  | 424,945   
|Valuation reserve |  | (277,827)  |  | (457,503) 
|                  |  |            |  |           
|Inventories, net  |  | $2,165,727 |  | $1,980,368
|                  |  |            |  |           



|7. Property and Equipment
|-------------------------



|Property and equipment is
stated at cost. Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated service lives
using the straight-line method over a period ranging from 5 to 7 years for
equipment, 3 to 5 years for furniture and fixtures and the lesser of 10 years or
the life of the lease for leasehold improvements.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|8. Intangible Assets and Goodwill
|---------------------------------



|The Company has in the past
made acquisitions of products and businesses that include goodwill, license
agreements, product rights, and other identifiable intangible assets. The
Company assesses the impairment of identifiable intangibles (including goodwill
prior to January 1, 2002) whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Some factors the Company
considers important which could trigger an impairment review include the
following; (i) significant underperformance relative to expected historical or
projected future operating results; (ii) significant changes in the manner of
our use of the acquired assets or the strategy for our overall business; and
(iii) significant negative industry or economic trends.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|When the Company determines
that the carrying value of intangible assets may not be recoverable based upon
the existence of one or more of the above indicators of impairment, the Company
first will perform an assessment of the assets recoverability based on
expected undiscounted future net cash flow, and if the amount is less than the
assets value, the Company will measure any impairment based on a projected
discounted cash flow method using a discount rate determined by our management
to be commesurate with the risk inherent in our current business model.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of January 1, 2002, the  Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets,  which eliminated the
amortization of purchased goodwill, which resulted in an  increase in pretax income of
approximately of $119,000 for the fiscal year ended  December 31, 2002. Adoption of this
standard did not have a material effect on  the Companys financial statements. Upon
adoption of SFAS No. 142, the
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-10 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|Company performed an impairment test of its goodwill (amounting
        to $289,328 at January 1, 2002) and determined that no impairment of the
        recorded goodwill existed. The fair value of the reporting unit was calculated
        on the basis of discounted estimated future cash flows and compared to
        the related book value of such reporting units. Under SFAS No. 142, goodwill
        will be tested for impairment at least annually and more frequently if
        an event occurs which indicates the goodwill may be impaired. The Company
        performed the test at December 31, 2002 and noted that no impairment existed.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of January 1, 2002 the
Company also adopted SFAS No. 144, Accounting for the Impairment or Disposal of
Long-lived Assets, which supersedes SFAS No. 121, Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed Of. The adoption
of SFAS No. 144 had no effect on the Companys financial statements.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9.  Accrued Expenses
|--------------------



|Supplemental information on
the accrued expenses at December 31, 2002 and 2001 are as follows:
|----------------------------------------------------------------------------------------------



|                      | 2002       | 2001
|--------------------- | ---------- | ----
|Employee compensation | $1,559,583 |     
|Rebate payable        | 370,599    |     
|Rebate liability      | 1,203,200  |     
|Deferred revenue      | -0-        |     
|Other                 | 459,229    |     
|                      |            |     
|Accrued expenses      | $3,592,611 |     
|                      |            |     



|The Company establishes and maintains
reserves for amounts payable to managed care organizations and state Medicaid
programs for the reimbursement of a portion of the retail price of prescriptions
filled that are covered by the respective plans. The amounts estimated to be
paid relating to products sold are recognized as revenue reductions and as
additions to accrued expenses at the time of sale based on the Companys
best estimate of the expected prescription fill rate to these managed care
patients using historical experience adjusted to reflect known changes in the
factors that impact such reserves. The rebate liability represents the estimated
claims for rebates owed to Medicaid and managed care providers but not yet
received by the Company. The rebate payable represents actual claims for rebate
amounts received from Medicaid and managed care providers and payable by the
Company.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.  Revenue Recognition
|------------------------



|Revenue from product sales
is recognized, net of estimated provisions, when the merchandise is shipped to
an unrelated third party pursuant to Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements. Accordingly, revenue is
recognized when all four of the following criteria are met: (i) persuasive
evidence that an arrangement exists; (ii) delivery of the products has occurred;
(iii) the selling price is both fixed and determinable and; (iv) collectibility
is reasonably probable. The Companys customers consist primarily of large
pharmaceutical wholesalers who sell directly into the retail channel. Provisions
for sales discounts, and estimates for chargebacks, rebates, damaged product
returns, exchanges for expired product are established as a reduction of product
sales revenues at the time such revenues are recognized. These revenue
reductions are established by the Company as its best estimate at the time of
sale based on historical experience adjusted to reflect known changes in the
factors that impact such reserves. These revenue reductions are generally
reflected either as a direct reduction to accounts receivable through an
allowance, or as an addition to accrued expenses if the payment is due to a
party other than the wholesale or retail customer.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-11 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|The Company does not
provide any forms of price protection to wholesale customers and the Company
typically permits product returns only if the product is damaged or if it is
returned within six to 12 months of expiration and 12 months after expiration.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|11. Risks, Uncertainties and Certain
Concentrations
|---------------------------------------------------



|The Companys future
results of operations involve a number of risks and uncertainties. Factors that
could affect the Companys future operating results and cause actual
results to vary materially from expectations include, but are not limited to,
maintaining CARMOL® sales, the outcome of the Companys lawsuit against
Dermik Laboratories, Inc. and Aventis Pharmaceuticals, Inc., dependence on key
personnel, government regulation, manufacturing disruptions, competition,
reliance on certain customers and vendors, absence of redundant facilities, and
credit risk.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company is potentially
subject to concentrations of credit risk, which consist principally of cash and
cash equivalents, short-term investments, and trade accounts receivable. The
cash and cash equivalent balances at December 31, 2002 and 2001 were principally
held by three institutions, and are in excess of the Federal Deposit Insurance
Corporation (FDIC) insurance limit. As of December 31, 2002 and
2001, four wholesale customers accounted for $5,008,881 and $5,103,092 or 86%
and 92%, respectively, of the total accounts receivable balance.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company maintains
$5,000,000 of product liability insurance on its products. This insurance is in
addition to required product liability insurance maintained by the manufacturers
of the Companys products. The Company believes that this amount of
insurance coverage is adequate and reasonable, although the Company cannot
assure that product liability claims will not exceed that coverage. In addition,
the Company may mot be able to maintain its liability insurance at reasonable
premium rates, if at all. To date no product liability claim has been made
against the Company and the Company is not aware of any pending or threatened
claim. To date no product liability claim has been made against the Company and
the Company is not aware of any pending or threatened claim.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|All manufacturers,
marketers, and distributors of human pharmaceutical products are subject to
regulation by the FDA. New drugs must be the subject of an FDA-approved new drug
application before they may be marketed in the United States. Some prescription
and other drugs are not the subject of an approved marketing application but,
rather, are marketed subject to the FDAs regulatory discretion and/or
enforcement policies. Any change in the FDAs enforcement discretion and/or
policies could alter the way the Company conducts business and any such change
could severely impact the Companys future profitability.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Companys DECONAMINE® and BRONTEX® immediate
      release products, which currently has prescription status, falls under a
      recently issued final monograph. Once the Federal Drug Administration (FDA),
      issues a final monograph, a product is required to convert from prescription
      status to over-the-counter status. This final monograph for DECONAMINE®
      and BRONTEX® immediate release products has been issued thereby requiring
      DECONAMINE® and BRONTEX® immediate release products to convert from
      prescription status to over-the-counter status by December 31, 2004. The
      Company currently intends to continue to market and distribute the DECONAMINE®
      and BRONTEX® immediate release products line of products as prescription
      only as long as the Company may lawfully continue to do so. The Company
      is presently exploring its marketing and distribution strategy relating
      to the DECONAMINE® and BRONTEX® products for after these products
      are converted from prescription status to over-the-counter status, and,
      as such, it is not currently possible to predict how the Companys
      operations and
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-12 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|financial condition will be affected. The DECONAMINE®
      product line, including immediate release and extended release products,
      accounted for approximately 7%, 7%, and 12% of 2002, 2001 and 2000 net sales.
      The BRONTEX® product line accounted for 1%, 2%, and 3% of 2002, 2001
      and 2000 net sales.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Further, the Company may be required to file an Abbreviated
      New Drug Application, an ANDA, with the FDA for our DECONAMINE® SR,
      extended release product. The project is being deferred until regulatory
      and competitive circumstances warrant completion and submission to the FDA.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The CARMOL® product line
accounted for approximately 61%, 45% and 41% of the 2002, 2001 and 2000 net
sales, respectively. Changes in the performance of the Companys CARMOL®
product line, consequently, will have a material effect on future operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As more fully discussed in
Note J.3, the Company has filed two lawsuits relating to patent infringements on
the Companys product line. If a competing 40% urea product is launched,
whether as a result of the Companys current litigation or otherwise, the
Companys CARMOL®40 sales and profits could materially suffer.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the year ended December
31, 2002, five vendors that manufacture and package products for the Company
accounted for approximately 41%, 12%, 8%, 6% and 5% each of the Companys
cost of goods sold. For the year ended December 31, 2001, five vendors that
manufacture and package products for the Company accounted for approximately
34%, 13%, 10%, 10% and 8% each of the Companys cost of goods sold. For the
year ended December 31, 2000, five vendors that manufacture and package products
for the Company accounted for approximately 13%, 13%, 12%, 11% and 11% each of
the Companys cost of goods sold. No other vendor, packager or manufacturer
accounted for more than 5%, 8% and 11% of the Companys cost of goods sold
for 2002, 2001 or 2000, respectively. The Company currently has no manufacturing
facilities of its own and, accordingly, is dependent upon maintaining its
existing relationship with its vendors or establishing new vendor relationships
to avoid a disruption in the supply of products to supply inventory. There can
be no assurance that the Company would be able to replace its current vendors
without any disruption to operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company had export
sales of approximately 4%, 7% and 11% of its net sales for the years ended
December 31, 2002, 2001 and 2000, respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------



|12.  Net Income (Loss) Per Common Share
|---------------------------------------



|The Company computes income
per share in accordance with Statement of Financial Accounting Standards No. 128
Earnings per Share (SFAS 128) which specifies the compilation,
presentation and disclosure requirements for income (loss) per share for
entities with publicly held common stock or instruments which are potentially
common stock.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-13 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|13. Income Taxes
|----------------



|The Company and its
subsidiaries file a consolidated Federal income tax return.
|-------------------------------------------------------------------------------



|Deferred
income taxes are provided for the future tax consequences attributable to the
differences between the financial statement carrying amounts of assets and
liabilities and their respective tax base. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion of the deferred tax assets will not be realized.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|14. Reclassifications
|---------------------



|Certain reclassifications
have been made to the 2001 and 2000 financial statements in order to conform to
the current presentation.
|-----------------------------------------------------------------------------------------------------------------------------------



|15. Using Estimates in Financial Statements
|-------------------------------------------



|In preparing financial
statements in conformity with accounting principles generally accepted in the
United States of America, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates. The Companys estimate for chargebacks,
rebates, discounts and returns, the determination of useful lives of intangibles
and the realization of deferred tax assets represent particularly sensitive
estimates.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|16. Advertising
|---------------



|The Company expenses
advertising costs as incurred. Total advertising costs charged to expense
amounted to approximately $4,525,000, $3,246,000 and $2,260,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|17. Shipping and Handling Costs
|-------------------------------



|The Company expenses
shipping and handling costs as incurred. Shipping and handling costs charged to
selling, general, and administration expense amounted to $395,618, $273,394 and
$194,404 for the years ended December 31, 2002, 2001 and 2000, respectively.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|18. Research and Development
|----------------------------



|Research and development
costs related to both present and future products are expensed currently. Total
expenditures on research development charged to selling, general, and
administration expense for fiscal 2002, 2001 and 2000 were $532,035, $278,841
and $245,261, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|19. Stock Based Compensation
|----------------------------



|The Company has the1990 Stock Option Plan and the 1999 Incentive
      and Non-Qualified Stock Option Plan, which are described more fully in Note
      I.2. The Company accounts for those plans under the recognition and measurement
      principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,
      and
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-14 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|related Interpretations. No stock-based employee compensation
      cost is reflected in net income (loss), as all options granted under those
      plans had an exercise price equal or above the market value of the underlying
      common stock on the date of grant. The following table illustrates the effect
      on net income (loss) and earnings (loss) per share if the company had applied
      the fair value recognition provisions of FASB Statement No. 123, Accounting
      for Stock-Based Compensation, using the assumptions described in Note
      I.2, to stock-based employee compensation.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                                |  | Year ended December 31,
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------
|                                                                                                                                                                |  | 2002                   
|Net income (loss), as reported                                                                                                                                  |  | $7,634,475             
|Deduct: Total stock-based employee compensation
          expense determined under fair value based method
          for all awards, net of related tax effects |  | (740,016)              
|                                                                                                                                                                |  |                        
|Pro forma net income (loss)                                                                                                                                     |  | $6,894,459             
|                                                                                                                                                                |  |                        
|Earnings (loss) per share:                                                                                                                                      |  |                        
|Basicas reported                                                                                                                                               |  | $0.73                  
|                                                                                                                                                                |  |                        
|Basicpro forma                                                                                                                                                 |  | $0.66                  
|                                                                                                                                                                |  |                        
|Dilutedas reported                                                                                                                                             |  | $0.67                  
|                                                                                                                                                                |  |                        
|Dilutedpro forma                                                                                                                                               |  | $0.60                  
|                                                                                                                                                                |  |                        



|20.  New Accounting Standards
|-----------------------------



|In April 2002, the Financial  Accounting  Standards  Board issued SFAS No. 145,  Rescission of FASB Statements No.
4, 44, and 64,  Amendment  of FASB  Statement  No. 13,  and     Technical  Corrections.  SFAS No. 145 rescinds the
requirement  that all  gains and  losses  from  extinguishment  of debt be  classified  as an  extraordinary  item.
Additionally,  SFAS No. 145  requires  that certain  lease  modifications  that have  economic  effects  similar to
sale-leaseback  transactions be accounted for in the same manner as  sale-leaseback  transactions.  SFAS No. 145 is
effective for the Company  beginning in 2003, and the effect of adoption is not expected to have a material  impact
on the consolidated financial statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June 2002, the FASB
issued SFAS No. 146, Accounting for Costs Associated with Exit and
Disposal Activities. This statement revises the accounting for exit and
disposal activities under Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity. Specifically, SFAS 146 requires that companies
record the costs to exit an activity or dispose of long-lived assets when those
costs are incurred. SFAS 146 requires that the measurement of the liability be
at fair value. The provisions of SFAS 146 are effective prospectively for exit
or disposal activities initiated after December 31, 2002 and will impact any
exit or disposal activities initiated after such date.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In December 2002, the FASB  issued SFAS No. 148,
Accounting for Stock-Based Compensation - Transition  and Disclosure. This
statement amends SFAS No. 123, Accounting for  Stock-Based Compensation, to
provide alternative methods of transition for  an entity that changes to the fair value
method of accounting for stock-based  employee compensation. In addition, SFAS 148 amends
the disclosure provisions of  SFAS 123 to require expanded and more prominent disclosures
in annual financial  statements about the method of accounting for stock based
compensation and the  proforma effect on reported results of applying the fair value
method for  entities that use the intrinsic value method. The proforma disclosures are
also  required to be displayed prominently in interim financial statements. The
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-15 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|Company does not intend to change to the fair
value method of accounting and has  included the disclosure requirements of SFAS 148 in
the accompanying financial  statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In November 2002, the FASB
issued Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45). FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. FIN 45 is effective on a prospective
basis to guarantees issued or modified after December 31, 2002, but has certain
disclosure requirements effective for financial statements of interim or annual
periods ending after December 15, 2002. The Company has historically not issued
guarantees and the Company does not anticipate adoption disclosure requirements
of FIN 45 to have a material effect on its financial position or results of
operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In January 2003, the FASB issued FASB Interpretation 46 (FIN
      46), Consolidation of Variable Interest Entities. FIN 46 clarifies
      the application of Accounting Research Bulletin 51, Consolidated Financial
      Statements, for certain entities that do not have sufficient equity
      at risk for the entity to finance its activities without additional subordinated
      financial support from other parties or in which equity investors do not
      have the characteristics of a controlling financial interest (variable
      interest entities). Variable interest entities within the scope of
      FIN 46 will be required to be consolidated by their primary beneficiary.
      The primary beneficiary of a variable interest entity is determined to be
      the party that absorbs a majority of the entitys expected losses,
      receives a majority of its expected returns, or both. FIN 46 applies immediately
      to variable interest entities created after January 31, 2003, and to variable
      interest entities in which an enterprise obtains an interest after that
      date. It applies in the first fiscal year or interim period beginning after
      June 15, 2003, to variable interest entities in which an enterprise holds
      a variable interest that it acquired before February 1, 2003. The Company
      is in the process of determining what impact, if any, the adoption of the
      provisions of FIN 46 will have upon its financial condition or results of
      operations. Certain transitional disclosures required by FIN 46 in all financial
      statements initially issued after January 31, 2003 have been included in
      the accompanying financial statements.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In November 2002, the
Emerging Issues Task Force reached a consensus opinion on EITF 00-21,
Revenue Arrangements with Multiple Deliverables. The consensus
provides that revenue arrangements with multiple deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the arrangement should be allocated to the separate units of accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance conditions. Applicable revenue recognition
criteria should be considered separately for each separate unit of accounting.
EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. Entities may elect to report the change as a
cumulative effect adjustment in accordance with APB Opinion 20, Accounting
Changes. The Company has not determined the effect of adoption of EITF 00-21 on
its financial statements or the method of adoption it will use.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE B - SHORT-TERM INVESTMENTS
|-------------------------------



|The Companys
short-term investments are intended to establish a high-quality portfolio that
preserves principal, meets liquidity needs and delivers an appropriate yield in
relationship to the Companys investment guidelines and market conditions.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-16 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|The Company invests
primarily in money market funds, short-term commercial paper, short-term
municipals, treasury bills, and treasury notes. By policy, the Company invests
primarily in high-grade investments.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following is a summary
of available-for-sale securities for December 31, 2002:
|----------------------------------------------------------------------------------



|                                    |  | Cost       |  | Gross Unrealized 
          Gain/ (Loss) | Gross Fair Value
|----------------------------------- |  | ---------- |  | ---------------------------------------- | ----------------
|Treasury notes                      |  | $2,993,698 |  | $98,323                                  |                 
|Total available-for-sale securities |  | $2,993,698 |  | $98,323                                  |                 
|                                    |  |            |  |                                          |                 



|The following is a summary of
available-for-sale securities for December 31, 2001:
|----------------------------------------------------------------------------------



|                                    |  | Cost       | Gross Unrealized 
          Gain/ (Loss) | Gross Fair Value
|----------------------------------- |  | ---------- | ---------------------------------------- | ----------------
|Short-term municipals               |  | $1,009,329 |                                          | $ (17)          
|Bond funds                          |  | 827,042    |                                          | (37,037)        
|Corporate bonds                     |  | 1,871,473  |                                          | (20,350)        
|Equities                            |  | 758,739    |                                          | 18,111          
|                                    |  |            |                                          |                 
|Total available-for-sale securities |  | $4,466,583 |                                          | $(39,293)       
|                                    |  |            |                                          |                 



|During the year ended December 31, 2002, 2001 and 2000, the
      Company had gross realized losses on sales of available-for-sale securities
      of $129,834, zero and zero, respectively. During the year ended December
      31, 2002, 2001 and 2000, the Company had gross realized gains on sales of
      available-for-sale securities of $80,299, zero and zero, respectively. The
      net adjustment to unrealized gains during fiscal 2002 on available-for-sale
      securities included in stockholders equity totaled $137,616 and the
      net adjustment to unrealized losses during fiscal 2001 on available-for-sale
      securities included in stockholders equity totaled $39,293. The Company
      views its available-for-sale securities as available for current operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Companys
held-to-maturity investments represent deposits with financial institutions that
have an original maturity of more than three months and a remaining maturity of
less than 1 year, when purchased. Securities classified as held-to-maturity,
which consist of securities that management has the ability and intent to hold
to maturity, are carried at cost.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-17 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|The composition of the
Companys held-to-maturity investments at December 31, 2002 is as follows:
|-------------------------------------------------------------------------------------------------



|Certificate of deposit 
             estimated amount collectable from
        FDIC |  | $    200,000 | 
|----------------------------------------------------------------------------------- |  | ------------ | 
|Commercial paper, 1.55%  
             maturity date January 2, 2003                |  | 1,400,000    | 
|Treasury notes, 1.59% 
            maturity date February 6, 2003                   |  | 496,070      | 
|                                                                                    |  |              | 
|Total held-to-maturity investments                                                  |  | $ 2,096,070  | 
|                                                                                    |  |              | 



|Due to the short maturity
dates of the held-to-maturity investments, the carrying value approximates the
fair market value at December 31, 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------



|The composition of the
Companys held-to-maturity investments at December 31, 2001 is as follows:
|-------------------------------------------------------------------------------------------------



|Certificate of deposit, 5.64%, 
                maturity date March 8, 2002      |  | $ 1,043,526 | 
|-------------------------------------------------------------------------------- |  | ----------- | 
|Certificate of deposit   
                estimated amount collectable from FDIC |  | 300,000     | 
|Certificate of deposit, 5.32%,  
                maturity date May 30, 2002      |  | 206,224     | 
|Certificate of deposit, 4.01%  
                maturity date October 2, 2002    |  | 500,000     | 
|Certificate of deposit, 3.64%  
                maturity date December 13, 2002  |  | 500,948     | 
|                                                                                 |  |             | 
|Total held-to-maturity investments                                               |  | $2,550,698  | 
|                                                                                 |  |             | 



|Held to maturity
investments at December 31, 2001 that matured during 2002 generated realized
gains of zero in 2002.
|--------------------------------------------------------------------------------------------------------------------



|In Fourth Quarter 2001, the
Company recorded a $700,000 pre-tax charge related to an impairment of an
investment resulting from a subsequent bank failure. A portion of the $1 million
certificate of deposit the Company invested is unlikely to be collected. The
revised carrying amount of $200,000 represents the estimated amount realizable
on the certificate of deposit based upon information obtained from the FDIC.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-18 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|The amortized cost and
estimated fair value of the available-for-sale securities at December 31, 2002,
by maturity, are shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties, and the Company views its
available-for-sale securities as available for current operations.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Available-for-sale                   |  | Cost             | Estimated Fair 
        Value
| | ------------------------------------ |  | ---------------- | -----------------------------
| | Due in one year or less              |  | $            -0- |                              
| | Due after one year through two years |  | 399,622          |                              
| | Due after two years                  |  | 2,594,076        |                              
| |                                      |  |                  |                              
| | Total                                |  | $2,993,698       |                              
| |                                      |  |                  |                              



|NOTE C - INTANGIBLE ASSETS
|--------------------------



|Details of intangible
assets are summarized as follows:
|-------------------------------------------------------



|                         |  | Cost        |  | December 31, 
        2002 
        Accumulated 
        Amortization |  | Net        |  | Cost        |  | December 31, 
        2001 
      Accumulated 
        Amortization |  | Net       
|------------------------ |  | ----------- |  | --------------------------------------------------------------------- |  | ---------- |  | ----------- |  | ------------------------------------------------------------------- |  | ----------
|Trademarks               |  | $18,262,486 |  | $12,262,269                                                           |  | $6,000,217 |  | $18,262,486 |  | $11,461,472                                                         |  | $6,801,014
|Patents                  |  | 1,327,454   |  | 1,271,734                                                             |  | 55,720     |  | 1,327,454   |  | 1,251,742                                                           |  | 75,712    
|Licenses                 |  | 124,886     |  | 121,680                                                               |  | 3,206      |  | 124,886     |  | 109,200                                                             |  | 15,686    
|Covenants not to compete |  | 162,140     |  | 162,140                                                               |  | -0-        |  | 162,140     |  | 162,140                                                             |  | -0-       
|                         |  |             |  |                                                                       |  |            |  |             |  |                                                                     |  |           
|                         |  | $19,876,966 |  | $13,817,823                                                           |  | $6,059,143 |  | $19,876,966 |  | $12,984,554                                                         |  | $6,892,412
|                         |  |             |  |                                                                       |  |            |  |             |  |                                                                     |  |           



|Trademarks, patents and
licenses are all intangible assets with definite useful lives and therefore
continue to be amortized under SFAS 142. Amortization periods for intangible
assets as of December 31, 2002 are summarized as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|           | Weighted Average 
        Amortization Period
|---------- | ---------------------------------------------
|Trademarks | 16                                           
|Patents    | 7                                            
|Licenses   | 10                                           



|The following relates to
the Companys intangible assets with definitive useful lives:
|--------------------------------------------------------------------------------------



|Aggregate Amortization Expense |          | 
|------------------------------ | -------- | 
|For the fiscal year ended 2000 | $839,685 | 
|For the fiscal year ended 2001 | $933,388 | 
|For the fiscal year ended 2002 | $833,269 | 



| | F-19 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



| | Estimated Amortization
        Expense |          | 
| | -------------------------------------- | -------- | 
| | Year ended December 31, 2003           | $823,846 | 
| | Year ended December 31, 2004           | $770,298 | 
| | Year ended December 31, 2005           | $734,024 | 
| | Year ended December 31, 2006           | $714,356 | 
| | Year ended December 31, 2007           | $637,076 | 



|Intangible assets arose principally from the following significant
      transactions.
|--------------------------------------------------------------------------------------



|1.  TRANSVERSAL® Acquisition
|------------------------------



|On  March 30, 1993, the Company acquired from
Tsumura Medical, a division of Tsumura  International, Inc., all technical, proprietary
and distribution rights to five  specialized dermal patch products currently used in the
treatment of warts. Of  the total purchase price, $866,250 was attributed to trademarks
with an  estimated life of 20 years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2.  DECONAMINE® Acquisition
|---------------------------



|On  December 10, 1993, the Company acquired from
Berlex Laboratories, Inc., a  subsidiary of Schering AG, all technical, proprietary
rights, distribution  rights, including trademarks and registrations to an allergy and
decongestant  remedy called DECONAMINE®.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  total amount of consideration issued for
the DECONAMINE® acquisition is as  follows: (1) Cash paid for 1993- $6,000,000; 1994-
$2,000,000; 1996- $2,660,000;  1997- $1,650,000 (2) Common stock issued for 1996-
1,000,000 shares; and 1997-  450,000 shares (3) Warrants issued for 1997- 750,000
warrants with an exercise  price of $1.25, which were exercised on July 31, 2001. Of the
total purchase  price, $12,962,994 was attributed to trademarks with an estimated life of
20  years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During  2000, the Company recorded an impairment
loss relating to the DECONAMINE® trademark. As a result of the Companys
strategic review process of its  product lines and related intangible assets, the Company
determined that an  event or circumstance occurred. The Company changed its future sales
forecast  for the product during April 2000 after it became apparent that significant
marketing attention during the Fourth Quarter 1999 had minimal impact on the  products
sales. Consequently, the fair value of the DECONAMINE® trademark was calculated on
the basis of discounted estimated future cash flows  and resulted in a non-cash charge of
$3,897,000. This charge, which has been  recorded in the consolidated statement of
income, had no impact on the  Companys cash flow.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Additionally  during 2000, the Company revised
its estimate of the useful life of  DECONAMINE®. The Company believes that a
remaining useful life at December 31,  2000 of 13 years is appropriate.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3.  PAMINE® Acquisition
|-----------------------



|In  February 1994, the Company acquired from
Pharmacia Corporation all United States  manufacturing, packaging and proprietary rights,
including all trademarks,  registrations, marketing data, and customer lists of PAMINE® tablets,
methscopalamine bromide, used in connection with the treatment of peptic ulcers.  Of the
total purchase price, $251,000 was allocated to trademarks with a useful  life of 15
years.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-20 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|4.  CARMOL® Acquisition
|-----------------------



|In  June 1994, the Company acquired from Syntex
(U.S.A.) Inc., packaging, quality  control, stability, drug experience, file history,
customer lists and marketing  rights, titles and interests, including all U.S. trademarks
to CARMOL® 10 and  CARMOL® 20 (nonprescription total body moisturizers) and CARMOL® HC
(a  prescription moisturizer containing hydrocortisone) (the CARMOL® Products).
The Company agreed to pay Syntex a 3% royalty on sales of  CARMOL® Products,
commencing June 10, 1997 for a period of seven years. Of the  total purchase price,
$495,000 was allocated to trademarks with a useful life of  10 years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5.  ACIDMANTLE® Acquisition
|---------------------------



|In  May 1996, the Company acquired from Novartis
AG the trademark rights to the  ACIDMANTLE® skin treatment line, including the
manufacturing, marketing and  distribution rights within the United States and Puerto
Rico. The majority of  the Purchase Price of $900,000 was attributed to trademarks with
an estimated  life of 10 years.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6.  BRONTEX® Acquisition
|------------------------



|In  October 1998, the Company acquired from
Procter & Gamble Pharmaceuticals,  Inc. all technical information, manufacturing,
packaging and proprietary rights,  including all trademarks, registrations, marketing
data, customer lists and  other information relating to an antitussive/expectorant remedy
called  BRONTEX®. The majority of the purchase price of $1,842,000 was attributed to
trademarks with an estimated life of 15 years.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During  April 2001, the Company revised its
estimate of the useful life of BRONTEX®.  The Company believes that a remaining
useful life of 8 years is appropriate. Due  to this change in estimate, the Company
amortized approximately an additional  $75,000 during 2002 and $57,000 during 2001.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7.  Doak Pharmacal Co., Inc. Acquisition
|----------------------------------------



|In 1994 and 1995,  the Company  acquired the
shares of Doak Pharmacal Co., Inc., for  approximately  $1,349,000.  Doak  was a
publicly  traded  company  engaged  in the  manufacture  and  sale  of  over-the-counter
cosmetic  dermatologic products and ethical dermatologic  products.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE D- GOODWILL
|----------------



|The following
proforma  table presents a reconciliation of net income (loss) and earnings (loss) per
share amounts for the fiscal years 2002, 2001 and 2000, as reported in the  financial
statements, to those amounts adjusted for goodwill amortization  determined in accordance
with SFAS No. 142.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                               |  | 2002       | 2001 | 2000      
|------------------------------ |  | ---------- | ---- | ----------
|Reported net income (loss)     |  | $7,634,475 |      | $3,611,966
|Addback: goodwill amortization |  | -0-        |      | 118,933   
|                               |  |            |      |           
|Adjusted net income (loss)     |  | $7,634,475 |      | $3,730,899
|                               |  |            |      |           



| | F-21 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|                                          |  | 2002  | 2001 | 2000 
|----------------------------------------- |  | ----- | ---- | -----
|Basic earnings (loss) per common share:   |  |       |      |      
|Reported net income (loss)                |  | $0.73 |      | $0.42
|Goodwill amortization                     |  | 0.00  |      | 0.02 
|                                          |  |       |      |      
|Adjusted net income (loss)                |  | $0.73 |      | $0.44
|                                          |  |       |      |      
|Diluted earnings (loss) per common share: |  |       |      |      
|Reported net income (loss)                |  | $0.67 |      | $0.37
|Goodwill amortization                     |  | 0.00  |      | 0.02 
|                                          |  |       |      |      
|Adjusted net income (loss)                |  | $0.67 |      | $0.39
|                                          |  |       |      |      



|NOTE E - PROPERTY AND EQUIPMENT
|-------------------------------



|Property  and equipment are summarized as
follows:
|--------------------------------------------------



|                         |  | December 31, 2002 | December 31, 2001
|------------------------ |  | ----------------- | -----------------
|Furniture and Fixtures   |  | $     859,573     |                  
|Equipment                |  | 1,334,412         |                  
|Leasehold Improvements   |  | 201,668           |                  
|                         |  |                   |                  
|                         |  | 2,395,653         |                  
|Accumulated Depreciation |  | (1,479,972)       |                  
|                         |  |                   |                  
|                         |  | $     915,681     |                  
|                         |  |                   |                  



|Assets  under capital lease were $603,969 and
$589,116 as of December 31, 2002 and  December 31, 2001. Related accumulated depreciation
was $293,573 and $139,635 as  of December 31, 2002 and 2001.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-22 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|NOTE F - INCOME TAXES
|---------------------



|The  provision for income tax expense (benefit)
is as follows:
|--------------------------------------------------------------



|         |  | Year ended 
          December 31, 2002 | Year ended  
          December 31, 2001 | Year ended  
          December 31, 2000
|-------- |  | --------------------------------------- | ---------------------------------------- | ----------------------------------------
|Current  |  |                                         |                                          |                                         
|Federal  |  | $3,846,000                              |                                          | $ 1 ,810,000                            
|State    |  | 897,000                                 |                                          | 287,000                                 
|         |  |                                         |                                          |                                         
|         |  | 4,743,000                               |                                          | 2,097,000                               
|         |  |                                         |                                          |                                         
|Deferred |  |                                         |                                          |                                         
|Federal  |  | 2,000                                   |                                          | (1,260,000)                             
|State    |  | 1,000                                   |                                          | (183,000)                               
|         |  |                                         |                                          |                                         
|         |  | 3,000                                   |                                          | (1,443,000)                             
|         |  |                                         |                                          |                                         
|         |  | $4,746,000                              |                                          | $      654,000                          
|         |  |                                         |                                          |                                         



|The following  is a summary of the items giving
rise to deferred tax assets at December 31,  2002 and 2001.
|-----------------------------------------------------------------------------------------------------------



|                                              |  | 2002        | 2001
|--------------------------------------------- |  | ----------- | ----
|Current                                       |  |             |     
|Allowance for doubtful
        accounts       |  | $    72,516 |     
|Allowance on sales                            |  | 633,971     |     
|Investment loss accrual                       |  | 259,000     |     
|Inventory reserves and
        capitalization |  | 229,198     |     
|Accrued expenses                              |  | 145,070     |     
|                                              |  |             |     
|                                              |  | $1,339,755  |     
|                                              |  |             |     
|Long-term                                     |  |             |     
|Intangibles and fixed
        assets          |  | $2,787,479  |     
|                                              |  |             |     



|As  of December 31, 2002 and 2001, the Company
determined that no deferred tax asset  valuation allowance was necessary. The Company
believes that its projections of  future taxable income make it more likely than not that
such deferred assets  will be realized.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  deferred tax asset valuation allowance was
reduced by approximately $1,043,000  in 2001 and increased by approximately $450,000 in
2000.
|---------------------------------------------------------------------------------------------------------------------------------------------



|During 2001, deferred tax assets and additional paid-in capital
      have been increased by $2,042,045 for the tax benefit relating to the exercise
      of warrants. During 2002, deferred tax assets and current taxes payable
      were reduced by $281,661 relating to these warrants.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-23 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|The  difference between the actual Federal
income tax expense and the amount computed  by applying the prevailing statutory rate to
income before income taxes is  reconciled as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                 | Year ended December 31, 
        2002 | Year ended December 31, 
        2001 | Year ended December 31, 
        2000
|-------------------------------- | ------------------------------------- | ------------------------------------- | -------------------------------------
|                                 |                                       |                                       |                                      
|Tax at statutory rate            | 34.0%                                 | 34.0%                                 | (34.0%)                              
|State income tax expense, net of |                                       |                                       |                                      
|Federal tax effect               | 4.8                                   | 2.8                                   | 2.3                                  
|Change in valuation allowance    | -0-                                   | (24.5)                                | 18.3                                 
|Other                            | (0.5)                                 | 3.0                                   | (2.8)                                
|                                 |                                       |                                       |                                      
|Effective tax rate               | 38.3%                                 | 15.3%                                 | (16.2%)                              
|                                 |                                       |                                       |                                      



|NOTE G -REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
|----------------------------------------------------



|On  November 20, 2002, the Company entered into
a loan agreement with Wachovia Bank  with respect to a $5 million revolving asset-based
credit facility and a $10  million acquisition facility for future product acquisitions.
This loan  agreement with Wachovia Bank replaces the previous loan agreement with LaSalle
Business Credit, Inc., which expired on November 6, 2002. Advances under the  revolving
asset-based credit facility are calculated pursuant to a formula,  which is based upon
the Companys eligible accounts receivable and  inventory levels. Advances under the
$10 million acquisition facility are  pursuant to the Company finding a potential
acquisition, satisfying financial  covenants and depending upon the potential size of an
acquisition  Wachovias final approval. This loan agreement has an initial term of
two  years. Interest accrues on amounts outstanding under this new loan agreement at  a
rate equal to LIBOR plus 1.85% (3.23% at December 31, 2002) and the commitment  fee
accrues on the unused portion of the asset-based credit facility and the  acquisition
facility at a rate equal to .05% per annum. The Companys  obligations under this
loan agreement have been collateralized by the  Companys grant to Wachovia of a
lien upon substantially all the  Companys assets.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  loan agreement with Wachovia includes
various restrictive covenants prohibiting  the Company with certain limited exceptions,
from, among other things, incurring  additional indebtedness and paying dividends,
substantial asset sales and  certain other payments. The loan agreement also contains
financial covenants  including quick ratio, funds flow coverage ratio, and total
liabilities to  tangible net worth ratio.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As  of December 31, 2002, the Company had no
borrowings issued under the revolving  asset-based line of credit and the acquisition
note with a remaining  availability pursuant to a borrowing base of $5,000,000 from the
revolving line  of credit and $10,000,000 from the acquisition note.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  Company had no borrowings issued under the
revolving asset-based line of credit  and the acquisition note at December 31, 2001.
|------------------------------------------------------------------------------------------------------------------------------------



| | F-24 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|Long-term  debt consists of the following:
|------------------------------------------



| |                                     | December 31, 2002 |  | December 31, 2001
| | ----------------------------------- | ----------------- |  | -----------------
| | Installment note due 2001 (a)       | $ 60,084          |  |                  
| | Capital lease obligation (b)        | 191,138           |  |                  
| | Other capital lease obligations (c) | 128,650           |  |                  
| |                                     |                   |  |                  
| | Other installment notes             | -0-               |  |                  
| |                                     |                   |  |                  
| |                                     | 379,872           |  |                  
| | Less: current maturities            | (224,510)         |  |                  
| |                                     |                   |  |                  
| |                                     | $ 155,362         |  |                  
| |                                     |                   |  |                  



|(a) | The
note payable, which originated in August 1991 in connection with  the acquisition of a
trademark (DUADACIN®), calls for interest only,  at the rate of 10% commencing August
1992, and quarterly installments  consisting of principal and interest in the amount of
$6,865 for the  eight-year period commencing November 1993. This note is collateralized
by the trademark assigned to the Company.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|(b) | On
March 8, 2001,  the Company  entered into a lease  purchase  agreement  with General
Electric  Capital  Business  Asset  Funding  Corporation  that is  comprised  of a
$300,000  credit  facility  for  equipment  purchases,  specifically  to upgrade  and
install a computer  network.  At the  conclusion  of the interim  period (the period the
Company  purchases the  equipment),  this lease purchase  agreement has a term of 3
years.  During  the  interim  period,  the  Company  is subject to  interest  in an
amount  determined  by  applying  the  interim  rate,  which is the prime rate of
interest  announced  from time to time by Chase  Manhattan  Bank plus one  percent,  to
the total  then  outstanding  balance.  During  the basic term (the  period  subsequent
to the interim  period),  beginning on July 1, 2001, the Company is subject to interest
in an amount determined by applying the periodic rate of 10% to the total cost.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | On June
28, 2001, the  credit facility was amended by increasing the funding commitment to
$380,225.
| | ----------------------------------------------------------------------------------------------------





|(c) | The
other capital lease obligations consist of (1) a financing  agreement initiated in April
1999 for $23,000 with an interest rate of  7.6% and an original term of 3 years; (2) a
automobile financing  agreement initiated in February 1999 for $59,000 with an interest
rate  of 9.0% and an original term of 5 years; (3) during September 2001, the  Company
entered into financing agreements for $73,000 for the purchase  of automobiles, with a
term of 5 years and an interest rate of 6.9%;  (4) during October 2001, the Company
entered into a financing agreement  for $50,000 for the purchase of an automobile, with a
term of 5 years  and an interest rate of 6.5%; and (5) during February 2002, the Company
entered into a financing agreement for $19,000 for the purchase of an  automobile, with a
term of 3 years and an interest rate of 5.9%
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|The  annual maturities of long-term debt are
$224,510 due in 2003, $105,530 due in  2004, $27,734 due in 2005, $22,098 due in 2006 and
none due in 2007 and beyond.  Because of the nature of the Companys debt, its
maturites, and prevailing  interest rates, the Company believes that the carrying value
of the long-term  debt approximates its fair value at December 31, 2002 and 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-25 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|NOTE H - RELATED PARTY TRANSACTIONS
|-----------------------------------



|1.  Transactions With an Affiliated Company
|-------------------------------------------



|During  the years ended December 31, 2002, 2001
and 2000, the Company received  administrative support services (consisting principally
of mailing, copying,  financial services, data processing and other office services)
which were  charged to operations from Medimetrik, Inc. (formerly Banyan Communications
Group, Inc.), an affiliate, in the amount of $109,329, $167,377 and $215,190,
respectively. Daniel and Iris S. Glassman, directors and shareholders, are  majority
owners of Medimetrik, Inc.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2.  Transactions With Shareholders
|----------------------------------



|During  2002, the Company leased 24,000 square
feet of office and warehouse space at 383  Route 46 West, Fairfield, New Jersey, expiring
on January 31, 2008 with a  limited liability company (LLC) controlled by
Daniel and Iris  Glassman. During 2001 and 2000, the Company leased 14,100 square feet of
office  and warehouse space at 383 Route 46 West, Fairfield, New Jersey from that same
LLC. Rent expense, including the Companys proportionate share of real  estate
taxes, was approximately $349,000, $223,000 and $225,000 in 2002, 2001  and 2000,
respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The above lease meets the conditions to be considered a variable
      interest entity (VIE). The VIEs assets consist primarily of a building
      recorded at approximately $2,130,000, debt of approximately $1,590,000 and
      equity of approximately $540,000. Daniel Glassman and his spouse own approximately
      10% and his children own approximately 90% of this VIE. The Company does
      not currently consolidate the VIE because it is not required to under current
      accounting standards; however, it is reasonably possible that it will be
      required to consolidate the VIE beginning July 1, 2003.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On  January 3, 2000, the Company advanced
$100,000 to Daniel Glassman, pursuant to a  promissory note bearing interest at 8.25% per
annum. The accrued interest and  principal was due in full, three years from the
execution date, except that  fifty percent of all future bonus payments would be applied
first to accrued  interest, then to principal. On January 1, 2002, Mr. Glassman owed
$71,420 in  principal and interest from this promissory note. During March 2002, Mr.
Glassman paid the remaining outstanding principal and interest balances in full.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  Company consults with Bruce Simpson, a
member of the Board of Directors. Mr.  Simpson provides services in marketing, sales, and
corporate development. His  related consultant expense was approximately $24,000, $34,000
and $8,000 for the  years ended December 31, 2002, 2001 and 2000, respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-26 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|NOTE I - SHAREHOLDERS EQUITY
|-----------------------------



|The  Companys authorized shares of common
stock are divided into two classes,  of which 26,400,000 shares are common stock and
900,000 shares are Class B  common stock. The rights, preferences and limitations of the
common stock and  the Class B common stock are equal and identical in all respects,
except that  each common stock share entitles the holder thereof to one vote upon any and
all  matters submitted to the shareholders of the Company for a vote, and each Class  B
share entitles the holder thereof to five votes upon certain matters submitted  to the
shareholders of the Company for a vote.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Both  common stock and Class B common stock vote
together as a single class upon any  and all matters submitted to the shareholders of the
Company for a vote,  provided, however, that the holders of common stock and holders of
Class B  common stock vote as two separate classes to authorize any proposed amendment to
the Companys Certificate of Incorporation, which affects the rights and
preferences of such classes. So long as there are at least 325,000 shares of  Class B
common stock issued and outstanding, the holders of Class B common stock  vote as a
separate class to elect a majority of the directors of the Company  (who are known as
Class B Directors), and the holders of common  stock and voting preferred
stock, if any, vote together as a single class to  elect the remainder of the directors
of the Company.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  Board of Directors may divide the preferred
stock into any number of series, fix  the designation and number of shares of each such
series, and determine or  change the designation, relative rights, preferences and
limitations of any  series of preferred stock. The Board of Directors may increase or
decrease the  number of shares initially fixed for any series, but no such decrease shall
reduce the number below the number of shares then outstanding and shares duly  reserved
for issuance.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|1.  Stock Repurchase Plan
|-------------------------



|In  January 1997, the Company announced a
program to repurchase up to 400,000 shares  of the outstanding common stock in open
market transactions over 24 months. In  January 1999, the Company completed the program
and began another program to  repurchase an additional 600,000 shares of the outstanding
common stock in open  market transactions or a cumulative repurchase of 12% over the next
36 months.  These shares will be held in Treasury by the Company to be used for purposes
deemed necessary by the Board of Directors, including funding the Companys
matching contributions to the 401(k) Plan. During 2001, the Company acquired  34,448
shares at a cost of $244,999.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During  September 2002, the Company announced a
program to repurchase up to $4 million  of outstanding common stock in open market
transactions over the next 24 months.  These repurchased shares will be held in Treasury
by the Company to be used for  purposes deemed necessary by the Board of Directors,
including funding the  Companys 401(k) Plan. During 2002, the Company acquired
52,566 shares at a  cost of $517,013.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2.  Incentive and Non-Qualified Stock Option
Plan
|-------------------------------------------------



|Under  the 1990 Stock Option Plan, 2,600,000
shares of common stock are reserved for  issuance. This plan expired upon the adoption of
the 1999 Incentive and  Non-Qualified Stock Option Plan; however, as of December 31, 2000
some options  under this Plan remain outstanding.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under  the 1999 Incentive and Non-Qualified
Stock Option Plan, 3,250,000 shares of  common stock are reserved for issuance. The plan
will expire on January 31,  2010, but options may remain outstanding past
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-27 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|this date. As  of December 31, 2002  and 2001,
there were 2,487,000 and 2,505,000 shares available for  grant,  respectively.
|-----------------------------------------------------------------------------------------------------------------------------



|The  number of shares covered by each
outstanding option, and the exercise price,  must be proportionately adjusted for any
increase or decrease in the number of  issued shares resulting from a subdivision or
consolidation of shares, stock  split, or the payment of a stock dividend, and are
summarized as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           | Number of 
        Options | Weighted 
        Average 
        Exercise 
        Price
|-------------------------- | -------------------------- | ----------------------------------------------------------
|Balance, December 31, 2000 | 1,336,986                  |                                                           
|                           |                            |                                                           
|Granted                    | 385,892                    |                                                           
|Exercised                  | (171,770)                  |                                                           
|Canceled or forfeited      | (117,337)                  |                                                           
|                           |                            |                                                           
|Balance, December 31, 2001 | 1,433,771                  |                                                           
|                           |                            |                                                           
|Granted                    | 490,500                    |                                                           
|Exercised                  | (111,370)                  |                                                           
|Canceled or forfeited      | (26,778)                   |                                                           
|                           |                            |                                                           
|Balance, December 31, 2002 | 1,786,123                  |                                                           
|                           |                            |                                                           



|As  of December 31, 2002, options outstanding
for 1,101,616 shares were exercisable  at a weighted average price of $2.05, and the
weighted remaining contractual  life was 2.8 years. As of December 31, 2001, options
outstanding for 1,063,470  shares were exercisable at a weighted average price of $1.70,
and the weighted  remaining contractual life was 3.1 years. During 2002, 2001 and 2000,
compensation cost for options and warrants issued to non-employees were  $104,649,
$332,185 and $15,262, respectively. On December 31, 2002 and 2001,  there were 67,467 and
95,917 options outstanding and exercisable to  non-employees, respectively. Options
issued typically vest over 3 years and have  expiration dates ten years after issuance
for employees and five years for board  members and employees that have over 10%
ownership.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-28 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|The  following table summarizes option data as
of December 31, 2002:
|--------------------------------------------------------------------



|Range of
        Exercise
        Prices | Number
        Outstanding
        as of
        December 31,
        2002 | Weighted
        Average
        Remaining
        Contractual
        Life | Weighted
        Average
        Exercise
        Price | Number
        Exercisable
        as of
        December 31,
        2002 | Weighted
        Average 
        Exercise
        Price
|---------------------------------------- | -------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------------------------------------
|$ 1.06 - $ 1.24                          |                                                                            | 201,474                                                                     |                                                         | 3.9                                                                        |                                                         
|1.25 -    1.99                           |                                                                            | 741,176                                                                     |                                                         | 2.3                                                                        |                                                         
|2.00 -    3.99                           |                                                                            | 89,000                                                                      |                                                         | 2.3                                                                        |                                                         
|4.00 -    9.99                           |                                                                            | 305,550                                                                     |                                                         | 2.9                                                                        |                                                         
|10.00 -  11.99                           |                                                                            | 53,623                                                                      |                                                         | 4.0                                                                        |                                                         
|12.00 -  21.18                           |                                                                            | 395,300                                                                     |                                                         | 6.9                                                                        |                                                         
|                                         |                                                                            |                                                                             |                                                         |                                                                            |                                                         
|                                         |                                                                            | 1,786,123                                                                   |                                                         |                                                                            |                                                         
|                                         |                                                                            |                                                                             |                                                         |                                                                            |                                                         



|The  fair value of each option granted for
purposes of the proforma disclosures  included in Note A.19 has been estimated on the
grant date using the  Black-Scholes Option Valuation Model. The following assumptions
were made in  estimated fair value:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                    | 2002    | 2001    | 2000   
| | ---------------------------------- | ------- | ------- | -------
| | Dividend yield                     | 0%      | 0%      | 0%     
| | Risk-free interest rate            | 5.0%    | 6.0%    | 6.0%   
| | Expected life after vesting period |         |         |        
| | Directors and officers             | 4 years | 4 years | 4 years
| | Others                             | 2 years | 2 years | 2 years
| | Expected volatility                | 60%     | 60%     | 90%    



|The  exercise price of all options granted
during the years ended December 31, 2002  and 2001 equaled or was greater than the market
price on the grant date.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------



|3.  Reserved Shares
|-------------------



|The  following table summarizes shares of common
stock reserved for issuance at  December 31, 2002:
|---------------------------------------------------------------------------------------------------



|Reserved for                                                                     | Exercise
        Price | Number
        Of shares
        Issuable
|-------------------------------------------------------------------------------- | ---------------------- | -----------------------------------------
|Warrants for consulting services (expiring
        July 9, 2008)                 | $2.34                  |                                          
|Warrants for consulting services  (expiring
        July 31, 2003)               | 2.38                   |                                          
|Warrants for consulting services  (expiring
        April 1, 2005)               | 2.12                   |                                          
|Warrants for consulting services  (expiring
        May 21, 2004)                | 3.15                   |                                          
|Warrants for consulting services  (expiring
        May 24, 2004)                | 3.20                   |                                          
|Warrants issued for proceeds (expiring November
        5, 2004)                 | 14.11                  |                                          
|Warrants issued to private placement advisor
        (expiring October 29, 2005) | 8.50                   |                                          
|1990 and 1999 Stock Option Plans                                                 |                        |                                          
|                                                                                 |                        |                                          
|                                                                                 |                        |                                          
|                                                                                 |                        |                                          



| | F-29 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|All  warrants listed above are exercisable.
|-------------------------------------------



|The  number of shares covered by each
outstanding warrant, and the exercise price,  must be proportionately adjusted for any
increase or decrease in the number of  issued shares resulting from a subdivision or
consolidation of shares, stock  split, or the payment of a stock dividend, and are
summarized as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           | Number of
        Warrants | Weighted
        Average
        Exercise
        Price
|-------------------------- | -------------------------- | -------------------------------------------------------
|                           |                            |                                                        
|Balance, December 31, 2000 | 864,266                    |                                                        
|                           |                            |                                                        
|Granted                    | 318,300                    |                                                        
|Exercised                  | (823,000)                  |                                                        
|Canceled or forfeited      | -0-                        |                                                        
|                           |                            |                                                        
|Balance, December 31, 2001 | 359,566                    |                                                        
|                           |                            |                                                        
|Granted                    | -0-                        |                                                        
|Exercised                  | (24,300)                   |                                                        
|Canceled or forfeited      | -0-                        |                                                        
|                           |                            |                                                        
|Balance, December 31, 2002 | 335,266                    |                                                        
|                           |                            |                                                        



|For financial reporting purposes, the tax benefit resulting
      from the exercise of non-qualified options and warrants allowable for income
      tax purposes in excess of expense recorded for financial reporting purposes
      is credited to additional paid-in capital.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On April 2, 2001, as compensation for prior consulting services,
      the Company granted to a consultant, warrants to purchase 100,000 shares
      of common stock at the price of $2.125 per share, which are exercisable
      immediately, nonforfeitable, and will expire 4 years from its initial exercise
      date. During the First Quarter 2001, the Company expensed $132,897 for these
      services.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On July 23, 2001, 70,000 warrants previously issued to Stern
      Stewart & Company were exercised. As a result of this exercise, the
      Company issued 48,050 shares of common stock. In lieu of cash payment by
      Stern Stewart to the Company, Stern Stewart forfeited 21,950 shares of common
      stock.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On July 31, 2001, 750,000 warrants previously issued to Berlex
      Laboratories, Inc. were exercised. As a result of this exercise, the Company
      issued 750,000 shares of common stock and received $937,500 in proceeds.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In conjunction with the share issuance in the private placement
      with selected investors on October 30, 2001, the Company issued 100,000
      warrants to the Companys financial advisor with an exercise price
      of $8.50 and maturity of October 29, 2005.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On November 6, 2001, the Company sold 100,000 warrants with
      an exercise price of $14.11 and a term of 3 years to selected investors
      for $150,000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-30 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|During 2001, the Company granted various consultants options
      and warrants to purchase 150,500 shares of common stock, which are exercisable
      immediately, and nonforfeitable. During 2001, the Company expensed $332,185
      for these services.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During 2002, the Company granted various consultants options
      and warrants to purchase 19,100 shares of common stock, which are exercisable
      immediately, and nonforfeitable. During 2002, the Company expensed $104,649
      for these services.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On February 19, 2003, 100,000 warrants previously issued
      to a consultant were exercised. As a result of this exercise, the Company
      issued 100,000 shares of common stock and received $212,500 in proceeds.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.  Private Placement
|---------------------



|On October 30, 2001, the Company completed a private placement
      of 1,511,000 unregistered shares of common stock at $7.73 per share. The
      offering price was based upon the preceding twenty-day bid closing price
      prior to October 30th, less 15%. In addition, the advisors of the private
      placement were issued 100,000 warrants with an exercise price of $8.50.
      The net proceeds from the offering was approximately $10.9 million after
      deducting estimated offering expenses. Proceeds from the offering, will
      be used for general corporate purposes.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE J - COMMITMENTS AND CONTINGENCIES
|--------------------------------------



|1.  Leases
|----------



|During  2002, the Company leased 24,000  square
feet of office and warehouse space at 383  Route 46 West, Fairfield, New Jersey,
expiring on January 31, 2008 with Daniel  Glassman, Chairman and President, and his
spouse Iris Glassman, Treasurer and  Director. During 2001 and 2000 the Company leased
14,100 square feet of office  and warehouse space at 383 Route 46 West, Fairfield, New
Jersey. Rent expense,  including the Companys proportionate share of real estate
taxes, was  approximately $349,000, $223,000 and $225,000 in 2002, 2001 and 2000,
respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During  2002, 2001 and 2000, the Company  rented
760 square feet of office space in  Chicago, Illinois at cost of $15,000, $18,000  and
$18,000, respectively. During  February 2002, this facility was not renewed.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During  December 2002, the Company leased
approximately 100 square feet of office space  in Boca Raton, Florida, expiring on
January 31, 2004. During 2002, the Company  expensed $1,000 for this location.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  lease on the Fairfield, New Jersey 6,000
square foot warehouse, is for a period  from March 1, 2002 to February 28, 2003, with an
option to renew and also  includes payments for utilities and common area maintenance.
The Company renewed  this lease for a term expiring on February 28, 2004. Rent expense
was  approximately $50,000, $52,000 and $50,000 for the years ended December 31,  2002,
2001 and 2000, respectively.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-31 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|Approximate  aggregate minimum annual rental
commitments are as follows:
|------------------------------------------------------------------------



|Year ending December 31, | Operating Leases | Capital Leases(a)
|------------------------ | ---------------- | -----------------
|2003                     | $     542,604    |                  
|2004                     | 475,630          |                  
|2005                     | 462,874          |                  
|2006                     | 462,874          |                  
|2007                     | 462,874          |                  
|Thereafter               | 35,906           |                  
|                         |                  |                  
|                         | $  2,445,429     |                  
|                         |                  |                  



|(a)Lease amounts
include interest of $28,423 and minimum lease payments
|-----------------------------------------------------------------------



|2.  Distribution Arrangement
|----------------------------



|The  Company has a distribution arrangement with
a third party public warehouse  located in Tennessee to warehouse and distribute
substantially all of its  products. This arrangement provides that the Company will be
billed based on  invoiced sales of the products distributed by such party, plus certain
additional charges.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3.  Legal Proceedings
|---------------------



|On  January 29, 2003, the Company commenced
legal proceedings against Dermik  Laboratories and its parent, Aventis Pharmaceuticals, a
wholly owned subsidiary  of Aventis Pharma AG, alleging, among other things, the
infringement by Dermik  and Aventis of three patents owned by the Company relating to 40%
urea  dermatological compositions and therapeutic uses. The compliant alleges, among
other things, patent infringement by Dermik and Aventis of the Companys  patents
relating 40% urea dermatologic compositions and their therapeutic uses.  40% urea is the
key component of the Companys CARMOL® 40 brand line.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In  the complaint, filed in the United States
District Court for the District of New  Jersey, the Company states that the marketing and
sale by Dermik and Aventis of  the 40% urea cream, Vanamide®, infringes three of the
Companys patents,  a composition patent for dermatological products comprised of
40% urea and two  methodology patents for the therapeutic use of urea-based products.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In  addition to a judicial determination that
Dermik and Aventis have infringed the  Companys patents, the Company is seeking
triple monetary damages for  willful infringement, disgorgement of all profits realized
from the sale of the  infringing products and an injunction against future infringements.
The court  has scheduled a mid-April 2003 hearing with respect to the Companys
request for a preliminary injunction.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The timing and the ultimate final outcome of the Companys
      lawsuit against Dermik and Aventis are uncertain. If a competing 40% urea
      product is launched, whether as a result of the Companys current litigation
      against Dermik and Aventis or otherwise, the Companys CARMOL®
      40 sales and profits could materially suffer.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On February 25, 2003, the Company filed an action in the
      United States District Court for the District of New Jersey against DPT
      Lakewood, Inc., an affiliate of DPT Laboratories Ltd. In this lawsuit, the
      Company alleges that DPT Lakewood breached a confidentiality agreement and
      misappropriated the
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-32 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|Companys trade secrets relating to CARMOL® 40
      cream. The Company further alleges that DPT Lakewood is infringing the Companys
      composition patent for dermatological products comprised of 40% urea. During
      1999, the Company provided, in accordance with a confidentiality agreement
      entered into for the possible manufacture of CARMOL® 40 cream, substantial
      trade secret information to a company of which we believe DPT Lakewood is
      a successor, including processing methods and formulations essential to
      the manufacture of CARMOL® 40 cream. DPT Lakewood currently manufactures
      a 40% urea cream for Dermik and Aventis.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In  addition to a judicial determination that
DPT Lakewood infringed the  Companys patent, the Company is seeking triple monetary
damages for  willful infringement, disgorgement of all profits resulting from the
infringement of the Companys patent, punitive and other appropriate  damages for
misappropriation of the Companys trade secrets and preliminary  and permanent
injunctions enjoining DPT Lakewood from manufacturing any urea or  other product that
infringes the Companys patents.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On March 6, 2003, DPT Laboratories, Ltd. filed a lawsuit
      against the Company alleging defamation arising from the companys Press
      Release Announcing Commencement of the Litigation Against DPT Lakewood.
      The Company believes this suit is without merit. The Company intends to
      vigorously defend its position.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  Company is party to other routine actions
and proceedings incidental to its  business. There can be no assurance that an adverse
determination on any such  action or proceeding could not have a material adverse effect
on the  Companys business, financial condition or results of operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.  Defined Contribution 401(k) Plan
|------------------------------------



|The  Company has a defined contribution 401(k)
plan whereby the Company matches  employee contributions up to 25% of the employees
first 6% of  contributions with shares of the Companys common stock held in
Treasury.  The Companys contributions for the 401(k) employee match was
approximately  $49,000, $38,000 and $46,000 incurred for the year ended December 31,
2002, 2001  and 2000, respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5.  Co-Promotion Agreement
|--------------------------



|On  March 15, 2001, the Company entered into a
three year agreement with Adams  Laboratories to supplement the Companys
promotional efforts for the  product ENTSOL® Spray. However, if after the conclusion
of the first year the  annual net sales are less than $1,750,000, the agreement can be
terminated.  During the term of this agreement, the Company is responsible for a
commission  equal to fifty percent of the profit from the sale of ENTSOL® Spray. In
accordance with the agreement, profit is defined as net sales less cost of goods  sold
less all promotional costs dedicated to ENTSOL® Spray incurred by the  Company. On
August 1, 2001, the agreement was amended to extend the annual sales  threshold of
$1,750,000 to include an additional 3 1/2 months. On June 30, 2002,  the agreement was
terminated. During 2002 and 2001, the Company expensed  approximately $54,000 and $47,000
for Adams Laboratories co-promotions,  respectively.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE K - NET INCOME (LOSS) PER SHARE
|------------------------------------



|The  Company computes income (loss) per share in
accordance with Statement of  Financial Accounting Standards No. 128 Earnings Per Share
(SFAS 128) which  specifies the compilation, presentation and
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-33 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|disclosure requirements for  income  (loss) per
share for entities with publicly held common stock or instruments  which are potentially
common stock.
|------------------------------------------------------------------------------------------------------------------------------------------------------



|Basic  net income per common share is determined
by dividing the net income (loss) by  the weighted average number of shares of common
stock outstanding. Diluted net  income (loss) per common share is determined by dividing
the net income by the  weighted number of shares outstanding and dilutive common
equivalent shares from  stock options and warrants. A reconciliation of the weighted
average basic  common shares outstanding to weighted average diluted common shares
outstanding  for the year ended 2002, 2001 and 2000 are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                     | 2002        | 2001 | 2000       
|------------------------------------ | ----------- | ---- | -----------
|Basic Shares                         | 10,470,000  |      | 8,570,000  
|Dilution: Stock options and warrants | 970,000     |      | 1,090,000  
|                                     |             |      |            
|Diluted shares                       | 11,440,000  |      | 9,660,000  
|Net income (loss)                    | $ 7,634,475 |      | $ 3,611,966
|                                     |             |      |            
|Net income (loss) per share Basic    | $ 0.73      |      | $ 0.42     
|Diluted                              | $ 0.67      |      | $ 0.37     



|In  addition to stock options and warrants
included in the above computation,  options and warrants to purchase 494,000 shares of
common stock at prices  ranging from $12.67 to $20.18 per share were outstanding for the
twelve months  ending December 31, 2002 and 491,000 shares of common stock at prices
ranging  from $7.05 to $14.11 per share were outstanding for the twelve months ending
December 31, 2001. These were not included in the computation of diluted income  per
share because their exercise price was greater than the average market price  of the
Companys common stock and, therefore, the effect would be  anti-dilutive.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For  the twelve months ended December 31, 2000,
stock options and warrants to  purchase 2,201,000 shares of common stock at prices
ranging from $0.83 to $4.03  per share were not included in the above computation. These
were not considered  in the computation of diluted income (loss) per share because of the
net loss  during the period and, therefore, the effect would be anti-dilutive.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-34 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|NOTE L - COMPREHENSIVE INCOME
|-----------------------------



|Statement  of  Financial  Accounting  Standards
No. 130,  Reporting  Comprehensive  Income  (SFAS No.  130),  requires that
items defined as other  comprehensive  income, such as net income and unrealized gains
and losses  on  available-for-sale  securities,  be reported  separately in the
financial  statements.  The  components of  comprehensive income for the twelve months
ended December 31, 2002 and 2001 are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                                                          | 2002       | 2001
| | ------------------------------------------------------------------------ | ---------- | ----
| |                                                                          |            |     
| | Comprehensive income:                                                    |            |     
| | Net income                                                               | $7,634,475 |     
| | Other comprehensive income (loss):                                       |            |     
| | Net unrealized gains (losses)
          on available for sale securities | 137,616    |     
| |                                                                          |            |     
| | Comprehensive income                                                     | $7,772,091 |     
| |                                                                          |            |     



|NOTE M - BUSINESS SEGMENT INFORMATION
|-------------------------------------



|The  Companys two reportable segments are
Kenwood Therapeutics (nutritional,  respiratory, personal hygiene and internal medicine
brands) and Doak  Dermatologics, Inc. (dermatological brands). Each segment has been
identified by  the Company to be distinct operating units marketing, promoting and
distributing  different pharmaceutical products to different target physician audiences.
Kenwood Therapeutics products are marketed, promoted and distributed  primarily to
physicians practicing internal medicine, while Doak  Dermatologics products are
marketed, promoted and distributed primarily to  physicians practicing in dermatology and
podiatry.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  accounting policies used to develop segment
information correspond to those  described in the summary of significant accounting
policies. The reportable  segments are distinct business units operating in different
market segments with  no intersegment sales. The following information about the two
segments are for  the three and twelve months ended December 31, 2002 and 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                               | Three Months
        Ended
        December 31, 2002 |  | Three Months
        Ended
        December 31, 2001 |  | Twelve Months
        Ended
        December 31, 2002 |  | Twelve Months
        Ended
        December 31, 2001
|------------------------------ | ---------------------------------------------------- |  | ---------------------------------------------------- |  | ----------------------------------------------------- |  | -----------------------------------------------------
|Net sales:                     |                                                      |  |                                                      |  |                                                       |  |                                                      
|Kenwood Therapeutics           | $2,448,511                                           |  | $2,954,066                                           |  | $9,988,191                                            |  | $10,177,512                                          
|Doak Dermatologics, Inc.       | 8,676,725                                            |  | 4,893,786                                            |  | 29,680,782                                            |  | 15,525,454                                           
|                               |                                                      |  |                                                      |  |                                                       |  |                                                      
|                               | $11,125,236                                          |  | $7,847,852                                           |  | $39,668,973                                           |  | $25,702,966                                          
|Depreciation and amortization: |                                                      |  |                                                      |  |                                                       |  |                                                      
|Kenwood Therapeutics           | $231,926                                             |  | $278,530                                             |  | $881,245                                              |  | $917,622                                             
|Doak Dermatologics, Inc.       | 65,689                                               |  | 63,653                                               |  | 258,286                                               |  | 251,862                                              
|                               |                                                      |  |                                                      |  |                                                       |  |                                                      
|                               | $297,615                                             |  | $342,183                                             |  | $1,139,531                                            |  | $1,169,484                                           
|                               |                                                      |  |                                                      |  |                                                       |  |                                                      



| | F-35 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|                                   | Three Months Ended
        December 31, 2002 | Three Months Ended
        December 31, 2001 | Twelve Months Ended
        December 31, 2002 | Twelve Months Ended
        December 31, 2001
|---------------------------------- | -------------------------------------------- | -------------------------------------------- | --------------------------------------------- | ---------------------------------------------
|Income before income tax:          |                                              |                                              |                                               |                                              
|Kenwood Therapeutics               | $338,720                                     | $397,186                                     | $1,930,637                                    | $424,642                                     
|Doak Dermatologics, Inc.           | 2,986,840                                    | 1,000,793                                    | 10,449,839                                    | 3,841,324                                    
|                                   |                                              |                                              |                                               |                                              
|                                   | $3,325,560                                   | $1,397,979                                   | $12,380,475                                   | $4,265,966                                   
|                                   |                                              |                                              |                                               |                                              
|Income tax expense (benefit):      |                                              |                                              |                                               |                                              
|Kenwood Therapeutics               | $118,000                                     | ($1,040,000)                                 | $739,000                                      | ($1,030,000)                                 
|Doak Dermatologics, Inc.           | 1,097,000                                    | 614,000                                      | 4,007,000                                     | 1,684,000                                    
|                                   |                                              |                                              |                                               |                                              
|                                   | $1,215,000                                   | ($426,000)                                   | $4,746,000                                    | $654,000                                     
|                                   |                                              |                                              |                                               |                                              
|Net income:                        |                                              |                                              |                                               |                                              
|Kenwood Therapeutics               | $220,720                                     | $1,437,186                                   | $1,191,637                                    | $1,454,642                                   
|Doak Dermatologics, Inc.           | 1,889,840                                    | 386,793                                      | 6,442,839                                     | 2,157,324                                    
|                                   |                                              |                                              |                                               |                                              
|                                   | $2,110,560                                   | $1,823,979                                   | $7,634,476                                    | $3,611,966                                   
|                                   |                                              |                                              |                                               |                                              
|Geographic information (revenues): |                                              |                                              |                                               |                                              
|Kenwood Therapeutics               |                                              |                                              |                                               |                                              
|United States                      | $2,410,738                                   | $2,899,949                                   | $9,771,068                                    | $9,796,902                                   
|Other countries                    | 37,773                                       | 54,117                                       | 217,123                                       | 380,610                                      
|                                   |                                              |                                              |                                               |                                              
|                                   | $2,448,511                                   | $2,954,066                                   | $9,988,191                                    | $10,177,512                                  
|                                   |                                              |                                              |                                               |                                              
|Doak Dermatologics, Inc.           |                                              |                                              |                                               |                                              
|United States                      | $8,213,188                                   | $4,497,279                                   | $28,253,878                                   | $14,113,841                                  
|Other countries                    | 463,537                                      | 396,507                                      | 1,426,904                                     | 1,411,613                                    
|                                   |                                              |                                              |                                               |                                              
|                                   | $8,676,725                                   | $4,893,786                                   | $29,680,782                                   | $15,525,454                                  
|                                   |                                              |                                              |                                               |                                              
|                                   |                                              |                                              |                                               |                                              
|                                   | Three Months Ended
        December 31, 2002 | Three Months Ended
        December 31, 2001 | Twelve Months Ended
        December 31, 2002 | Twelve Months Ended
        December 31, 2001
|Net sales by category:             |                                              |                                              |                                               |                                              
|Dermatology                        | $8,676,725                                   | $4,893,786                                   | $29,680,782                                   | $15,525,454                                  
|Respiratory                        | 793,781                                      | 2,029,166                                    | 4,552,057                                     | 3,380,299                                    
|Nutritional                        | 571,872                                      | 206,726                                      | 2,017,986                                     | 2,120,454                                    
|Internal Medicine                  | 1,031,658                                    | 665,515                                      | 3,156,909                                     | 4,443,372                                    
|Personal Hygiene                   | 51,200                                       | 52,659                                       | 261,239                                       | 233,387                                      
|                                   |                                              |                                              |                                               |                                              
|                                   | $11,125,236                                  | $7,847,852                                   | $39,668,973                                   | $25,702,966                                  
|                                   |                                              |                                              |                                               |                                              
|                                   |                                              |                                              |                                               |                                              
|                                   | December 31, 2002                            | December 31, 2001                            |                                               |                                              
|Segment assets:                    |                                              |                                              |                                               |                                              
|Kenwood Therapeutics               | $40,384,344                                  | $31,988,309                                  |                                               |                                              
|Doak Dermatologics, Inc.           | 3,532,756                                    | 3,058,175                                    |                                               |                                              
|                                   |                                              |                                              |                                               |                                              
|                                   | $43,917,100                                  | $35,046,484                                  |                                               |                                              
|                                   |                                              |                                              |                                               |                                              



|The  basis of accounting that is used by the
Company to record business  segments sales have been recorded and allocated by each
business  segments identifiable products. The basis of accounting that is used by
the Company to allocate expenses that relate to both segments are based upon the
proportionate quarterly net sales of each segment. Accordingly, the allocation
percentage used can differ between quarters and years depending on the segments
proportionate share of net sales.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-36 | 
| | ---- | 



---





|Bradley Pharmaceuticals, Inc.
and Subsidiaries
|----------------------------------------------



|NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|------------------------------------------



|December 31, 2002
|-----------------



|NOTE N - QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
|----------------------------------------------------



|The  table below lists the quarterly financial
information for fiscal 2002 and 2001.  All figures in thousands, except per share
amounts, and certain amounts do not  total the annual amounts due to rounding.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                | Quarter Ended 2002 |         | Quarter Ended 2001
|------------------------------------------------------------------------------- | ------------------ | ------- | ------------------
|                                                                                | March              | June    | Sept.             
|Net sales                                                                       | $9,293             | $9,356  | $9,895            
|Cost of sales                                                                   | 1,110              | 1,087   | 1,033             
|Gross profit                                                                    | 8,183              | 8,269   | 8,862             
|                                                                                |                    |         |                   
|Selling, general and administrative                                             | 5,122              | 5,046   | 5,329             
|Depreciation and amortization                                                   | 274                | 282     | 286               
|Interest expense (income)- net                                                  | (77)               | (57)    | (91)              
|Losses (gains) on short-term investments                                        | 38                 | 60      | 47                
|                                                                                |                    |         |                   
|                                                                                | 5,357              | 5,331   | 5,571             
|                                                                                |                    |         |                   
|Income before income
        tax expense (benefit)                              | 2,826              | 2,938   | 3,291             
|Income tax expense (benefit)                                                    | 1,102              | 1,146   | 1,283             
|                                                                                |                    |         |                   
|Net income                                                                      | 1,724              | 1,792   | 2,008             
|                                                                                |                    |         |                   
|Basic net income per common share                                               | $   0.17           | $  0.17 | $  0.19           
|                                                                                |                    |         |                   
|Diluted net income per common share                                             | $   0.15           | $  0.16 | $  0.18           
|                                                                                |                    |         |                   
|Number of shares used in computing basic 
        net income per common share   | 10,430             | 10,460  | 10,510            
|                                                                                |                    |         |                   
|Number of shares used in computing 
        diluted net income per common share | 11,570             | 11,430  | 11,340            
|                                                                                |                    |         |                   



| | F-37 | 
| | ---- | 



---



|SCHEDULE II
|-----------



|BRADLEY PHARMACEUTICALS, INC. AND  SUBSIDIARIES
|-----------------------------------------------



|VALUATION AND QUALIFYING ACCOUNTS
        
        YEARS ENDED DECEMBER 31, 2000,2001,2002 
        (IN THOUSANDS)
|------------------------------------------------------------------------------------------------------------------

|Classification | Balance
      Beginning of 
      Year | Charged to
      Costs and 
      Expenses | Additions
      (Deductions) | Balance
      End of
      Year
|-------------- | -------------------------------------- | ------------------------------------------ | ---------------------------- | -------------------------------
|               |                                        |                                            |                              |                                
|2000           | Allowance for doubtful accounts        | $267                                       | $50                          | $(71)                          
|               | Allowance for chargebacks, returns,    |                                            |                              |                                
|               | and discounts                          | 1,630                                      | 6,725                        | (5,903)                        
|               | Allowance for rebates                  | 300                                        | 221                          | (149)                          
|               |                                        |                                            |                              |                                
|2001           | Allowance for doubtful accounts        | 246                                        | 20                           | (261)                          
|               | Allowance for chargebacks, returns,    |                                            |                              |                                
|               | and discounts                          | 2,452                                      | 6,359                        | (6,646)                        
|               | Allowance for rebates                  | 372                                        | 1,094                        | (707)                          
|               |                                        |                                            |                              |                                
|2002           | Allowance for doubtful accounts        | 240                                        | -0-                          | (44)                           
|               | Allowance for chargebacks, returns,    |                                            |                              |                                
|               | and discounts                          | 2,165                                      | 8,046                        | (7,563)                        
|               | Allowance for rebates                  | 759                                        | 3,318                        | (2,503)                        



| | S-1 | 
| | --- | 



---





|Exhibit Index
|-------------

|Exhibit No. |   | Description                                                              
|----------- | - | -------------------------------------------------------------------------
|23.1        |  | Consent of Grant Thorton LLP, Independent
      Auditors (filed herewith)
|24.1        |  | Power of Attorney (see signature
      page)                             
|99.1        |  | Certificates                                                             



| | S-2 | 
| | --- | 

---