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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
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                                  FORM 10-K/A
                               AMENDMENT NO. 1

[ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

                   FOR THE FISCAL YEAR ENDED MARCH 31, 2008

                                      OR

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

            FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER 1-9601
--------------------------------------------------------------------------------
                          K-V PHARMACEUTICAL COMPANY
            (Exact name of registrant as specified in its charter)

                 DELAWARE                                    43-0618919
        (State or other jurisdiction of                   (I.R.S. Employer
        incorporation or organization)                    Identification No.)

               2503 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63144
         (Address of principal executive offices, including ZIP code)
      Registrant's telephone number, including area code: (314) 645-6600

          Securities Registered Pursuant to Section 12(b) of the Act:
    CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE      NEW YORK STOCK EXCHANGE
    CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE      NEW YORK STOCK EXCHANGE

          Securities Registered Pursuant to Section 12(g) of the Act:
         7% CUMULATIVE CONVERTIBLE PREFERRED, PAR VALUE $.01 PER SHARE
--------------------------------------------------------------------------------

Indicate by check mark whether the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark whether the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

              Large accelerated filer [X] Accelerated filer [ ]
            Non-accelerated filer [ ] Smaller reporting company [ ]

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

The aggregate market value of the shares of Class A and Class B Common Stock
held by non-affiliates of the registrant as of September 28, 2007, the last
business day of the registrant's most recently completed second fiscal
quarter, was $887,560,274 and $37,278,549, respectively. As of June 6, 2008,
the registrant had outstanding 37,755,099 and 12,256,159 shares of Class A
Common Stock and Class B Common Stock, respectively. Documents incorporated by
reference: Portions of the Company's Definitive Proxy Statement for its 2008
Annual Meeting of Shareholders are incorporated by reference in Part III of
this Annual Report on Form 10-K.


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EXPLANATORY NOTE

KV Pharmaceutical is filing this Form 10-K/A ("Amended Filing") in order to
amend our annual report on Form 10-K for the year ended March 31, 2008,
originally filed on June 25, 2008 ("Original Filing"), to:

     o   Include Exhibit 23.1, Consent of KPMG LLP, which was inadvertently
         omitted from the Original Filing due to an error by the third party
         that provides EDGAR services to us.

     o   Correct a typographical error in Note 6, Property and Equipment, of
         the Notes to Consolidated Financial Statements, to change the net
         property and equipment total as of March 31, 2007 from $86.9 million
         to $186.9 million.

     o   Correct the disclosure on page 16 under the heading Government
         Regulation relative to unapproved products subject to a hold by the
         FDA that we will discontinue manufacturing and marketing. The
         disclosure in the Original Filing indicated that we will discontinue
         manufacturing and marketing all of the unapproved products subject to
         the hold. The disclosure has been changed in the Amended Filing to
         indicate that we will discontinue manufacturing and marketing all of
         the unapproved products subject to the hold with the exception of
         most of our hyoscyamine products. Discussions with the FDA are
         continuing with respect to those products.

     o   Correct the title of Item 8 from "Report of Independent Registered
         Public Accounting Firm" in the Original Filing to "Financial
         Statements and Supplementary Data".

As part of the Amended Filing, Exhibits 31.1, 31.2, 32.1 and 32.2 containing
the certifications of our Chief Executive Officer and Chief Financial Officer
that were filed as exhibits to the Original Filing have been re-executed and
re-filed as of the date of this Amended Filing.



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ITEM 1.  BUSINESS
         --------

(a)      GENERAL DEVELOPMENT OF BUSINESS
         -------------------------------

         Unless the context otherwise indicates, when we use the words "we,"
         "our," "us," "our company" or "KV" we are referring to K-V
         Pharmaceutical Company and its wholly-owned subsidiaries, including
         Ther-Rx Corporation, ETHEX Corporation and Particle Dynamics, Inc.

         We were incorporated under the laws of Delaware in 1971 as a
         successor to a business originally founded in 1942. Victor M.
         Hermelin, our Founder and Chairman Emeritus, invented and obtained
         initial patents for early controlled release and enteric coating
         which became part of our core business in the 1950's to 1970's and a
         platform for later drug delivery emphasis in the 1980's to the
         present.

         Today, we believe we are a leader in the development of proprietary
         drug delivery systems and formulation technologies which enhance the
         effectiveness of new therapeutic agents, existing pharmaceutical
         products and nutritional supplements. We have developed and patented
         a wide variety of drug delivery and formulation technologies which
         are primarily focused in four principal areas: SITE RELEASE(R);
         tastemasking; oral controlled release; and oral quick dissolving
         tablets. We incorporate these technologies in the products we market
         to control and improve the absorption and utilization of active
         pharmaceutical compounds. In 1990, we established a generic,
         non-branded marketing capability through a wholly-owned subsidiary,
         ETHEX Corporation ("ETHEX"), which we believe makes us one of the
         only drug delivery research and development companies that also
         markets its own "technologically distinguished" generic products. In
         1999, we established a wholly-owned subsidiary, Ther-Rx Corporation
         ("Ther-Rx"), to market branded pharmaceuticals directly to physician
         specialists. Today, we believe we are a leading, vertically
         integrated specialty pharmaceutical marketer.

         Our wholly-owned subsidiary, Particle Dynamics, Inc. ("PDI"), was
         acquired in 1972. Through PDI, we develop and market specialty
         value-added raw materials, including drugs, directly compressible and
         microencapsulated products, and other products used in the
         pharmaceutical, nutritional, food, personal care and other markets.

(b)      SIGNIFICANT BUSINESS DEVELOPMENTS
         ---------------------------------

         In May 2007, we acquired the U.S. marketing rights to Evamist(TM), a
         new estrogen replacement therapy product delivered with a patented
         metered-dose transdermal spray system, from VIVUS, Inc. Under the
         terms of the asset purchase agreement, we paid $10.0 million in cash
         at closing and agreed to make an additional cash payment of $141.5
         million upon final approval of the product by the U.S. Food and Drug
         Administration ("FDA"). The agreement also provides for two future
         payments upon achievement of certain net sales milestones. If
         Evamist(TM) achieves $100.0 million of net sales in a fiscal year, a
         one-time payment of $10.0 million will be made, and if net sales
         levels reach $200.0 million in a fiscal year, a one-time payment of
         up to $20.0 million will be made. Because the product had not
         obtained FDA approval when the initial payment was made at closing,
         we recorded the $10.0 million payment made during the first quarter
         of fiscal 2008 as in-process research and development expense. In
         July 2007, FDA approval for Evamist(TM) was received and a payment of
         $141.5 million was made to VIVUS, Inc. The preliminary purchase price
         allocation, which is subject to change based on the final fair value
         assessment, resulted in estimated identifiable intangible assets of
         $52.4 million to product rights; $15.2 million to trademark rights;
         $66.4 million to rights under a sublicense agreement; and, $7.5
         million to a covenant not to compete. This product was purchased
         using $91.5 million in cash and $50 million of our revolving line of
         credit. Upon FDA approval in July 2007, we began amortizing the
         product rights, trademark rights and rights under the sublicense
         agreement over 15 years and the covenant not to compete over nine
         years.

         In May 2007, we received FDA approval to market the 100 mg and 200 mg
         strengths of metoprolol succinate extended-release tablets, the
         generic version of Toprol-XL(R) (marketed by AstraZeneca). In fiscal
         2006, we received a favorable court ruling in a Paragraph IV patent
         infringement action filed against us by AstraZeneca based on our ANDA
         submissions to market these generic formulations. Since we were the
         first company to file with the FDA for generic approval of the 100 mg
         and 200 mg dosage strengths, we were accorded the opportunity for a
         180-day exclusivity period for marketing these two dosage strengths.
         The 180-day exclusivity period has allowed us to realize higher
         margins on these products compared to our other generic/non-branded
         products. We



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         began shipping these two products in July 2007, and along with the 25
         mg strength approved in March 2008, they generated net revenues in
         fiscal 2008 of $120.0 million.

         We received FDA approval to market the 25 mg and 50 mg strengths of
         metoprolol succinate extended-release tablets in March 2008 and May
         2008, respectively. As a result of the recent 50 mg approval, KV now
         offers the complete line of all four dosage strengths of metoprolol
         succinate extended-release tablets - 200 mg, 100 mg, 50 mg and 25 mg.
         As of March 31, 2008, KV had a 69.1% and 72.5% share of the generic
         market place according to IMS Inc. for the 200 mg and 100 mg
         strengths, respectively.

         In July 2007, we entered into an additional licensing arrangement to
         market Clindesse(R) in the People's Republic of China. We have
         previously entered into licensing arrangements for the right to
         market Clindesse(R) in Spain, Portugal, Andorra, Brazil, Mexico, five
         Scandinavian markets and 18 Eastern European countries.

         In January 2008, we entered into a definitive asset purchase
         agreement with CYTYC Prenatal Products and Hologic, Inc. ("CYTYC") to
         acquire the U.S. and worldwide rights to Gestiva(TM) (17-alpha
         hydroxyprogesterone caproate). The New Drug Application ("NDA") for
         Gestiva(TM) is currently before the FDA, pending approval for use in
         the prevention of preterm birth in certain categories of pregnant
         women. The proposed indication is for women with a history of at
         least one spontaneous preterm delivery (i.e., less than 37 weeks),
         who are pregnant with a single fetus. Under the terms of the asset
         purchase agreement, we agreed to pay $82.0 million for Gestiva(TM),
         $7.5 million of which was paid at closing. Because the product had
         not obtained FDA approval when the initial payment was made at
         closing, we recorded the $7.5 million payment as in-process research
         and development expense in the fourth quarter of fiscal 2008. The
         remainder of the purchase price is payable on the completion of two
         milestones: (1) $2.0 million on the earlier to occur of CYTYC's
         receipt of acknowledgement from the FDA that their response to the
         FDA's October 20, 2006 "approvable" letter is sufficient for the FDA
         to proceed with their review of the NDA or the receipt of FDA's
         approval of the Gestiva(TM) NDA and (2) $72.5 million on FDA approval
         of a Gestiva(TM) NDA, transfer of all rights in the NDA to us and
         receipt by us of defined launch quantities of finished Gestiva(TM)
         suitable for commercial sale.

(c)      INDUSTRY SEGMENTS
         -----------------

         We operate principally in three industry segments, consisting of
         branded products marketing, specialty generics marketing and
         specialty raw materials marketing. We derive revenues primarily from
         directly marketing our own technologically distinguished brand-name
         and generic/non-branded products and products marketed under joint
         development agreement with other companies. Revenues may also be
         received in the form of licensing revenues and/or royalty payments
         based upon a percentage of the licensee's sales of the product, in
         addition to manufacturing revenues, when marketing rights to products
         using our advanced drug delivery technologies are licensed. See Note
         21 of the Notes to the Consolidated Financial Statements.

(d)      NARRATIVE DESCRIPTION OF BUSINESS
         ---------------------------------

         OVERVIEW

         We are a fully integrated specialty pharmaceutical company that
         develops, manufactures, acquires and markets technologically
         distinguished branded and generic/non-branded prescription
         pharmaceutical products. We have a broad range of dosage form
         capabilities including tablets, capsules, creams, liquids and
         ointments. We conduct our branded pharmaceutical operations through
         Ther-Rx and our generic/non-branded pharmaceutical operations through
         ETHEX. Through PDI, we also develop, manufacture and market
         technologically advanced, value-added raw material products for the
         pharmaceutical, nutritional, personal care, food and other markets.

         We have developed a diverse portfolio of drug delivery technologies
         which we leverage to create technologically distinguished brand name
         and specialty generic/non-branded products. We have patented 15 drug
         delivery and formulation technologies primarily in four principal
         areas: SITE RELEASE(R), oral controlled release, tastemasking and
         oral quick dissolving tablets. We incorporate these technologies in
         the products we market to control and improve the absorption and
         utilization of active pharmaceutical compounds. These technologies

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         provide a number of benefits, including reduced frequency of
         administration, reduced side effects, improved drug efficacy,
         enhanced patient compliance and improved taste.

         We have a long history of developing drug delivery technologies. In
         the 1950's, we received what we believe to be the first patents for
         sustained release delivery systems which enhance the convenience and
         effectiveness of pharmaceutical products. In our early years, we used
         our technologies to develop products for other drug marketers. Our
         technologies have been used in several well known products, including
         Actifed(R) 12-hour, Sudafed(R) SA, Centrum Jr.(R) and Kaopectate(R)
         Chewable. Since the 1990's, we have chosen to focus our drug
         development expertise on internally developed products for our
         branded and generic/non-branded pharmaceutical businesses.

         For example, since its inception in 1999, Ther-Rx has successfully
         launched 11 internally developed branded pharmaceutical products, all
         of which incorporate our drug delivery technologies. We have also
         introduced several technology-improved versions of the four product
         franchises acquired by us. Furthermore, most of the internally
         developed generic/non-branded products marketed by ETHEX incorporate
         one or more of our drug delivery technologies.

         Our drug delivery technologies play a vital role in our ability to
         offer improved and differentiated products in our branded products
         portfolio and allow us to develop hard to replicate products that are
         marketed through our generic/non-branded products business. We
         believe that this differentiation provides substantial competitive
         advantages for our products, which has allowed us to establish a
         strong record of growth and profitability and a leadership position
         in certain segments of our industry. As a result, we have grown
         consolidated net revenues at a compounded annual growth rate of 19.4%
         over the five fiscal years in the period ended March 31, 2008 marking
         the Company's 13th consecutive year of record revenues. Ther-Rx has
         grown substantially since its inception in 1999 and continues to gain
         market share in its women's healthcare and hematinic family of
         products. Also, by focusing on the development and marketing of
         technology-distinguished, multisource drugs, ETHEX has been able to
         identify and bring to market niche products that leverage our
         portfolio of drug delivery technologies in a way that produces
         relatively high gross margin generic/non-branded products.

         THER-RX -- OUR BRAND NAME PHARMACEUTICAL BUSINESS

         We established Ther-Rx in 1999 to market brand name pharmaceutical
         products which incorporate our proprietary technologies. Since its
         inception, Ther-Rx has introduced 11 products into two principal
         therapeutic categories - women's health and oral hematinics - where
         physician specialists can be reached using a highly focused sales
         force. By targeting physician specialists, we believe Ther-Rx can
         compete successfully without the need for a sales force as large as
         pharmaceutical companies with less specialized product lines.
         Ther-Rx's net revenues grew from $188.7 million in fiscal 2007 to
         $214.9 million in fiscal 2008 and represented 35.7% of our fiscal
         2008 total net revenues.

         We established our women's healthcare franchise through our 1999
         acquisition of PreCare(R), a prescription prenatal vitamin, from UCB
         Pharma, Inc. Since the acquisition, Ther-Rx has reformulated the
         original product using proprietary technologies, and subsequently has
         launched six internally developed products as extensions to the
         PreCare(R) product line. Building upon the PreCare(R) acquisition, we
         have developed a line of proprietary products which makes Ther-Rx the
         leading provider of branded prescription prenatal vitamins in the
         United States.

         The first of our internally developed, patented line extensions to
         PreCare(R) was PreCare(R) Chewables, the world's first prescription
         chewable prenatal vitamin. Ther-Rx's second internally developed
         product, PremesisRx(R), is an innovative prenatal prescription
         product that incorporates our controlled release Vitamin B6. This
         product is designed for use in conjunction with a
         physician-supervised program to reduce pregnancy-related nausea and
         vomiting, which is experienced by 50% to 90% of women who become
         pregnant. The third product, PreCare Conceive(R), is the first
         product designed as a prescription nutritional pre-conception
         supplement. The fourth product, PrimaCare(R), is the first
         prescription prenatal/postnatal nutritional supplement with essential
         fatty acids specially designed to help provide nutritional support
         for women during pregnancy, postpartum recovery and throughout the
         childbearing years. The fifth product, PrimaCare ONE(R), was launched
         in fiscal 2005 as a


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         proprietary line extension to PrimaCare(R) and is the first prenatal
         product to contain essential fatty acids in a one-dose-per-day dosage
         form. During June 2008, a third party company introduced a product
         purporting to be a substitute for PrimaCare ONE(R), and we are
         currently engaged in litigation with this company with respect to
         patent and trademark infringement and other claims. See Note 12 of
         the Notes to Consolidated Financial Statements. The PrimaCare(R)
         franchise has grown to be the number one branded prenatal
         prescription vitamin in the U.S. Our sixth product line extension,
         PreCare Premier(R), provides a wide range of vitamins and minerals,
         plus a stool softener, in a small, easy-to-swallow, once-daily
         caplet. Sales of our branded prescription prenatal vitamins increased
         13.7% in fiscal 2008 to $82.5 million. In fiscal 2006, we expanded
         our prescription nutritional franchise when Ther-Rx introduced
         Encora(R), a twice-daily prescription nutritional supplement designed
         to meet the key nutritional and preventative health needs of women
         past their childbearing years. Sales of Encora(R) increased 45.0% in
         fiscal 2008 to $4.5 million.

         In 2000, Ther-Rx launched its first NDA approved product,
         Gynazole-1(R), the only one-dose prescription cream treatment for
         vaginal yeast infections. Gynazole-1(R) incorporates our patented
         drug delivery technology, VagiSite(TM), which we believe is the only
         clinically proven and FDA approved controlled release bioadhesive
         system. Sales of Gynazole-1(R) were $24.0 million in fiscal 2008. We
         have also entered into licensing agreements for the right to market
         Gynazole-1(R) in over 50 markets in Europe, Latin America, the Middle
         East, Asia, Indonesia, the People's Republic of China, Australia, New
         Zealand, Mexico and Scandinavia.

         In January 2005, Ther-Rx introduced its second NDA approved product,
         Clindesse(R), the first approved single-dose therapy for bacterial
         vaginosis. Similar to Gynazole-1(R), Clindesse(R) incorporates our
         proprietary VagiSite(TM) bioadhesive drug delivery technology. Since
         its launch, Clindesse(R) has gained 28.0% of the intravaginal
         bacterial vaginosis market in the United States. Clindesse(R)
         generated a 27.4% increase in sales to $40.5 million in fiscal 2008.
         We have also entered into licensing agreements for the right to
         market Clindesse(R) in Spain, Portugal, Andorra, Brazil, Mexico, five
         Scandinavian markets, 18 Eastern European countries and the People's
         Republic of China.

         We established our hematinic product line by acquiring two leading
         hematinic brands, Chromagen(R) and Niferex(R), in 2003. We
         re-launched technology-improved versions of these products mid-way
         through fiscal 2004. In fiscal 2006, we introduced two new hematinic
         products -- Repliva 21/7(R) and Niferex Gold(R). We believe Repliva
         21/7(R) is a product offering that represents a revolutionary
         advancement in iron therapy. Repliva 21/7(R) has been uniquely
         formulated to promote maximum red blood cell regeneration while
         minimizing uncomfortable side effects that patients have typically
         endured with traditional iron supplements. With Repliva 21/7(R)
         becoming the number one branded oral iron product in the United
         States and Ther-Rx being the number one provider of branded
         prescription oral iron supplements in the United States, sales of our
         hematinic product line grew to $53.8 million in fiscal 2008, an 11.6%
         increase over fiscal 2007.

         In May 2007, we acquired from VIVUS, Inc. the U.S. marketing rights
         to Evamist(TM), a unique transdermal estrogen therapy delivering a
         low dose of estradiol in a once-daily spray. Under terms of the asset
         purchase agreement, we paid $10.0 million in cash at closing and made
         an additional cash payment of $141.5 million upon final approval of
         the product by the FDA in July 2007. Evamist(TM) is indicated for the
         treatment of moderate-to-severe vasomotor symptoms due to menopause
         and targets the estrogen replacement market where physicians and
         patients are seeking an effective and safe, low-dose estrogen
         product. We believe Evamist(TM) will significantly augment the
         women's health offerings of our branded segment as we leverage the
         promotion of this product through our expanded branded sales force.
         We began shipping this product at the end of fiscal 2008.

         In January 2008, we entered into a definitive asset purchase
         agreement with CYTYC to acquire the U.S. and worldwide rights to
         Gestiva(TM) (17-alpha hydroxyprogesterone caproate). Under the terms
         of the asset purchase agreement, we agreed to pay $82.0 million for
         Gestiva(TM), $7.5 million of which was paid at closing. The NDA for
         Gestiva(TM) is currently before the FDA, pending approval for use in
         the prevention of preterm birth in certain categories of pregnant
         women. The proposed indication is for women with a history of at
         least one spontaneous preterm delivery (i.e., less than 37 weeks),
         who are pregnant with a single fetus. The FDA issued an "approvable"
         letter for Gestiva(TM) in October 2006, and a final approval is
         anticipated in fiscal 2009. The FDA has granted an Orphan Drug
         Designation for Gestiva(TM). The acquisition of Gestiva(TM) is
         intended to allow Ther-


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         Rx to capitalize on the already strong relationships built over the
         past seven years between Ther-Rx's 330-member sales force and
         Obstetrician/Gynecologists.

         To capitalize on Ther-Rx's success in marketing women's health
         products, we continue to look for opportunities to expand our Ther-Rx
         product portfolio. As part of the May 2005 acquisition of
         FemmePharma, we assumed development responsibility and secured full
         worldwide marketing rights to an endometriosis product that had
         successfully completed Phase II clinical trials. We are now testing
         an alternative formula in a Phase II study to determine which
         alternative to take into Phase III clinicals. The Company expects to
         start Phase III clinicals in fiscal 2010.

         Based on the addition and development of new products and our
         expectation of continued growth in our branded business, Ther-Rx has
         expanded its branded sales force to approximately 330 specialty sales
         representatives. Ther-Rx's sales force focuses on physician
         specialists who are identified through available market research as
         frequent prescribers of our prescription products. Ther-Rx also has a
         corporate sales and marketing management team dedicated to planning
         and managing Ther-Rx's sales and marketing efforts.

         ETHEX -- OUR TECHNOLOGICALLY DISTINGUISHED GENERIC/NON-BRANDED DRUG
         BUSINESS

         We established ETHEX, currently our largest business segment, in 1990
         to utilize our portfolio of drug delivery systems to develop and
         market hard-to-copy generic/non-branded pharmaceuticals. We believe
         many of our ETHEX products enjoy higher gross margins than other
         generic pharmaceutical companies due to our approach of selecting
         products that benefit from our proprietary drug delivery systems and
         our specialty manufacturing capabilities. These advantages can
         differentiate our products and reduce the rate of price erosion
         typically experienced in the generic market. ETHEX's net revenues
         increased 56.1% to $367.9 million for fiscal 2008, which represented
         61.1% of our total net revenues.

         In May 2007, we received FDA approval to market the 100 mg and 200 mg
         strengths of metoprolol succinate extended-release tablets, the
         generic version of Toprol-XL(R) (marketed by AstraZeneca). In fiscal
         2006, we received a favorable court ruling in a Paragraph IV patent
         infringement action filed against us by AstraZeneca based on our ANDA
         submissions to market these generic formulations. Since we were the
         first company to file with the FDA for generic approval of the 100 mg
         and 200 mg dosage strengths, we were accorded the opportunity for a
         180-day exclusivity period for marketing these two dosage strengths.
         The 180-day exclusivity period has allowed us to realize higher
         margins on these products compared to our other generic/non-branded
         products. We began shipping these two products in July 2007 and along
         with the 25 mg approved and launched in March 2008 generated net
         revenues in fiscal 2008 of $120.0 million.

         We have used our proprietary drug delivery technologies in many of
         our generic/non-branded pharmaceutical products. For example, we have
         used METER RELEASE(R), one of our proprietary controlled release
         technologies, in a variety of products including the only generic
         equivalent to Norpace(R) CR, an antiarrhythmic that is taken twice
         daily. Further, we have used KV/24(TM) once daily technology in the
         generic equivalent to IMDUR(R), a cardiovascular drug that is taken
         once per day, among others.

         To capitalize on ETHEX's unique product capabilities, we continue to
         expand our ETHEX product portfolio. In fiscal 2006, we launched a new
         InveAmp(R) line extension to our pain management business.
         InveAmp(R), a unique one unit dose ampoule, was designed to make
         dispensing of narcotic pain relievers more effective. In fiscal 2007,
         we received ANDA approval for six strengths of diltiazem
         hydrochloride extended-release capsules. As noted above, in fiscal
         2008, we received FDA approval to market the 100 mg and 200 mg
         strengths of metoprolol succinate extended-release tablets, the
         generic version of Toprol-XL(R). We also received in fiscal 2008 ANDA
         approval for ondansetron 4 mg and 8 mg orally disintegrating tablets,
         the 100 mg and 200 mg strengths of morphine sulfate extended-release
         tablets, the generic equivalent of MS Contin(R), and the 100 mg and
         200 mg strengths of benzonatate USP capsules, the generic equivalent
         to Tessalon(R). In addition, we received FDA approval to market the
         25 mg and 50 mg strengths of metoprolol succinate extended-release
         tablets in March 2008 and May 2008, respectively. As a result of the
         recent 50 mg approval, KV now offers the complete line of all four
         dosage strengths of metoprolol succinate extended-release tablets -
         200 mg, 100 mg, 50 mg and 25 mg.


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         In addition to our internal product development efforts, we have
         entered into several long-term product development and marketing
         license agreements with various generic pharmaceutical developers and
         manufacturers. Under most of these arrangements, the other parties
         are responsible for developing, submitting for regulatory approval
         and manufacturing the products and we are responsible for exclusively
         marketing these products in the territories covered by the
         in-licensing agreements. We expect certain products under these
         agreements to be filed and/or approved beginning in fiscal 2009. With
         the majority of our internal generic/non-branded product development
         efforts primarily focused on building our pipeline with products that
         use one or more of our 15 drug delivery technologies, we believe
         these development agreements with existing parties will further
         provide an opportunity to grow our generic/non-branded business.
         These new product sources have increased the scope of our
         generic/non-branded product pipeline to more than 50 product
         opportunities.

         The Company seeks to pursue an approach of developing generic
         products that are more difficult to develop or manufacture and that
         will therefore have significant barriers to entry by other generic
         companies, such as metoprolol succinate extended-release tablets. The
         Company has a rich generic pipeline. In fiscal year 2008, between the
         Company's own internal development activities and its external
         development partners, the Company filed 16 ANDAs and received 5
         generic product approvals from the FDA. In fiscal year 2009, the
         Company anticipates that, between its external development partners
         and its own internal development activities, it will file
         approximately 16 generic ANDA filings and receive six product
         approvals from the FDA.

         On February 14, 2006, the Company announced it had entered into an
         agreement with Gedeon Richter under which the Company had acquired
         exclusive rights to market a group of generic products in the United
         States. However, due to changes in the generic drug marketplace, the
         Company and Gedeon Richter have agreed the current portfolio of
         products covered by the agreement, which has now been terminated, no
         longer represent market opportunities that are worth pursuing. The
         two companies remain committed partners in other endeavors and are
         keeping options open to explore other more meaningful joint
         opportunities.

         ETHEX primarily focuses on the therapeutic categories of
         cardiovascular, women's health, pain management and respiratory,
         leveraging our expertise in developing and manufacturing products in
         these areas. In addition, we pursue opportunities outside of these
         categories where we also may differentiate our products based upon
         our proprietary drug delivery systems and our specialty manufacturing
         expertise.

         CARDIOVASCULAR. ETHEX currently markets over 70 products in its
         cardiovascular line, including products to treat angina, arrhythmia
         and hypertension, as well as for potassium supplementation. The
         cardiovascular line accounted for $237.2 million, or 64.5%, of
         ETHEX's net revenues in fiscal 2008.

         PAIN MANAGEMENT. ETHEX currently markets over 30 products in its pain
         management line. Included in this line are several controlled
         substance drugs, such as morphine, hydromorphone and oxycodone. Pain
         management products accounted for $45.7 million, or 12.4%, of ETHEX's
         net revenues in fiscal 2008.

         RESPIRATORY. During most of fiscal 2008, ETHEX marketed approximately
         30 products in its respiratory line, which consisted primarily of
         cough/cold products. The cough/cold line accounted for $38.5 million,
         or 10.5% of ETHEX's net revenues in fiscal 2008. In March 2008,
         representatives of the Missouri Department of Health and Senior
         Services and the FDA notified us of a hold on our inventory of
         certain unapproved products. Previously, we had received notices that
         required us to cease the manufacture and sale of unapproved products
         containing timed-release guaifenesin. As a result of these notices,
         we are currently marketing one cough/cold product. We will
         discontinue manufacturing and marketing all unapproved cough/cold
         products subject to the hold. See Part I, Item 1A "Risk Factors" for
         additional information. The regulatory status of certain of our
         generic products may make them subject to increased competition or to
         regulatory decisions that may require market withdrawal of one or
         more of our unapproved products.

         WOMEN'S HEALTH CARE. ETHEX currently markets over 20 products in its
         women's healthcare line, all of which are prescription prenatal
         vitamins. The women's healthcare line accounted for $14.1 million, or
         3.8%, of ETHEX's net revenues in fiscal 2008.

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         OTHER THERAPEUTICS. In addition to our core therapeutic lines, ETHEX
         markets over 40 products in the gastrointestinal, dermatological,
         anti-anxiety, digestive enzyme and dental categories. These
         categories accounted for $32.2 million, or 8.8%, of ETHEX's net
         revenues in fiscal 2008.

         ETHEX has a dedicated sales and marketing team, which includes an
         outside sales team of regional managers and national account managers
         and an inside sales team. The outside sales force calls on
         wholesalers, distributors and national drugstore chains, as well as
         hospitals, nursing homes, independent pharmacies and mail order
         firms. The inside sales force makes calls to independent pharmacies
         to create demand at the wholesale level.

         PDI - OUR VALUE-ADDED RAW MATERIAL BUSINESS

         PDI develops and markets specialty raw material products for the
         pharmaceutical, nutritional, food, personal care and other
         industries. Its products include value-added active drug molecules,
         vitamins, minerals and other raw material ingredients that provide
         benefits such as improved taste, altered or controlled release
         profiles, enhanced product stability or more efficient and other
         manufacturing process advantages. PDI is also a significant supplier
         of value-added raw materials for the development and manufacture of
         both existing and new products at Ther-Rx and ETHEX. Net revenues for
         PDI were $18.0 million in fiscal 2008, up 3.3% over net revenues of
         $17.4 for fiscal 2007, which represented 3.0% of our total net
         revenues.

         BUSINESS STRATEGY

         Our goal is to enhance our position as a leading fully integrated
         specialty pharmaceutical company that utilizes its expanding drug
         delivery expertise to bring technologically distinguished brand name
         and generic/non-branded products to market. Our strategies
         incorporate the following key elements:

         INTERNALLY DEVELOP BRAND NAME PRODUCTS. We apply our existing drug
         delivery technologies, research and development and manufacturing
         expertise to introduce new brand name products which can expand our
         existing franchises. We plan to continue to use our research and
         development, manufacturing and marketing expertise to create unique
         brand name products within our core therapeutic areas and, possibly,
         new therapeutic areas. We believe we have in place a strong pipeline
         of potential new products.

         CAPITALIZE ON ACQUISITION OPPORTUNITIES. We actively seek acquisition
         opportunities for both Ther-Rx and ETHEX. In May 2007, we completed
         the acquisition of the U.S. marketing rights to Evamist(TM), a new
         low-dose estrogen transdermal spray, from VIVUS, Inc. The NDA for
         this product was approved by the FDA in July 2007 and we began
         shipping Evamist(TM) during the fourth quarter of fiscal 2008.

         In January 2008, we entered into a definitive purchase agreement that
         gives us full U.S. and worldwide rights to Gestiva(TM) (17-alpha
         hydroxyprogesterone caproate) upon approval of the pending
         Gestiva(TM) NDA by FDA. Gestiva(TM) is seeking an indication for use
         in the prevention of preterm birth in certain categories of pregnant
         women. The FDA issued an "approvable" letter for Gestiva(TM) in
         October 2006, and a final approval is anticipated in late 2008. The
         FDA has granted an Orphan Drug Designation for Gestiva(TM).

         Ther-Rx is also continually looking for platform acquisition
         opportunities similar to PreCare(R) around which it can build
         franchises. We believe that consolidation among large pharmaceutical
         companies, coupled with cost-containment pressures, has increased the
         level of sales necessary for an individual product to justify active
         marketing and promotion. This has led large pharmaceutical companies
         to focus their marketing efforts on drugs with higher volume sales,
         newer or novel drugs which have the potential for high volume sales
         and products which fit within core therapeutic or marketing
         priorities. As a result, major pharmaceutical companies have sought
         to divest small or non-strategic product lines, which can be
         profitable for specialty pharmaceutical companies like us.

         In making acquisitions, we apply several important criteria in our
         decision-making process. We pursue products with the following
         attributes:

         o    products which we believe have relevance for treatment of
              significant clinical needs;


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         o    promotionally sensitive maintenance drugs which require
              continual use over a long period of time, as opposed to more
              limited use products for acute indications;

         o    products that have strong patent protection or can be protected;

         o    products which are predominantly prescribed by physician
              specialists, which can be cost-effectively marketed by a focused
              sales force; and

         o    products which we believe have potential for technological
              enhancements and line extensions based upon our drug delivery
              technologies.

         FOCUS SALES EFFORTS ON HIGH-VALUE NICHE MARKETS. We focus our Ther-Rx
         sales efforts on niche markets where we believe we can target a
         relatively narrow physician specialist audience. Because our products
         are sold to specialty physician groups that tend to be relatively
         concentrated, we believe that we can address these markets cost
         effectively with a focused sales force. Based on the addition and
         development of new products and our expectation of continued growth
         in our branded business, Ther-Rx has expanded its branded sales force
         to approximately 330 specialty sales representatives. We plan to
         continue to build our sales force over time as necessary to
         accommodate current and future expansions of our product lines.

         PURSUE ATTRACTIVE GROWTH OPPORTUNITIES WITHIN THE GENERIC INDUSTRY.
         We plan to continue introducing generic and non-branded alternatives
         to select drugs whose patents have expired, particularly where we can
         use our drug delivery technologies. We believe the health care
         industry will continue to support growth in the generic
         pharmaceutical market and that industry trends favor generic product
         expansion into the managed care, long-term care and government
         contract markets. We further believe that we are uniquely positioned
         to capitalize on this growing market given our large base of
         proprietary drug delivery technologies and our proven ability to lead
         the therapeutic categories we enter. Almost two-thirds of ETHEX'S
         generic/non-branded products use the Company's proprietary drug
         delivery technologies, and approximately 80% rank either first or
         second in their respective generic categories by volume.

         In May 2007, we received FDA approval to market the 100 mg and 200 mg
         strengths of metoprolol succinate extended-release tablets, the
         generic version of Toprol-XL(R) (marketed by AstraZeneca). In fiscal
         2006, we received a favorable court ruling in a Paragraph IV patent
         infringement action filed against us by AstraZeneca based on our ANDA
         submissions to market these generic formulations. Since we were the
         first company to file with the FDA for generic approval of the 100 mg
         and 200 mg dosage strengths, we were accorded the opportunity for a
         180-day exclusivity period for marketing these two dosage strengths.
         The 180-day exclusivity period has allowed us to realize higher
         margins on these products compared to our other generic/non-branded
         products. We began shipping these two products in July 2007 and with
         the approval and launch in March 2008 of the 25 mg strength they
         generated net revenues in fiscal 2008 of $120.0 million. We received
         FDA approval to market the 25 mg and 50 mg strengths of metoprolol
         succinate extended-release tablets in March 2008 and May 2008,
         respectively. As a result of the recent 50 mg approval, KV now offers
         the complete line of all four dosage strengths of metoprolol
         succinate extended-release tablets - 200 mg, 100 mg, 50 mg and 25 mg.

         ADVANCE EXISTING AND DEVELOP NEW DRUG DELIVERY TECHNOLOGIES. We
         believe our drug delivery platform of 15 distinguished technologies
         has unique breadth and depth. These technologies have enabled us to
         create innovative products, including Gynazole-1(R) and Clindesse(R),
         which incorporate VagiSite(TM), our proprietary bioadhesive
         controlled release system. In addition, our tastemasking and
         controlled release systems are incorporated into our prenatal
         vitamins, providing them with differentiated benefits over other
         products on the market.

         We are actively advancing our existing portfolio of drug delivery
         technologies and developing or acquiring exciting new technologies
         with substantial growth potential. In May 2007, we completed the
         acquisition of the U.S. marketing rights to Evamist(TM), a new
         low-dose estrogen transdermal spray, from VIVUS, Inc. The product was
         formulated with a patented metered-dose transdermal spray system
         which is designed to provide an easy, once-daily dose of estrodial
         via the skin. Evamist(TM) is the first transdermal spray estrogen
         replacement therapy


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         product approved for use in the U.S. The NDA for this product was
         approved by the FDA in July 2007 and we began shipping Evamist(TM)
         during the fourth quarter of fiscal 2008.

         OUR PROPRIETARY DRUG DELIVERY TECHNOLOGIES

         We believe we are a leader in the development of proprietary drug
         delivery systems and formulation technologies which enhance the
         effectiveness of new therapeutic agents, existing pharmaceutical
         products and nutritional supplements. We have used many of these
         technologies to successfully commercialize technologically
         distinguished branded and generic/non-branded products. Additionally,
         we continue to invest our resources in the development or acquisition
         of new technologies. The following describes our principal drug
         delivery technologies.

         SITE RELEASE(R) TECHNOLOGIES. SITE RELEASE(R) is our largest family
         of technologies and includes eight systems designed specifically for
         oral, topical or interorificial use. These systems rely on controlled
         bioadhesive properties to optimize the delivery of drugs to either
         wet mucosal tissue or the skin and are the subject of issued patents
         and pending patent applications. Of the technologies developed,
         products using the VagiSite(TM) and DermaSite(TM) technologies have
         been successfully commercialized.

         ORAL CONTROLLED RELEASE TECHNOLOGIES. The technological leadership of
         our advanced drug delivery systems was established in the development
         of our three oral controlled release technologies, all of which have
         been commercialized. Our systems can be individually designed to
         achieve the desired release profile for a given drug. The release
         profile is dependent on many parameters, such as drug solubility,
         protein binding and site of absorption. Some of the products
         utilizing our oral controlled release systems in the market include
         diltiazem extended-release capsules (an AB rated generic equivalent
         to Tiazac(R)) and metoprolol succinate extended-release tablets (an
         AB rated generic equivalent to Toprol-XL(R)).

         TASTEMASKING TECHNOLOGIES. Our tastemasking technologies improve the
         taste of unpleasant drugs. Our three patented tastemasking systems
         can be applied to liquids, chewables or dry powders. We first
         introduced tastemasking technologies in 1991 and have utilized them
         in a number of Ther-Rx and ETHEX products, including PreCare(R)
         Chewables and most of the liquid products that are sold in ETHEX's
         cough/cold line.

         ORAL QUICK DISSOLVING TECHNOLOGY. Our quick dissolving oral tablet
         technology provides the ability to tastemask, yet dissolves in the
         mouth in a matter of seconds. Most other quick-dissolving
         technologies offer either quickness at the expense of poor
         tastemasking or excellent tastemasking at the expense of quickness.
         Our unique quick dissolving tablet can be taken without water. Its
         durability avoids the need for special packaging and it supports the
         incorporation of our tastemasking technologies. Our oral dissolving
         tablet technology is commercialized in our hyoscyamine sulfate orally
         disintegrating tablets, as well as the ondansetron orally
         disintegrating tablets approved by the FDA in fiscal 2008.

         SALES AND MARKETING

         Ther-Rx has a national sales and marketing infrastructure which
         includes approximately 330 sales representatives dedicated to
         promoting and marketing our branded pharmaceutical products to
         targeted physician specialists. The Ther-Rx sales force focuses on
         physician specialists who are identified through available market
         research as frequent prescribers of products in our therapeutic
         categories. Ther-Rx also has a corporate sales and marketing
         management team dedicated to planning and managing Ther-Rx's sales
         and marketing efforts.


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         We attempt to increase sales of our branded pharmaceutical products
         through physician sales calls and promotional efforts, including
         sampling, advertising and direct mail. For acquired branded products,
         we generally increase the level of physician sales calls and
         promotion relative to the previous owner. For example, with the
         PreCare(R) prenatal sales efforts, we increased the level of
         physician sales calls and sampling to the highest prescribers of
         prenatal vitamins. We also have enhanced our PreCare(R) brand
         franchise by launching six additional line extensions to address
         unmet needs, including the launch of PreCare(R) Chewables, Premesis
         Rx(R), PreCare Conceive(R), PrimaCare(R), PrimaCare ONE(R) and
         PreCare Premier(R). The PreCare(R) product line enables us to deliver
         a full range of nutritional products for physicians to prescribe to
         women in their childbearing years. In addition, we added to our
         women's health care family of products in June 2000 with the
         introduction of our first NDA approved product, Gynazole-1(R), the
         only one-dose prescription cream treatment for vaginal yeast
         infections. In fiscal 2004, we further expanded our branded product
         offerings when we launched technology improved versions of the
         Chromagen(R) and Niferex(R) oral hematinic product lines that were
         acquired at the end of fiscal 2003. In January 2005, we introduced
         our second NDA approved product, Clindesse(R), the first approved
         single-dose therapy for bacterial vaginosis. In fiscal 2006, we
         introduced Encora(R), a new prescription nutritional supplement
         product, and two new hematinic products, Repliva 21/7(R) and Niferex
         Gold(R). In May 2007, we completed the acquisition of the U.S.
         marketing rights to Evamist(TM), a new low-dose estrogen transdermal
         spray, from VIVUS, Inc. The NDA for this product was approved by the
         FDA in July 2007 and we began shipping Evamist(TM) during March 2008.
         By offering multiple products to the same group of physician
         specialists, we believe we are able to maximize the effectiveness of
         our experienced sales force.

         ETHEX has an experienced sales and marketing team, which includes an
         outside sales team, regional account managers, national account
         managers and an inside sales team. The outside sales force calls on
         wholesalers, distributors and national drugstore chains, as well as
         hospitals, nursing homes, mail order firms and independent
         pharmacies. The inside sales team primarily calls on independent
         pharmacies to create demand at the wholesale level.

         We believe that industry trends favor generic product expansion into
         the managed care, long-term care and government contract markets.
         Further, we believe that our competitively priced,
         technology-distinguished generic/non-branded products can fulfill the
         increasing need of these markets to contain costs and improve patient
         compliance. Accordingly, we intend to continue to devote significant
         marketing resources to the penetration of those markets.

         During fiscal 2008, our three largest customers accounted for 24.6%,
         23.9% and 9.8% of gross revenues. These customers were Cardinal
         Health, McKesson Drug Company and Amerisource Corporation,
         respectively. In fiscal 2007 and 2006, these customers accounted for
         gross revenues of 21.1%, 25.7% and 14.4%, and 15.7%, 26.9% and 12.7%,
         respectively.

         Although we sell internationally, we do not have material operations
         or sales in foreign countries and our sales are not subject to
         significant geographic concentration.

         RESEARCH AND DEVELOPMENT

         We have long recognized that development of successful new products
         is critical to achieving our goal of sustainable growth over the long
         term. As such, our investment in research and development, which
         increased at a compounded annual growth rate of 19.5% over the past
         five fiscal years, reflects our continued commitment to develop new
         products and/or technologies through our internal development
         programs, and with our external strategic partners.

         Our research and development activities include the development of
         new and next generation drug delivery technologies, the formulation
         of brand name proprietary products and the development of
         technologically distinguished generic/non-branded versions of
         previously approved brand name pharmaceutical products. In fiscal
         2008, 2007 and 2006, total research and development expenses were
         $46.6 million, $31.5 million and $28.9 million, respectively,
         excluding acquired in-process research and development.

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         All applications for FDA approval must contain information relating
         to product formulation, raw material suppliers, stability,
         manufacturing processes, packaging, labeling and quality control.
         Information to support the bioequivalence of generic drug products or
         the safety and effectiveness of new drug products for their intended
         use is also required to be submitted. There are generally two types
         of applications used for obtaining FDA approval of new products:


              o   New Drug Application ("NDA"). An NDA is filed when approval
                  is sought to market a drug with active ingredients that have
                  not been previously approved by the FDA. NDAs are filed for
                  newly developed brand products and, in certain instances,
                  for a new dosage form, a new delivery system or a new
                  indication for previously approved drugs.
              o   Abbreviated New Drug Application ("ANDA"). An ANDA is filed
                  when approval is sought to market a generic equivalent of a
                  drug product previously approved under an NDA and listed in
                  the FDA's "Orange Book" or for a new dosage strength or a
                  new delivery system for a drug previously approved under an
                  ANDA.


         One requirement for FDA approval of NDAs and ANDAs is that our
         manufacturing procedures and operations conform to FDA requirements
         and guidelines, generally referred to as current Good Manufacturing
         Practices ("cGMP"). The requirements for FDA approval encompass all
         aspects of the production process, including validation and
         recordkeeping, and involve changing and evolving standards.

         BRANDED PRODUCT DEVELOPMENT. The process required by the FDA before a
         pharmaceutical product, with active ingredients that have not been
         previously approved, may be marketed in the United States generally
         involves the following:

              o   laboratory and preclinical tests;
              o   submission of an Investigational New Drug ("IND")
                  application, which must become effective before clinical
                  studies may begin;
              o   adequate and well-controlled human clinical studies to
                  establish the safety and efficacy of the proposed product
                  for its intended use;
              o   submission of an NDA containing the results of the
                  preclinical tests and clinical studies establishing the
                  safety and efficacy of the proposed product for its intended
                  use, as well as extensive data addressing matters such as
                  manufacturing and quality assurance;
              o   scale-up to commercial manufacturing; and
              o   FDA approval of an NDA.


         Preclinical tests include laboratory evaluation of the product, its
         chemistry, formulation and stability, as well as toxicology and
         pharmacology studies to help define the pharmacological profile of
         the drug and assess the potential safety and efficacy of the product.
         The results of these studies are submitted to the FDA as part of the
         IND. They must demonstrate that the product delivers sufficient
         quantities of the drug to the bloodstream or intended site of action
         to produce the desired therapeutic results before human clinical
         trials may begin. These studies must also provide the appropriate
         supportive safety information necessary for the FDA to determine
         whether the clinical studies proposed to be conducted under the IND
         can safely proceed. The IND automatically becomes effective 30 days
         after receipt by the FDA unless the FDA, during that 30-day period,
         raises concerns or questions about the conduct of the proposed trials
         as outlined in the IND. In such cases, the IND sponsor and the FDA
         must resolve any outstanding concerns before clinical trials may
         begin. In addition, an independent institutional review board must
         review and approve any clinical study prior to initiation.



         Human clinical studies are typically conducted in three sequential
         phases, which may overlap:

              o   Phase I: The drug is initially introduced into a relatively
                  small number of healthy human subjects or patients and is
                  tested for safety, dosage tolerance, mechanism of action,
                  absorption, metabolism, distribution and excretion.

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              o   Phase II: Studies are performed with a limited patient
                  population to identify possible adverse effects and safety
                  risks, to assess the efficacy of the product for specific
                  targeted diseases or conditions, and to determine dosage
                  tolerance and optimal dosage.
              o   Phase III: When Phase II evaluations demonstrate that a
                  dosage range of the product is effective and has an
                  acceptable safety profile, Phase III trials are undertaken
                  to evaluate further dosage and clinical efficacy and to test
                  further for safety in an expanded patient population at
                  geographically dispersed clinical study sites.


         The results of the product development, preclinical studies and
         clinical studies are then submitted to the FDA as part of the NDA.
         The NDA drug development and approval process could take from three
         to more than 10 years.

         In fiscal 2005, we introduced our second NDA approved product,
         Clindesse(R), the first approved single-dose therapy for bacterial
         vaginosis. Similar to Gynazole-1(R), Clindesse(R) incorporates our
         proprietary VagiSite(TM) bioadhesive drug delivery technology. In
         fiscal 2006, we introduced Encora(R), a new prescription nutritional
         supplement product, and two new hematinic products, Niferex Gold(R)
         and Repliva 21/7(R). Ther-Rx currently has a number of products in
         its research and development pipeline at various stages of
         development. We believe we have the technological expertise required
         to develop unique products to meet currently unmet needs in the area
         of women's health, as well as other therapeutic areas.

         As part of the May 2005 acquisition of FemmePharma, we assumed
         development responsibility and secured full worldwide marketing
         rights to an endometriosis product that had successfully completed
         Phase II clinical trials. We are now testing an alternative formula
         in a Phase II study to determine which alternative to take into Phase
         III clinicals. The Company expects to start Phase III clinicals in
         fiscal 2010.

         In May 2007, we acquired from VIVUS, Inc. the U.S. marketing rights
         to Evamist(TM), a unique transdermal estrogen therapy delivering a
         low dose of estradiol in a once-daily spray. Under terms of the asset
         purchase agreement, we paid $10.0 million in cash at closing and made
         an additional cash payment of $141.5 million upon final approval of
         the product by the FDA in July 2007. Evamist(TM) is indicated for the
         treatment of moderate-to-severe vasomotor symptoms due to menopause
         and targets the estrogen replacement market where physicians and
         patients are seeking an effective and safe, low-dose estrogen
         product. We began shipping this product at the end of fiscal 2008.

         In January 2008, we entered into a definitive asset purchase
         agreement with CYTYC to acquire the U.S. and worldwide rights to
         Gestiva(TM) (17-alpha hydroxyprogesterone caproate). Under the terms
         of the asset purchase agreement, we agreed to pay $82.0 million for
         Gestiva(TM), $7.5 million of which was paid at closing. The NDA for
         Gestiva(TM) is currently before the FDA, pending approval for use in
         the prevention of preterm birth in certain categories of pregnant
         women. The proposed indication is for women with a history of at
         least one spontaneous preterm delivery (i.e., less than 37 weeks),
         who are pregnant with a single fetus. The FDA issued an "approvable"
         letter for Gestiva(TM) in October 2006, and a final approval is
         anticipated in fiscal 2009. The FDA has granted an Orphan Drug
         Designation for Gestiva(TM).

         GENERIC/NON-BRANDED PRODUCT DEVELOPMENT. FDA approval of an ANDA is
         required before marketing a generic equivalent of a drug approved
         under an NDA in the United States or for a previously unapproved
         dosage strength or delivery system for a drug approved under an ANDA.
         The ANDA development process is generally less time consuming and
         complex than the NDA development process. It typically does not
         require new preclinical and clinical studies because it relies on the
         studies establishing safety and efficacy conducted for the drug
         previously approved through the NDA process. The ANDA process,
         however, does require one or more bioequivalency studies to show that
         the ANDA drug is bioequivalent to the previously approved drug.
         Bioequivalence compares the bioavailability of one drug product with
         that of another formulation containing the same active ingredient.
         When established, bioequivalence confirms that the rate of absorption
         and levels of concentration in the bloodstream of a formulation of
         the previously approved drug and the generic drug are equivalent.
         Bioavailability indicates the rate and extent of absorption and
         levels of concentration of a drug product in the bloodstream needed
         to produce the same therapeutic effect.


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         Supplemental ANDAs are required for approval of various types of
         changes to an approved application, and these supplements may be
         under review for six months or more. In addition, certain types of
         changes may be approved only once new bioequivalence studies are
         conducted or other requirements are satisfied.

         PATENTS AND OTHER PROPRIETARY RIGHTS

         When appropriate and available, we actively seek protection for our
         products and proprietary information by means of U.S. and foreign
         patents, trademarks, trade secrets, copyrights and contractual
         arrangements. Patent protection in the pharmaceutical field, however,
         can involve complex legal and factual issues. Moreover, broad patent
         protection for new formulations or new methods of use of existing
         chemical compounds is sometimes difficult to obtain, primarily
         because the active ingredient and many of the formulation techniques
         have been known for some time. Consequently, some patents claiming
         new formulations or new methods of use for old drugs may not provide
         meaningful protection against competition. Nevertheless, we intend to
         continue to seek patent protection when appropriate and available and
         otherwise to rely on regulatory-related exclusivity and trade secrets
         to protect certain of our products, technologies and other scientific
         information. There can be no assurance, however, that any steps taken
         to protect such proprietary information will be effective.

         Our policy is to file patent applications in appropriate situations
         to protect and preserve, for our own use, technology, inventions and
         improvements that we consider important to the development of our
         business. We currently hold domestic and foreign issued patents the
         last of which expires in fiscal 2023 relating to our
         controlled-release, site-specific, quick dissolve and taste-masking
         technologies. We have been granted 42 U.S. patents and have 37 U.S.
         patent applications pending. In addition, we have 71 foreign issued
         patents and a total of 204 patent applications pending primarily in
         Canada, Europe, Australia, Japan, South America, Mexico and South
         Korea (see Part I, Item 1A "Risk Factors for additional information).
         We depend on our patents and other proprietary rights and cannot be
         certain of their confidentiality and protection.

         We currently own more than 224 U.S. and foreign trademark
         registrations and have also applied for trademark protection for the
         names of our proprietary controlled-release, tastemasking,
         site-specific and quick dissolve technologies. We intend to continue
         to trademark new technology and product names as they are developed.

         To protect our trademark, domain name, and related rights, we
         generally rely on trademark and unfair competition laws, which are
         subject to change. Some, but not all, of our trademarks are
         registered in the jurisdictions where they are used. Some of our
         other trademarks are the subject of pending applications in the
         jurisdictions where they are used or intended to be used and others
         are not.

         MANUFACTURING AND FACILITIES

         We believe that our research, manufacturing, distribution and
         administrative facilities are an important factor in achieving our
         long-term growth objectives. All facilities at March 31, 2008,
         aggregating approximately 1.3 million square feet, are located in the
         St. Louis, Missouri metropolitan area. We own facilities with
         approximately 1.1 million square feet, with the balance under various
         leases at pre-determined annual rates under agreements expiring from
         fiscal 2009 through fiscal 2021, subject in most cases to renewal at
         our option.

         We manufacture drug products in liquid, cream, tablet, capsule and
         caplet forms for distribution by Ther-Rx, ETHEX and our corporate
         licensees and value-added specialty raw materials for distribution by
         PDI. We believe that all of our facilities are in material compliance
         with applicable regulatory requirements.

         We seek to maintain inventories at sufficient levels to support
         current production and sales levels. During fiscal 2008, we
         encountered no serious shortage of any particular raw materials.
         Although there can be no assurance that raw material supply will not
         adversely affect our future operations, we do not believe that any
         shortages will occur in the foreseeable future.



                                      15

<PAGE>
<PAGE>

         COMPETITION

         Competition in the development and marketing of pharmaceutical
         products is intense and characterized by extensive research efforts
         and rapid technological progress. Many companies, including those
         with financial and marketing resources and development capabilities
         substantially greater than our own, are engaged in developing,
         marketing and selling products that compete with those that we offer.
         Our branded pharmaceutical products may also be subject to
         competition from alternate therapies during the period of patent
         protection and thereafter from generic equivalents. In addition, our
         generic/non-branded pharmaceutical products may be subject to
         competition from pharmaceutical companies engaged in the development
         of alternatives to the generic/non-branded products we offer or of
         which we undertake development. Our competitors may develop generic
         products before we do or may have pricing advantages over our
         products. In our specialty pharmaceutical businesses, we compete
         primarily on the basis of product efficacy, breadth of product line
         and price. We believe that our patents, proprietary trade secrets,
         technological expertise, product development and manufacturing
         capabilities will enable us to maintain a leadership position in the
         field of advanced drug delivery technologies and to continue to
         develop products to compete effectively in the marketplace.

         In addition, we compete for product acquisitions with other
         pharmaceutical companies. Many of these competitors have
         substantially greater financial and marketing resources than we do.
         Accordingly, our competitors may succeed in product line acquisitions
         that we seek to acquire.

         We also compete with drug delivery companies engaged in the
         development of alternative drug delivery systems. We are aware of a
         number of companies currently seeking to develop new non-invasive
         drug delivery systems, including oral delivery and transmucosal
         systems. Many of these companies may have greater research and
         development capabilities, experience, manufacturing, marketing,
         financial and managerial resources than we do. Accordingly, our
         competitors may succeed in developing competing technologies,
         obtaining FDA approval for products or gaining market acceptance more
         rapidly than we do.

         GOVERNMENT REGULATION

         All pharmaceutical manufacturers are subject to extensive regulation
         by the federal government, principally the FDA, and, to a lesser
         extent, by state, local and foreign governments. The Federal Food,
         Drug and Cosmetic Act, or FDCA, and other federal statutes and
         regulations govern or influence, among other things, the development,
         testing, manufacture, safety, labeling, storage, recordkeeping,
         approval, advertising, promotion, sale and distribution of
         pharmaceutical products. Pharmaceutical manufacturers are also
         subject to certain record-keeping and reporting requirements,
         establishment registration and product listing, and FDA inspections.

         With respect to any non-biological "new drug" product with active
         ingredients not previously approved by the FDA, a prospective
         manufacturer must submit a full NDA, including complete reports of
         preclinical, clinical and other studies to prove the product's safety
         and efficacy. (See "-Research and Development").

         The Drug Price Competition and Patent Restoration Act of 1984, known
         as the Hatch-Waxman Act, established ANDA procedures for obtaining
         FDA approval for generic versions of many non-biological drugs for
         which patent or marketing exclusivity rights have expired and which
         are bioequivalent to previously approved drugs.

         In addition to establishing ANDA approval mechanisms, the
         Hatch-Waxman Act fosters pharmaceutical innovation through such
         incentives as non-patent exclusivity and patent restoration. The Act
         provides two distinct exclusivity provisions that either preclude the
         submission or delay the approval of an ANDA. A five-year exclusivity
         period is provided for new chemical compounds, and a three-year
         marketing exclusivity period is provided for changes to previously
         approved drugs which are based on new clinical investigations
         essential to the approval. The three-year marketing exclusivity
         period may be applicable to the approval of a novel drug delivery
         system. The marketing exclusivity provisions apply equally to
         patented and non-patented drug products, but do not apply to products
         containing antibiotic ingredients first submitted for approval on or
         before November 20, 1997. These provisions do not delay or otherwise
         affect the approvability of full NDAs even when effective ANDA
         approvals are not available. For drugs covered by patents, patent
         extension may be provided for up to five


                                      16

<PAGE>
<PAGE>

         years as compensation for reduction of the effective life of the
         patent resulting from time spent in conducting clinical trials and in
         FDA review of a drug application.

         There has been substantial litigation in the biomedical,
         biotechnology and pharmaceutical industries with respect to the
         manufacture, use and sale of new products that are alleged to
         infringe outstanding patent rights. One or more patents cover most of
         the proprietary products for which we are developing generic
         versions. When we file an ANDA for such drug products, we will, in
         most cases, be required to certify to the FDA that any patent which
         has been listed with the FDA as covering the product is either
         invalid or will not be infringed by the sale of our product.
         Alternatively, we could certify that we would not market our proposed
         product until the applicable patent expires. A patent holder may
         challenge a notice of non-infringement or invalidity by filing suit,
         which would in most cases, prevent FDA approval until the suit is
         resolved or at least 30 months have elapsed (unless the patent
         expires, whichever is earlier). Should any entity commence a lawsuit
         with respect to any alleged patent infringement by us, the
         uncertainties inherent in patent litigation would make the outcome of
         such litigation difficult to predict. We are involved in various
         lawsuits resulting from ANDA filings. See Note 12 of the Notes to
         Consolidated Financial Statements.

         In addition to marketing drugs which are subject to FDA review and
         approval, we market certain drug products in the U.S. without FDA
         approval under certain "grandfather" clauses and statutory and
         regulatory exceptions to the pre-market approval requirement for "new
         drugs" under the FDCA. A determination as to whether a particular
         product does or does not require FDA pre-market review and approval
         can involve consideration of numerous complex and imprecise factors.
         If a determination is made by the FDA that any product marketed
         without approval requires such approval, the FDA may institute
         enforcement actions, including product seizure, or action seeking an
         injunction or hold against further marketing and may or may not allow
         sufficient time to obtain the necessary approvals before it seeks to
         curtail further marketing. We are not in a position to predict
         whether or when the FDA might choose to raise objections to the
         marketing without NDA or ANDA approval of a category or categories of
         drug products represented in our product lines. In the event such
         objections are raised, we could be required or could decide to cease
         distribution of affected products until pre-market approval is
         obtained. In addition, we may not be able to obtain any particular
         approval that may be required or such approval may not be obtained on
         a timely basis.

         In this regard, in June 2006, May 2007 and September 2007, the FDA
         issued Notices to the pharmaceutical industry stating that
         manufacture of all unapproved drug products containing carbinoxamine,
         carbinoxamine labeled for children under two, timed-released
         guaifenesin, hydrocodone labeled for children under six and all other
         unapproved products containing hydrocodone, respectively, cease by
         September 6, 2006, July 9, 2006, August 26, 2007, October 31, 2007,
         and December 31, 2007, respectively. These Notices affect the
         continued manufacture and sale of ETHEX's Hydro-Tussin(TM) CBX Syrup,
         Tri-Vent(TM) HC Liquid, Guaifenex(R) DM ER Tablets, Guaifenex(R) PSE
         60 ER Tablets, PhenaVent(TM) D Capsules, Guaifenex(R) PSE 80 ER
         Tablets, Pseudovent(TM) DM Tablets, Histinex(R) PV Syrup, Hydrocodone
         Bitartrate & Guaifenesin Liquid, Hydro-Tussin(TM) HC Syrup,
         Histinex(R) HC Syrup and Hydro-Tussin(TM) Syrup.

         In March 2008, representatives of the Missouri Department of Health
         and Senior Services, accompanied by representatives of the FDA,
         notified us of a hold on our inventory of certain unapproved drug
         products, restricting our ability to remove or dispose of those
         inventories without permission.

         The hold relates to a misinterpretation about the intended scope of
         recent FDA notices setting limits on the marketing of unapproved
         guaifenesin products. In response to notices issued by the FDA in
         2002 and 2003 with respect to single-entity timed-release guaifenesin
         products, and a further notice issued in 2007 with respect to
         combination timed-released guaifenesin products, we timely
         discontinued a number of our guaifenesin products and believed that,
         by doing so, had complied with those notices. The recent action to
         place a hold on certain of our products indicates that additional
         guaifenesin products should also have been discontinued. In addition,
         the FDA expanded the hold to include other products that did not
         contain guaifenesin but were being marketed without FDA approval
         under certain "grandfather clauses" and statutory and regulatory
         exceptions to the pre-market approval requirement for "new drugs"
         under the FDCA. FDA policies permit the agency to initiate broad
         action against the marketing of additional categories of our
         unapproved products, if the FDA deems approval necessary, even if the
         agency has not instituted similar actions against the marketing of
         such products by other


                                      17

<PAGE>
<PAGE>

         parties. Pursuant to discussions with the Missouri Department of
         Health and Senior Services and with the FDA, the affected Morphine
         and Oxycodone products have been released from the hold. We will
         discontinue manufacturing and marketing all of the other unapproved
         products subject to the hold with the exception of most of our
         Hyoscyamine products. Discussions are continuing with respect to
         these products.

         The FDA has not proposed, nor do we expect them to propose, that the
         products subject to the hold be recalled from the distribution
         channel. We have written-off the value of the products subject to the
         hold in our inventory as of March 31, 2008. We also evaluated the
         active pharmaceutical ingredients and excipients used in the
         manufacture of the hold products and determined that they should also
         be written-off since we will be discontinuing further manufacturing
         and many of them cannot be returned or sold to other manufacturers.
         The write-off included in the results of operations for the fourth
         quarter of fiscal 2008 totaled $5.5 million.

         In October 2007, the FDA issued a Notice extending the period during
         which the FDA will exercise its enforcement discretion not to
         challenge continued marketing and distribution of pancreatic enzyme
         products, such as ETHEX's Pangestyme(TM) product. Under the
         extension, FDA will continue to exercise its enforcement discretion
         with respect to unapproved pancreatic enzyme products that have an
         active Investigational New Drug Application ("IND") on active status
         on or before April 28, 2008 and have submitted an NDA on or before
         April 28, 2009. We have timely filed an IND for such products.

         In addition to obtaining pre-market approval for certain of our
         products, we are required to maintain all facilities in compliance
         with the FDA's current Good Manufacturing Practice, or cGMP,
         requirements. In addition to compliance with cGMP each pharmaceutical
         manufacturer's facilities must be registered with the FDA.
         Manufacturers must also be registered with the U.S. Drug Enforcement
         Administration, or DEA, and similar state and local regulatory
         authorities if they handle controlled substances, with the EPA and
         similar state and local regulatory authorities if they generate toxic
         or dangerous wastes, and must comply with other applicable DEA and
         EPA requirements. Noncompliance with applicable requirements can
         result in fines, recall or seizure of products, total or partial
         suspension of production and distribution, refusal of the government
         to enter into supply contracts or to approve NDAs, ANDAs or other
         applications and criminal prosecution. The FDA also has the authority
         to revoke for-cause drug approvals previously granted.

         The Prescription Drug Marketing Act, or PDMA, which amended various
         sections of the FDCA, requires, among other things, state licensing
         of wholesale distributors of prescription drugs under federal
         guidelines that include minimum standards for storage, handling and
         record keeping. All of our facilities are registered with the State
         of Missouri, where they are located, as required by Federal and
         Missouri law. The PDMA also imposes detailed requirements on the
         distribution of prescription drug samples such as those distributed
         by the Ther-Rx sales force. The PDMA sets forth substantial civil and
         criminal penalties for violations of these and other provisions. Many
         states also require registration of out-of-state drug manufacturers
         and distributors who sell products in their states, and may also
         impose additional requirements or restrictions on out-of-state firms.
         These requirements vary widely from state-to-state and are subject to
         change with little or no direct notice to potentially affected firms.
         We believe that we are currently in compliance in all material
         respects with applicable state requirements. However, if we are found
         to have failed to comply with applicable state requirements, we may
         be subject to sanctions, including monetary penalties and potential
         restrictions on our sales or other activities within particular
         states.

         For international markets, a pharmaceutical company is subject to
         regulatory requirements, inspections and product approvals
         substantially the same as those in the U.S. In connection with any
         future marketing, distribution and license agreements that we may
         enter into, our licensees may accept or assume responsibility for
         such foreign regulatory approvals. The time and cost required to
         obtain these international market approvals may be greater or less
         than those required for FDA approval.

         Product development and approval within this regulatory framework
         take a number of years, involve the expenditure of substantial
         resources and are uncertain. Many drug products ultimately do not
         reach the market because they are not found to be safe or effective
         or cannot meet the FDA's other regulatory requirements. In addition,
         the current regulatory framework may change and additional regulatory
         or approval requirements may arise at any stage of our product
         development that may affect approval, delay the submission or review
         of an application or require additional expenditures by us. We may
         not be able to obtain necessary regulatory clearances or approvals on
         a timely basis, if at all, for any of our products under development,
         and delays in


                                      18

<PAGE>
<PAGE>

         receipt or failure to receive such clearances or approvals, the loss
         of previously received clearances or approvals, or failure to comply
         with existing or future regulatory requirements could have a material
         adverse effect on our business.

         EMPLOYEES

         As of March 31, 2008, we employed a total of 1,590 employees. We were
         a party to a collective bargaining agreement with the Teamsters Union
         covering 133 employees that would have expired on December 31, 2009.
         However, in January 2008, the employee members of the union voted to
         decertify their union representation. The decertification became
         effective in February 2008.

         ENVIRONMENT

         We do not expect that compliance with Federal, state or local
         provisions regulating the discharge of materials into the environment
         or otherwise relating to the protection of the environment will have
         a material effect on our capital expenditures, earnings or
         competitive position.

         AVAILABLE INFORMATION

         We make available, free of charge through our Internet website
         (http://www.kvpharmaceutical.com), our Annual Report on Form 10-K,
         Quarterly Reports on Form 10-Q and 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, as amended, as
         soon as reasonably practicable after we electronically file these
         reports with, or furnish them to, the Securities and Exchange
         Commission. Also, copies of our Corporate Governance Guidelines,
         Audit Committee Charter, Compensation Committee Charter, Nominating
         and Corporate Governance Committee Charter, Code of Ethics for Senior
         Executives and Standards of Business Ethics for all Directors and
         employees are available on our Internet website, and available in
         print to any shareholder who requests them. The information posted on
         our website is not incorporated into this annual report.

         In addition, the SEC maintains an Internet website
         (http://www.sec.gov) that contains reports, proxy and information
         statements, and other information regarding registrants that file
         electronically with the SEC.



                                      19

<PAGE>
<PAGE>

ITEM 8. Financial Statements and Supplementary Data
        -------------------------------------------


           Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
K-V Pharmaceutical Company:

We have audited the accompanying consolidated balance sheets of K-V
Pharmaceutical Company and subsidiaries (the Company) as of March 31, 2008 and
2007, and the related consolidated statements of income, comprehensive income,
shareholders' equity and cash flows for each of the years in the three-year
period ended March 31, 2008. In connection with our audits of the consolidated
financial statements, we also have audited the accompanying financial
statement schedule. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of K-V
Pharmaceutical Company and subsidiaries as of March 31, 2008 and 2007, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 2008, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 123
(Revised 2004), "Share-Based Payment", effective April 1, 2006.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), K-V Pharmaceutical Company's
internal control over financial reporting as of March 31, 2008, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated June 25, 2008 expressed an adverse opinion on the
effectiveness of the Company's internal control over financial reporting.

St. Louis, Missouri
June 25, 2008



                                      20

<PAGE>
<PAGE>

<TABLE>
                  K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                (In thousands)

<CAPTION>
                                                                                                   MARCH 31,
                                                                                         ---------------------------
                                                                                             2008            2007
                                                                                         -----------     -----------

                                            ASSETS
                                            ------
<C>                                                                                      <C>             <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................    $    86,345     $    82,574
Marketable securities................................................................         40,548         157,812
Receivables, less allowance for doubtful accounts of $867 and $716
   in 2008 and 2007, respectively....................................................        107,070          78,634
Inventories, net.....................................................................         94,980          91,515
Prepaid and other assets.............................................................          7,792           6,571
Income taxes receivable..............................................................          9,872              --
Deferred tax asset...................................................................         22,812          14,364
                                                                                         -----------     -----------
   Total Current Assets..............................................................        369,419         431,470
Property and equipment, less accumulated depreciation................................        196,200         186,900
Investment securities................................................................         81,516              --
Intangible assets and goodwill, net..................................................        198,784          69,010
Other assets.........................................................................         23,108          20,403
                                                                                         -----------     -----------
TOTAL ASSETS.........................................................................    $   869,027     $   707,783
                                                                                         ===========     ===========
                                         LIABILITIES
                                         -----------

CURRENT LIABILITIES:
Accounts payable.....................................................................    $    32,119     $    18,506
Accrued liabilities..................................................................         46,516          33,218
Income taxes payable.................................................................             --           5,558
Current maturities of long-term debt.................................................        202,020           1,897
                                                                                         -----------     -----------
   Total Current Liabilities.........................................................        280,655          59,179
Long-term debt.......................................................................         67,432         239,451
Other long-term liabilities..........................................................         22,359           6,319
Deferred tax liability...............................................................         39,299          38,007
                                                                                         -----------     -----------
TOTAL LIABILITIES....................................................................        409,745         342,956
                                                                                         -----------     -----------
COMMITMENTS AND CONTINGENCIES
                                     SHAREHOLDERS' EQUITY
                                     --------------------

7% cumulative convertible Preferred Stock, $.01 par value; $25.00 stated and
   liquidation value; 840,000 shares authorized; issued and outstanding --
   40,000 shares at both March 31, 2008 and
   2007 (convertible into Class A shares on a 8.4375 to one basis)...................             --              --
Class A and Class B Common Stock, $.01 par value;150,000,000 and
   75,000,000 shares authorized, respectively;
     Class A - issued 40,764,603 and 40,316,426 at March 31, 2008
       and 2007, respectively........................................................            407             403
     Class B - issued 12,170,172 and 12,393,982 at March 31, 2008 and
       2007, respectively (convertible into Class A shares on a one-for-one basis)...            122             124
Additional paid-in capital...........................................................        158,742         150,818
Retained earnings....................................................................        357,714         269,430
Accumulated other comprehensive (loss) income........................................         (1,543)             33
Less: Treasury stock, 3,289,324 shares of Class A and 92,902 shares of Class B Common
   Stock at March 31, 2008, and 3,237,023 shares of Class A and 92,902 shares
   of Class B Common Stock at March 31, 2007, at cost................................        (56,160)        (55,981)
                                                                                         -----------     -----------
TOTAL SHAREHOLDERS' EQUITY...........................................................        459,282         364,827
                                                                                         -----------     -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...........................................    $   869,027     $   707,783
                                                                                         ===========     ===========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                      21

<PAGE>
<PAGE>

<TABLE>
                                         K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                              CONSOLIDATED STATEMENTS OF INCOME
                                            (In thousands, except per share data)

<CAPTION>
                                                                                       YEARS ENDED MARCH 31,
                                                                       -----------------------------------------------------
                                                                          2008                  2007                  2006
                                                                       ---------             ---------             ---------
<C>                                                                    <C>                   <C>                   <C>
Net revenues.......................................................    $ 601,896             $ 443,627             $ 367,640
Cost of sales......................................................      186,555               147,263               123,935
                                                                       ---------             ---------             ---------
Gross profit.......................................................      415,341               296,364               243,705
                                                                       ---------             ---------             ---------
Operating expenses:
    Research and development.......................................       46,634                31,462                28,886
    Purchased in-process research and
        development and transaction costs..........................       17,500                    --                30,441
    Selling and administrative.....................................      208,206               171,936               143,437
    Amortization and impairment of intangible assets...............       12,631                 4,810                 4,784
                                                                       ---------             ---------             ---------
Total operating expenses...........................................      284,971               208,208               207,548
                                                                       ---------             ---------             ---------

Operating income...................................................      130,370                88,156                36,157
                                                                       ---------             ---------             ---------

Other expense (income):
    Interest expense...............................................       10,353                 8,985                 6,045
    Interest and other income......................................      (11,646)               (9,901)               (5,737)
                                                                       ---------             ---------             ---------
Total other expense (income), net..................................       (1,293)                 (916)                  308
                                                                       ---------             ---------             ---------
Income before income taxes and cumulative effect
    of change in accounting principle..............................      131,663                89,072                35,849
Provision for income taxes.........................................       43,309                32,958                24,433
                                                                       ---------             ---------             ---------
Income before cumulative effect of change
    in accounting principle........................................       88,354                56,114                11,416
Cumulative effect of change in accounting
    principle (net of $670 in taxes)...............................           --                 1,976                    --
                                                                       ---------             ---------             ---------
Net income.........................................................    $  88,354             $  58,090             $  11,416
                                                                       =========             =========             =========


(CONTINUED)






                                      22

<PAGE>
<PAGE>

<CAPTION>
                                         K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF INCOME - (CONTINUED)
                                            (In thousands, except per share data)

                                                                                     YEARS ENDED MARCH 31,
                                                                   -------------------------------------------------------
                                                                       2008                  2007                  2006
                                                                   -----------           -----------           -----------
<C>                                                                <C>                   <C>                   <C>
Earnings per share before cumulative effect of change in
  accounting principle:
       Basic - Class A common..............................        $      1.87           $      1.19           $      0.24
       Basic - Class B common..............................               1.55                  0.99                  0.20
       Diluted - Class A common............................               1.57                  1.02                  0.23
       Diluted - Class B common............................               1.35                  0.88                  0.20

Per share effect of cumulative effect of
  change in accounting principle:
       Basic - Class A common..............................        $         -           $      0.04           $         -
       Basic - Class B common..............................                  -                  0.04                     -
       Diluted - Class A common............................                  -                  0.03                     -
       Diluted - Class B common............................                  -                  0.03                     -

Earnings per share:
       Basic - Class A common..............................        $      1.87           $      1.23           $      0.24
       Basic - Class B common..............................               1.55                  1.03                  0.20
       Diluted - Class A common............................               1.57                  1.05                  0.23
       Diluted - Class B common............................               1.35                  0.91                  0.20

Shares used in per share calculation:
       Basic - Class A common..............................             37,150                36,813                35,842
       Basic - Class B common..............................             12,198                12,390                12,918
       Diluted - Class A common............................             59,144                58,953                49,997
       Diluted - Class B common............................             12,281                12,489                13,113



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>



                                     23

<PAGE>
<PAGE>

<TABLE>
                                           K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                          (In thousands)

<CAPTION>
                                                                                               YEARS ENDED MARCH 31,
                                                                                  -----------------------------------------------
                                                                                      2008             2007             2006
                                                                                  -----------       ----------      ------------
<C>                                                                               <C>               <C>             <C>
Net income.............................................................           $    88,354       $   58,090      $     11,416
Unrealized gain (loss) on available for sale securities:
   Unrealized holding gain (loss) during the period....................                (2,424)             100              (118)
   Reclassification of losses included in net income...................                    --              270                --
   Tax impact related to other comprehensive income (loss).............                   848             (126)               40
                                                                                  -----------       ----------      ------------
      Total other comprehensive income (loss)..........................                (1,576)             244               (78)
                                                                                  -----------       ----------      ------------

Total comprehensive income.............................................           $    86,778       $   58,334      $     11,338
                                                                                  ===========       ==========      ============
</TABLE>



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                      24

<PAGE>
<PAGE>

<TABLE>
                                            K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<CAPTION>
                                                                 YEARS ENDED MARCH 31, 2008, 2007 AND 2006
                                         -------------------------------------------------------------------------------------------
                                                                                                               ACCUMULATED   TOTAL
                                                     CLASS A   CLASS B  ADDITIONAL                               OTHER       SHARE-
                                         PREFERRED   COMMON    COMMON    PAID-IN     TREASURY      RETAINED   COMPREHENSIVE HOLDERS'
                                           STOCK     STOCK     STOCK     CAPITAL       STOCK       EARNINGS   INCOME (LOSS)  EQUITY
                                           -----     -----     -----     -------       -----       --------   -------------  ------
                                                                             (Dollars in thousands)
<C>                                       <C>        <C>       <C>      <C>         <C>           <C>          <C>        <C>
BALANCE AT MARCH 31, 2005...............  $    --    $  386    $  133   $ 139,678   $  (53,651)   $  200,064   $   (133)  $ 286,477
Net income..............................       --        --        --          --           --        11,416         --      11,416
Dividends paid on preferred stock.......       --        --        --          --           --           (70)        --         (70)
Conversion of 736,778 Class B
  shares to Class A shares..............       --         7        (7)         --           --            --         --          --
Stock-based compensation................       --        --        --         927           --            --         --         927
Purchase of common stock for
  treasury..............................       --        --        --          --         (253)           --         --        (253)
Stock options exercised - 353,355
  shares of Class A and 127,519
  shares of Class B.....................       --         4         1       3,138           --            --         --       3,143
Excess income tax benefits from
  stock option exercises................       --        --        --       1,437           --            --         --       1,437
Other comprehensive loss................       --        --        --          --           --            --        (78)        (78)
                                          -----------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2006...............       --       397       127     145,180      (53,904)      211,410       (211)    302,999
Net income..............................       --        --        --          --           --        58,090         --      58,090
Dividends paid on preferred stock.......       --        --        --          --           --           (70)        --         (70)
Conversion of 441,341 Class B
  shares to Class A shares..............       --         4        (4)         --           --            --         --          --
Stock-based compensation................       --        --        --       3,984           --            --         --       3,984
Purchase of common stock for
  treasury..............................       --        --        --          --       (2,077)           --         --      (2,077)
Stock options exercised - 166,169
  shares of Class A and 193,899
  shares of Class B.....................       --         2         1       3,617           --            --         --       3,620
Excess income tax benefits from
  stock option exercises................       --        --        --         683           --            --         --         683
Cumulative effect of change in
  accounting principle..................       --        --        --      (2,646)          --            --         --      (2,646)
Other comprehensive income..............       --        --        --          --           --            --        244         244
                                          -----------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2007...............       --       403       124     150,818      (55,981)      269,430         33     364,827
Net income..............................       --        --        --          --           --        88,354         --      88,354
Dividends paid on preferred stock.......       --        --        --          --           --           (70)        --         (70)
Conversion of 234,528 Class B
  shares to Class A shares..............       --         2        (2)         --           --            --         --          --
Stock-based compensation................       --        --        --       5,205           --            --         --       5,205
Purchase of common stock for
  treasury..............................       --        --        --          --         (179)           --         --        (179)
Stock options exercised - 174,813
  shares of Class A and 9,427 shares
  of Class B...........................        --         2        --       1,343           --            --         --       1,345
Excess income tax benefits from
  stock option exercises...............        --        --        --       1,376           --            --         --       1,376
Reimbursement payment received
  from CEO - 45,531 shares of
  Class A Common Stock.................        --        --        --          --           --            --         --          --
Other comprehensive loss ..............        --        --        --          --           --            --     (1,576)     (1,576)
                                          -----------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2008..............   $    --    $  407    $  122   $ 158,742   $  (56,160)   $  357,714   $ (1,543)  $ 459,282
                                          =========================================================================================
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                     25

<PAGE>
<PAGE>


<TABLE>
                                           K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                         (In thousands)

<CAPTION>
                                                                                              YEARS ENDED MARCH 31,
                                                                                 -----------------------------------------------
                                                                                      2008              2007              2006
                                                                                 ------------       ----------        ----------
<C>                                                                              <C>                <C>               <C>
Operating Activities:
Net income.............................................................          $     88,354       $   58,090        $   11,416
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Acquired in-process research and development........................                17,500               --            29,570
   Cumulative effect of change in accounting principle.................                    --           (1,976)               --
   Depreciation and  amortization .....................................                31,120           22,388            18,002
   Deferred income tax (benefit) provision.............................                (6,308)           7,698             6,062
   Deferred compensation...............................................                 2,232              877               965
   Stock-based compensation............................................                 5,205            3,984               927
   Excess tax benefits associated with stock options...................                (1,376)            (683)               --
   Other...............................................................                 1,440              270                --
Changes in operating assets and liabilities:
   Decrease (increase) in receivables, net.............................               (28,436)         (25,063)            7,593
   Increase in inventories.............................................                (3,465)         (20,349)          (16,792)
   Increase in prepaid and other assets................................                (6,443)          (2,771)           (1,185)
   (Decrease) increase in income taxes payable.........................                (1,622)           2,413             3,659
   Increase in accounts payable and accrued
      liabilities......................................................                24,157           12,257             4,392
                                                                                 ------------       ----------        ----------
Net cash provided by operating activities..............................               122,358           57,135            64,609
                                                                                 ------------       ----------        ----------
Investing Activities:
   Purchase of property and equipment..................................               (23,656)         (25,066)          (58,334)
   Purchase of marketable securities...................................              (125,426)        (178,949)          (61,187)
   Sale of marketable securities.......................................               158,750          128,000                --
   Purchase of preferred stock.........................................                    --             (400)          (11,300)
   Product acquisitions................................................              (159,000)              --           (25,643)
                                                                                 ------------       ----------        ----------
Net cash used in investing activities..................................              (149,332)         (76,415)         (156,464)
                                                                                 ------------       ----------        ----------
Financing Activities:
   Principal payments on long-term debt................................                (1,896)          (1,652)             (892)
   Proceeds from borrowing of long-term debt...........................                    --               --            32,764
   Proceeds from borrowing on line of credit...........................                50,000               --                --
   Repayment of borrowing on line of credit............................               (20,000)              --                --
   Dividends paid on preferred stock...................................                   (70)             (70)              (70)
   Purchase of common stock for treasury...............................                  (179)          (2,077)             (253)
   Excess tax benefits associated with stock options...................                 1,376              683                --
   Cash deposits received for stock options............................                 1,514            4,264             1,187
                                                                                 ------------       ----------        ----------
Net cash provided by financing activities.............................                 30,745            1,148            32,736
                                                                                 ------------       ----------        ----------
Increased (decrease)  in cash and cash equivalents.....................                 3,771          (18,132)          (59,119)
Cash and cash equivalents:
   Beginning of year...................................................                82,574          100,706           159,825
                                                                                 ------------       ----------        ----------
   End of year.........................................................          $     86,345       $   82,574        $  100,706
                                                                                 ============       ==========        ==========
Non-cash investing and financing activities:
   Term loans refinanced...............................................          $         --       $       --        $    9,859
   Stock options exercised (at expiration of two-year
      forfeiture period)..........................................                      1,345            3,620             3,143

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      26

<PAGE>
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Dollars in thousands, except per share data)

1.       DESCRIPTION OF BUSINESS
         -----------------------

         K-V Pharmaceutical Company and its subsidiaries ("KV" or the
         "Company") are primarily engaged in the development, manufacture,
         acquisition, marketing and sale of technologically distinguished
         branded and generic/non-branded prescription pharmaceutical products.
         The Company was incorporated in 1971 and has become a leader in the
         development of advanced drug delivery and formulation technologies
         that are designed to enhance therapeutic benefits of existing drug
         forms. Through internal product development and synergistic
         acquisitions of products, KV has grown into a fully integrated
         specialty pharmaceutical company. The Company also develops,
         manufactures and markets technologically advanced, value-added raw
         material products for the pharmaceutical, nutritional, food and
         personal care industries.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

              BASIS OF PRESENTATION
              ---------------------

              The Company's consolidated financial statements are prepared in
              accordance with U.S. generally accepted accounting principles
              ("GAAP"). The consolidated financial statements include the
              accounts of KV and its wholly-owned subsidiaries. All material
              inter-company accounts and transactions have been eliminated in
              consolidation.

              USE OF ESTIMATES
              ----------------

              The preparation of financial statements in conformity with GAAP
              requires management to make estimates and assumptions that
              affect the reported amounts of assets and liabilities, the
              disclosure of contingent liabilities at the date of the
              financial statements, and the reported amounts of revenues and
              expenses during the reporting period. Actual results in
              subsequent periods may differ from the estimates and assumptions
              used in the preparation of the accompanying consolidated
              financial statements.

              The most significant estimates made by management include
              revenue recognition and reductions to gross revenues, inventory
              valuation, intangible assets, stock-based compensation, income
              taxes, and loss contingencies related to legal proceedings.
              Management periodically evaluates estimates used in the
              preparation of the consolidated financial statements and makes
              changes on a prospective basis when adjustments are necessary.

              CASH EQUIVALENTS
              ----------------

              Cash equivalents consist of interest-bearing deposits that can
              be redeemed on demand and investments that have original
              maturities of three months or less.

              INVESTMENT SECURITIES
              ---------------------

              The Company's investment securities consist of mutual funds
              comprised of U.S. government guaranteed investments and auction
              rate securities. The Company classifies its investment
              securities as available-for-sale with net unrealized gains or
              losses recorded as a separate component of shareholders' equity,
              net of any related tax effect. Auction rate securities generally
              have long-term stated maturities of 20 to 30 years. However,
              these securities have certain economic characteristics of
              short-term investments due to a rate-setting mechanism and the
              ability to liquidate them through a dutch auction process that
              occurs on pre-determined intervals, up to 35 days. The Company
              reclassified these securities to non-current investment
              securities at March 31, 2008 to reflect the current lack of
              liquidity in these investments (see Note 4).


                                      27

<PAGE>
<PAGE>

              INVENTORIES
              -----------

              Inventories consist of finished goods held for distribution, raw
              materials and work in process. Inventories are stated at the
              lower of cost or market, with the cost determined on the
              first-in, first-out (FIFO) basis. Reserves for obsolete, excess
              or slow-moving inventory are established by management based on
              evaluation of inventory levels, forecasted demand and market
              conditions.

              PROPERTY AND EQUIPMENT
              ----------------------

              Property and equipment are stated at cost, less accumulated
              depreciation. Major renewals and improvements are capitalized,
              while routine maintenance and repairs are expensed as incurred.
              At the time properties are retired from service, the cost and
              accumulated depreciation are removed from the respective
              accounts and the related gains or losses are reflected in
              earnings. The Company capitalizes interest on qualified
              construction projects.

              Depreciation expense is computed over the estimated useful lives
              of the related assets using the straight-line method. The
              estimated useful lives are principally 10 years for land
              improvements, 10 to 40 years for buildings and improvements, 3
              to 15 years for machinery and equipment, and 3 to 10 years for
              office furniture and equipment. Leasehold improvements are
              amortized on a straight-line basis over the shorter of the
              respective lease terms or the estimated useful life of the
              assets.

              The Company assesses property and equipment for impairment
              whenever events or changes in circumstances indicate that an
              asset's carrying amount may not be recoverable.

              INTANGIBLE ASSETS AND GOODWILL
              ------------------------------

              Intangible assets consist of product rights, license agreements
              and trademarks resulting from product acquisitions and legal
              fees and similar costs relating to the development of patents
              and trademarks. Intangible assets that are acquired are stated
              at cost, less accumulated amortization, and are amortized on a
              straight-line basis over estimated useful lives ranging from
              nine to 20 years. Costs associated with the development of
              patents and trademarks are amortized on a straight-line basis
              over estimated useful lives ranging from five to 17 years. The
              Company evaluates its intangible assets for impairment at least
              annually or whenever events or changes in circumstances indicate
              that an intangible asset's carrying amount may not be
              recoverable. Recoverability is determined by comparing the
              carrying amount of an intangible asset against an estimate of
              the undiscounted future cash flows expected to result from its
              use and eventual disposition. If the sum of the expected future
              undiscounted cash flows is less than the carrying amount of the
              intangible asset, an impairment loss is recognized based on the
              excess of the carrying amount over the estimated fair value of
              the intangible asset.

              In accordance with Statement of Financial Accounting Standards
              ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
              goodwill is subject to at least an annual assessment of
              impairment on a fair value basis. If the Company determines
              through the assessment process that goodwill has been impaired,
              the Company will record the impairment charge in its results of
              operations. The Company's test for goodwill impairment in fiscal
              2008 determined there was no goodwill impairment.

              OTHER ASSETS
              ------------

              Non-marketable equity investments for which the Company does not
              have the ability to exercise significant influence over
              operating and financial policies (generally less than 20%
              ownership) are accounted for using the cost method. Such
              investments are included in "Other assets" in the accompanying
              consolidated balance sheets and relate primarily to the
              Company's $12,284 investment at March 31, 2008 in the preferred
              stock of Strides Arcolab Limited.

                                      28

<PAGE>
<PAGE>

              This investment is periodically reviewed for
              other-than-temporary declines in fair value. An other than
              temporary decline in fair value is identified by evaluating
              market conditions, the entity's ability to achieve forecast and
              regulatory submission guidelines, as well as the entity's
              overall financial condition.

              REVENUE RECOGNITION
              -------------------

              Revenue is generally realized or realizable and earned when
              persuasive evidence of an arrangement exists, delivery has
              occurred or services have been rendered, the seller's price to
              the buyer is fixed or determinable, and the customer's payment
              ability has been reasonably assured. Accordingly, the Company
              records revenue from product sales when title and risk of
              ownership have been transferred to the customer. The Company
              also enters into long-term agreements under which it assigns
              marketing rights for products it has developed to pharmaceutical
              marketers. Royalties under these arrangements are earned based
              on the sale of products.

              Concurrently with the recognition of revenue, the Company
              records estimated sales provisions for product returns, sales
              rebates, payment discounts, chargebacks and other sales
              allowances. Sales provisions are established based upon
              consideration of a variety of factors, including but not limited
              to, historical relationship to revenues, historical payment and
              return experience, estimated and actual customer inventory
              levels, customer rebate arrangements, and current contract sales
              terms with wholesale and indirect customers. The following
              briefly describes the nature of each provision and how such
              provisions are estimated.

                  o    Payment discounts are reductions to invoiced amounts
                       offered to customers for payment within a specified
                       period and are estimated utilizing historical customer
                       payment experience.
                  o    Sales rebates are offered to certain customers to
                       promote customer loyalty and encourage greater product
                       sales. These rebate programs provide that, upon the
                       attainment of pre-established volumes or the attainment
                       of revenue milestones for a specified period, the
                       customer receives credit against purchases. Other
                       promotional programs are incentive programs
                       periodically offered to customers. Due to the nature of
                       these programs, the Company is able to estimate
                       provisions for rebates and other promotional programs
                       based on the specific terms in each agreement.
                  o    Consistent with common industry practices, the Company
                       has agreed to terms with its customers to allow them to
                       return product that is within a certain period of the
                       expiration date. Upon recognition of revenue from
                       product sales to customers, the Company provides for an
                       estimate of product to be returned. This estimate is
                       determined by applying a historical relationship of
                       customer returns to amounts invoiced.
                  o    The Company markets and sells products directly to
                       wholesalers, distributors, warehousing pharmacy chains,
                       mail order pharmacies and other direct purchasing
                       groups. The Company also markets products indirectly to
                       independent pharmacies, non-warehousing chains, managed
                       care organizations, and group purchasing organizations,
                       collectively referred to as "indirect customers." The
                       Company enters into agreements with some indirect
                       customers to establish contract pricing for certain
                       products. These indirect customers then independently
                       select a wholesaler from which to purchase the products
                       at these contracted prices. Alternatively, the Company
                       may pre-authorize wholesalers to offer specified
                       contract pricing to other indirect customers. Under
                       either arrangement, the Company provides credit to the
                       wholesaler for any difference between the contracted
                       price with the indirect customer and the wholesaler's
                       invoice price. This credit is called a chargeback.
                       Provisions for estimated chargebacks are calculated
                       primarily using historical chargeback experience,
                       actual contract pricing and estimated and actual
                       wholesaler inventory levels.
                  o    Generally, the Company provides credits to wholesale
                       customers for decreases that are made to selling prices
                       for the value of inventory that is owned by these
                       customers at the date of the price reduction. These
                       credits are customary in the industry and are intended
                       to reduce a wholesale customer's inventory cost to
                       better reflect current market prices. Since a reduction
                       in the wholesaler's invoice price reduces the
                       chargeback per unit, price reduction credits are
                       typically included as part of the reserve for
                       chargebacks because they act


                                      29

<PAGE>
<PAGE>

                       essentially as accelerated chargebacks. Although the
                       Company contractually agreed to provide price
                       adjustment credits to its major wholesale customers at
                       the time they occur, the impact of any such price
                       reductions not included in the reserve for chargebacks
                       is immaterial to the amount of revenue recognized in
                       any given period.
                  o    Established in 1990, the Medicaid Drug Rebate Program
                       requires a drug manufacturer to provide to each state a
                       rebate every calendar quarter for covered outpatient
                       drugs dispensed to Medicaid patients. The provision for
                       Medicaid rebates is based upon historical experience of
                       claims submitted by the various states. The Company
                       also monitors Medicaid legislative changes to determine
                       what impact such legislation may have on the provision
                       for Medicaid rebates.

              Actual product returns, chargebacks and other sales allowances
              incurred are dependent upon future events and may be different
              than the Company's estimates. The Company continually monitors
              the factors that influence sales allowance estimates and makes
              adjustments to these provisions when management believes that
              actual product returns, chargebacks and other sales allowances
              may differ from established allowances.

              Accruals for sales provisions are presented in the consolidated
              financial statements as reductions to net revenues and accounts
              receivable. Sales provisions totaled $234,427, $148,822 and
              $154,662 for the years ended March 31, 2008, 2007 and 2006,
              respectively. The reserve balances related to the sales
              provisions totaled $46,646 and $31,281 at March 31, 2008 and
              2007, respectively, and are included in "Receivables, less
              allowance for doubtful accounts" in the accompanying
              consolidated balance sheets.

              CONCENTRATION OF CREDIT RISK
              ----------------------------

              The Company extends credit on an uncollateralized basis
              primarily to wholesale drug distributors and retail pharmacy
              chains throughout the U.S. As a result, the Company is required
              to estimate the level of receivables which ultimately will not
              be paid. The Company calculates this estimate based on prior
              experience supplemented by a customer specific review when it is
              deemed necessary. On a periodic basis, the Company performs
              evaluations of the financial condition of all customers to
              further limit its credit risk exposure. Actual losses from
              uncollectible accounts have historically been insignificant.

              The Company's three largest customers accounted for
              approximately 31.0%, 28.6% and 9.0%, and 33.7%, 19.7% and 15.1%
              of gross receivables at March 31, 2008 and 2007, respectively.

              For the year ended March 31, 2008, KV's three largest customers
              accounted for 24.6%, 23.9% and 9.8% of gross revenues. For the
              years ended March 31, 2007 and 2006, the Company's three largest
              customers accounted for gross revenues of 21.1%, 25.7% and 14.4%
              and 15.7%, 26.9% and 12.7%, respectively.

              The Company maintains cash balances at certain financial
              institutions that are greater than the FDIC insurable limit.

              SHIPPING AND HANDLING COSTS
              ---------------------------

              The Company classifies shipping and handling costs in cost of
              sales. The Company does not derive revenue from shipping.

              RESEARCH AND DEVELOPMENT
              ------------------------

              Research and development costs, including licensing fees for
              early stage development products, are expensed in the period
              incurred.

              The Company has licensed the exclusive rights to co-develop and
              market various products with other drug delivery companies.
              These collaborative agreements usually require the Company to
              pay up-front fees and ongoing milestone payments. When the
              Company makes an up-front or milestone payment, management

                                      30

<PAGE>
<PAGE>

              evaluates the stage of the related product to determine the
              appropriate accounting treatment. If the product is considered
              to be beyond the early development stage but has not yet been
              approved by regulatory authorities, the Company will evaluate
              the facts and circumstances of each case to determine if a
              portion or all of the payment has future economic benefit and
              should be capitalized. Payments made to third parties subsequent
              to regulatory approval are capitalized with that cost generally
              amortized over the shorter of the life of the product or the
              term of the licensing agreement.

              The Company accrues estimated costs associated with clinical
              studies performed by contract research organizations based on
              the total of costs incurred through the balance sheet date. The
              Company monitors the progress of the trials and their related
              activities to the extent possible, and adjusts the accruals
              accordingly. These accrued costs are recorded as a component of
              research and development expense.

              ADVERTISING
              -----------

              Costs associated with advertising are expensed in the period in
              which the advertising is used and these costs are included in
              selling and administrative expense. Advertising expenses totaled
              $27,545, $21,932 and $18,366 for the years ended March 31, 2008,
              2007 and 2006, respectively. Advertising expense includes the
              cost of product samples given to physicians for marketing to
              their patients.

              LITIGATION
              ----------

              The Company is subject to litigation in the ordinary course of
              business and to certain other contingencies (see Note 12). Legal
              fees and other expenses related to litigation and contingencies
              are recorded as incurred. The Company, in consultation with its
              legal counsel, also assesses the need to record a liability for
              litigation and contingencies on a case-by-case basis. Accruals
              are recorded when the Company determines that a loss related to
              a matter is both probable and reasonably estimable.

              DEFERRED FINANCING COSTS
              ------------------------

              Deferred financing costs of $5,835 were incurred in connection
              with the issuance of convertible debt (see Note 10). These costs
              are being amortized into interest expense on a straight-line
              basis over the five-year period that ends on the first date the
              debt can be put by the holders to the Company. Accumulated
              amortization totaled $5,635 and $4,471 at March 31, 2008 and
              2007, respectively. Deferred financing costs, net of accumulated
              amortization, are included in "Other Assets" in the accompanying
              consolidated balance sheets.

              EARNINGS PER SHARE
              ------------------

              The Company has two classes of common stock: Class A Common
              Stock and Class B Common Stock that is convertible into Class A
              Common Stock. With respect to dividend rights, holders of Class
              A Common Stock are entitled to receive cash dividends per share
              equal to 120% of the dividends per share paid on the Class B
              Common Stock. For purposes of calculating basic earnings per
              share, undistributed earnings are allocated to each class of
              common stock based on the contractual participation rights of
              each class of security.

              The Company presents diluted earnings per share for Class B
              Common Stock for all periods using the two-class method which
              does not assume the conversion of Class B Common Stock into
              Class A Common Stock. The Company presents diluted earnings per
              share for Class A Common Stock using the if-converted method
              which assumes the conversion of Class B Common Stock into Class
              A Common Stock, if dilutive.

              Basic earnings per share is computed using the weighted average
              number of common shares outstanding during the period except
              that it does not include unvested common shares subject to
              repurchase. Diluted earnings per share is computed using the
              weighted average number of common shares and, if dilutive,
              potential common shares outstanding during the period. Potential
              common shares consist of the incremental common shares issuable
              upon the exercise of stock options, unvested common shares
              subject to repurchase,


                                      31

<PAGE>
<PAGE>

              convertible preferred stock and the Notes. The dilutive effects
              of outstanding stock options and unvested common shares subject
              to repurchase are reflected in diluted earnings per share by
              application of the treasury stock method. Convertible preferred
              stock and the Notes are reflected on an if-converted basis. The
              computation of diluted earnings per share for Class A Common
              Stock assumes the conversion of the Class B Common Stock, while
              the diluted earnings per share for Class B Common Stock does not
              assume the conversion of those shares.

              INCOME TAXES
              ------------

              Income taxes are accounted for under the asset and liability
              method where deferred tax assets and liabilities are recognized
              for the future tax consequences attributable to differences
              between the financial statement carrying amount of existing
              assets and liabilities and the respective tax basis. Deferred
              tax assets and liabilities are measured using enacted tax rates
              expected to apply to taxable income in the years in which those
              temporary differences are expected to be recovered or settled.
              The effect on deferred tax assets and liabilities of a change in
              tax rates is recognized in income in the period that includes
              the enactment date. A valuation allowance is established when it
              is more likely than not that some portion or all of the deferred
              tax assets will not be realized. The Company evaluates the
              realizability of its deferred tax assets by assessing its
              valuation allowance and by adjusting the amount of such
              allowance, if necessary. The factors used to assess the
              likelihood of realization include the Company's forecast of
              future taxable income and available tax planning strategies that
              could be implemented to realize the net deferred tax assets.
              Failure to achieve forecasted taxable income in applicable tax
              jurisdictions could affect the ultimate realization of deferred
              tax assets and could result in an increase in the Company's
              effective tax rate on future earnings.

              The Company accounts for uncertain tax positions in accordance
              with FASB Interpretation No. 48, "Accounting for Uncertainty in
              Income Taxes -- an Interpretation of FASB Statement No. 109"
              ("FIN 48"), which was issued in July 2006. This interpretation
              addresses the determination of whether tax benefits claimed or
              expected to be claimed on a tax return should be recorded in the
              financial statements. Under FIN 48, the Company may recognize
              the tax benefit from an uncertain tax position only if it is
              more likely than not that the tax position will be sustained on
              examination by the taxing authorities, based on the technical
              merits of the position. The tax benefits recognized in the
              financial statements from such a position should be measured
              based on the largest benefit that has a greater than 50%
              likelihood of being realized upon ultimate settlement. The
              Company recognizes interest and penalties, if any, related to
              unrecognized tax benefits in income tax expense.

              STOCK-BASED COMPENSATION
              ------------------------

              Effective April 1, 2006, the Company adopted SFAS No. 123
              (revised 2004), "Share-Based Payment ("SFAS 123R"), which
              requires the measurement and recognition of compensation
              expense, based on estimated fair values, for all share-based
              compensation awards made to employees and directors over the
              vesting period of the awards. The Company adopted SFAS 123R
              using the modified prospective method and, as a result, did not
              retroactively adjust results from prior periods. Under the
              modified prospective method, stock-based compensation expense
              was recognized (1) for the unvested portion of previously issued
              awards that were outstanding at the initial date of adoption
              based on the grant date fair value estimated in accordance with
              the pro forma provisions of SFAS 123 "Accounting for Stock-Based
              Compensation" and (2) for any awards granted or modified on or
              subsequent to the effective date of SFAS 123R based on the grant
              date fair value estimated in accordance with the provisions of
              this statement. Prior to the adoption of SFAS 123R, the Company
              measured compensation expense for its employee stock-based
              compensation plans using the intrinsic value method prescribed
              by Accounting Principles Board Opinion No. 25 ("APB 25"). The
              Company also applied the disclosure provisions of SFAS 123, as
              amended by SFAS 148, as if the fair value-based method had been
              applied in measuring compensation expense. Under APB 25,
              compensation cost for stock options was recognized based on the
              excess, if any, of the quoted market price of the stock at the
              grant date of the award or other measurement date over the
              amount an employee must pay to acquire the stock.

                                      32

<PAGE>
<PAGE>

              The following table provides the pro forma effects on net income
              and earnings per share for fiscal 2006 as if the fair value
              recognition provisions of SFAS 123 had been applied to options
              granted under the Company's employee compensation plans:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                                    MARCH 31, 2006
                                                                  -------------------
<C>                                                               <C>
Net income                                                         $          11,416
Add: Stock-based compensation expense
      included in net income, net of tax                                         641
Deduct: Stock-based compensation using the
    fair value based method for all awards                                    (2,669)
                                                                  -------------------
Pro forma net income                                               $           9,388
                                                                  ===================

Earnings per share:
    Basic - Class A common                                         $            0.24
    Basic - Class B common                                                      0.20
    Diluted - Class A common                                                    0.23
    Diluted - Class B common                                                    0.20

Earnings per share - pro forma:
    Basic - Class A common                                         $            0.20
    Basic - Class B common                                                      0.17
    Diluted - Class A common                                                    0.19
    Diluted - Class B common                                                    0.16
</TABLE>

              COMPREHENSIVE INCOME
              --------------------

              Comprehensive income includes all changes in equity during a
              period except those that resulted from investments by or
              distributions to the Company's shareholders. Other comprehensive
              income refers to revenues, expenses, gains and losses that,
              under generally accepted accounting principles, are included in
              comprehensive income, but excluded from net income as these
              amounts are recorded directly as an adjustment to shareholders'
              equity. For the Company, other comprehensive income (loss) is
              comprised of the net changes in unrealized gains and losses on
              available-for-sale securities.

              FAIR VALUE OF FINANCIAL INSTRUMENTS
              -----------------------------------

              The Company's financial instruments consist primarily of cash
              and cash equivalents, marketable securities, receivables,
              investments, trade accounts payable, the convertible debt,
              embedded derivatives related to the issuance of the convertible
              debt, a mortgage loan agreement, and borrowings under the
              Company's line of credit. The carrying amounts of cash and cash
              equivalents, receivables and trade accounts payable are
              representative of their respective fair values due to their
              relatively short maturities. The fair values of marketable
              securities are based on quoted market prices. The Company
              estimates the fair value of its fixed rate long-term obligations
              based on quoted market rates of interest and maturity schedules
              for similar issues. The carrying value of these obligations
              approximates their fair value.

              The Company's investment in the preferred stock of Strides
              Arcolab Limited of $14,311, including accrued but unpaid
              dividends, had a fair value of $14,600 at March 31, 2008 based
              on a valuation analysis. Based on quoted market rates, the
              Company's convertible debt had a fair value of $228,360 and
              $229,240 at March 31, 2008 and 2007, respectively. The carrying
              amount of the mortgage loan agreement and the outstanding
              balance of the line of credit approximate their fair values
              because their terms are similar to those which can be obtained
              for similar financial instruments in the current marketplace.

                                      33

<PAGE>
<PAGE>

              DERIVATIVE FINANCIAL INSTRUMENTS
              --------------------------------

              The Company's derivative financial instruments consist of
              embedded derivatives related to the convertible debt. These
              embedded derivatives include certain conversion features and a
              contingent interest feature. Although the conversion features
              represent embedded derivative financial instruments, based on
              the de minimis value of these features at the time of issuance
              and at March 31, 2008, no value has been assigned to these
              embedded derivatives. The contingent interest feature provides
              unique tax treatment under the Internal Revenue Service's
              contingent debt regulations. In essence, interest accrues, for
              tax purposes, on the basis of the instrument's comparable yield
              (the yield at which the issuer would issue a fixed rate
              instrument with similar terms).

              NEW ACCOUNTING PRONOUNCEMENTS
              -----------------------------

              In September 2006, the Financial Accounting Standards Board
              ("FASB") issued SFAS No. 157, "Fair Value Measurements" ("SFAS
              157"), which provides enhanced guidance for using fair value to
              measure assets and liabilities. SFAS 157 clarifies the principle
              that fair value should be based on the assumptions that market
              participants would use when pricing an asset or liability,
              provides a framework for measuring fair value under GAAP and
              expands disclosure requirements about fair value measurements.
              SFAS 157 is effective for financial statements issued in fiscal
              years beginning after November 15, 2007, and interim periods
              within those fiscal years. The Company plans to adopt SFAS 157
              at the beginning of fiscal 2009 and is evaluating the impact, if
              any, the adoption of SFAS 157 will have on its financial
              condition and results of operations.

              In February 2007, the FASB issued SFAS No. 159, "The Fair Value
              Option for Financial Assets and Financial Liabilities" ("SFAS
              159"), which permits companies to choose to measure many
              financial instruments and certain other items at fair value. The
              objective is to improve financial reporting by providing
              companies with the opportunity to mitigate volatility in
              reported earnings caused by measuring related assets and
              liabilities differently without having to apply complex hedge
              accounting provisions. SFAS 159 is effective for fiscal years
              beginning after November 15, 2007. Companies are not allowed to
              adopt SFAS 159 on a retrospective basis unless they choose early
              adoption. The Company plans to adopt SFAS 159 at the beginning
              of fiscal 2009 and is evaluating the impact, if any, the
              adoption of SFAS 159 will have on its financial condition and
              results of operations.

              In March 2007, the FASB ratified the consensus reached by the
              Emerging Issues Task Force ("EITF") in Issue No. 06-10,
              "Accounting for Collateral Assignment Split-Dollar Life
              Insurance Arrangements" ("Issue 06-10"). Issue 06-10 requires
              companies with collateral assignment split-dollar life insurance
              policies that provide a benefit to an employee that extends to
              postretirement periods to recognize a liability for future
              benefits based on the substantive agreement with the employee.
              Recognition should be in accordance with FASB Statement No. 106,
              "Employers' Accounting for Postretirement Benefits Other Than
              Pensions," or APB Opinion No. 12, "Omnibus Opinion - 1967,"
              depending on whether a substantive plan is deemed to exist.
              Companies are permitted to recognize the effects of applying the
              consensus through either (1) a change in accounting principle
              through a cumulative-effect adjustment to retained earnings or
              to other components of equity or net assets as of the beginning
              of the year of adoption or (2) a change in accounting principle
              through retrospective application to all prior periods. Issue
              06-10 is effective for fiscal years beginning after December 15,
              2007, with early adoption permitted. The Company plans to adopt
              Issue 06-10 at the beginning of fiscal 2009 and is evaluating
              the impact of the adoption of Issue 06-10 on its financial
              condition and results of operations.

              In June 2007, the FASB ratified the consensus reached by the
              EITF on Issue No. 07-3, Accounting for Advance Payments for
              Goods or Services Received for Use in Future Research and
              Development Activities ("Issue 07-3"), which is effective for
              fiscal years beginning after December 15, 2007 and is applied
              prospectively for new contracts entered into on or after the
              effective date. Issue 07-3 addresses nonrefundable advance
              payments for goods or services for use in future research and
              development activities. Issue 07-3 will require that these
              payments that will be used or rendered for future research and
              development activities be deferred and capitalized and
              recognized as an expense as the related goods are delivered or
              the


                                      34

<PAGE>
<PAGE>

              related services are performed. If an entity does not expect the
              goods to be delivered or the services to be rendered, the
              capitalized advance payments should be expensed. The Company
              plans to adopt Issue 07-3 at the beginning of fiscal 2009 and is
              evaluating the impact of the adoption of this issue on its
              financial condition and results of operations.

              In September 2007, the EITF reached a consensus on Issue No.
              07-1 ("Issue 07-1"), "Accounting for Collaborative
              Arrangements." The scope of Issue 07-1 is limited to
              collaborative arrangements where no separate legal entity exists
              and in which the parties are active participants and are exposed
              to significant risks and rewards that depend on the success of
              the activity. The EITF concluded that revenue transactions with
              third parties and associated costs incurred should be reported
              in the appropriate line item in each company's financial
              statements pursuant to the guidance in Issue 99-19, "Reporting
              Revenue Gross as a Principal versus Net as an Agent." The EITF
              also concluded that the equity method of accounting under
              Accounting Principles Board Opinion 18, "The Equity Method of
              Accounting for Investments in Common Stock," should not be
              applied to arrangements that are not conducted through a
              separate legal entity. The EITF also concluded that the income
              statement classification of payments made between the parties in
              an arrangement should be based on a consideration of the
              following factors: the nature and terms of the arrangement; the
              nature of the entities' operations; and whether the partners'
              payments are within the scope of existing GAAP. To the extent
              such costs are not within the scope of other authoritative
              accounting literature, the income statement characterization for
              the payments should be based on an analogy to authoritative
              accounting literature or a reasonable, rational, and
              consistently applied accounting policy election. The provisions
              of Issue 07-1 are effective for fiscal years beginning on or
              after December 15, 2008, and companies will be required to apply
              the provisions through retrospective application. The Company
              plans to adopt Issue 07-1 at the beginning of fiscal 2010 and is
              evaluating the impact of the adoption of Issue 07-1 on its
              financial condition and results of operations.

              In December 2007, the FASB issued SFAS No. 141 (revised 2007),
              "Business Combinations" ("SFAS 141(R)") which replaces SFAS 141
              but retains the fundamental concept of purchase method of
              accounting in a business combination and improves reporting by
              creating greater consistency in the accounting and financial
              reporting of business combinations, resulting in more complete,
              comparable, and relevant information for investors and other
              users of financial statements. To achieve this goal, the new
              standard requires the acquiring entity in a business combination
              to recognize all the assets acquired and liabilities assumed in
              the transaction and any non-controlling interest at the
              acquisition date at their fair value as of that date. This
              statement requires measuring a non-controlling interest in the
              acquiree at fair value which will result in recognizing the
              goodwill attributable to the non-controlling interest in
              addition to that attributable to the acquirer. This statement
              also requires the recognition of assets acquired and liabilities
              assumed arising from contractual contingencies as of the
              acquisition date, measured at their acquisition date fair
              values. SFAS 141(R) is effective for business combinations for
              which the acquisition date is on or after the beginning of the
              first annual reporting period beginning on or after December 15,
              2008 and earlier adoption is prohibited. The Company plans to
              adopt SFAS 141(R) at the beginning of fiscal 2010 and is
              evaluating the impact of SFAS 141(R) on its financial condition
              and results of operations.

              In December 2007, the FASB issued SFAS No. 160, "Non-controlling
              Interests in Consolidated Financial Statements" ("SFAS 160") an
              amendment of ARB No. 51, which will affect only those entities
              that have an outstanding non-controlling interest in one or more
              subsidiaries or that deconsolidate a subsidiary by requiring all
              entities to report non-controlling (minority) interests in
              subsidiaries in the same way as equity in the consolidated
              financial statements. In addition, SFAS 160 eliminates the
              diversity that currently exists in accounting for transactions
              between an entity and non-controlling interests by requiring
              they be treated as equity transactions. SFAS 160 is effective
              for fiscal years beginning after December 15, 2008. The Company
              plans to adopt SFAS 160 at the beginning of fiscal 2010 and is
              evaluating the impact of SFAS 160 on its financial condition and
              results of operations.

              In May 2008, the FASB issued FASB Staff Position No. APB 14-a,
              "Accounting for Convertible Debt Instruments That May Be Settled
              in Cash Upon Conversion (Including Partial Cash Settlement)."
              Under the new rules for convertible debt instruments that may be
              settled entirely or partially in cash upon conversion, an


                                      35

<PAGE>
<PAGE>

              entity should separately account for the liability and equity
              components of the instrument in a manner that reflects the
              issuer's economic interest cost. The effect of the proposed new
              rules for the debentures is that the equity component would be
              included in the paid-in-capital section of shareholders' equity
              on an entity's consolidated balance sheet and the value of the
              equity component would be treated as original issue discount for
              purposes of accounting for the debt component of convertible
              debt. The FSP will be effective for fiscal years beginning after
              December 15, 2008, and for interim periods within those fiscal
              years, with retrospective application required. Early adoption
              is not permitted. The Company is currently evaluating the
              proposed new rules and the impact on its financial condition and
              results of operations.

3.       ACQUISITIONS AND LICENSE AGREEMENT
         ----------------------------------

         In January 2008, we entered into a definitive asset purchase
         agreement with CYTYC Prenatal Products and Hologic, Inc. ("CYTYC") to
         acquire the U.S. and worldwide rights to Gestiva(TM) (17-alpha
         hydroxyprogesterone caproate). The New Drug Application ("NDA") for
         Gestiva(TM) is currently before the FDA, pending approval for use in
         the prevention of preterm birth in certain categories of pregnant
         women. The proposed indication is for women with a history of at
         least one spontaneous preterm delivery (i.e., less than 37 weeks),
         who are pregnant with a single fetus. Under the terms of the asset
         purchase agreement, the Company agreed to pay $82,000 for
         Gestiva(TM), $7,500 of which was paid at closing. For the year ended
         March 31, 2008, the Company recorded the $7,500 payment as in-process
         research and development expense because the product had not obtained
         FDA approval when the initial payment was made. The remainder of the
         purchase price is payable on the completion of two milestones: (1)
         $2,000 on the earlier to occur of CYTYC's receipt of acknowledgement
         from the FDA that their response to the FDA's October 20, 2006
         "approvable" letter is sufficient for the FDA to proceed with their
         review of the NDA or the receipt of FDA's approval of the Gestiva(TM)
         NDA and (2) $72,500 on FDA approval of a Gestiva(TM) NDA, transfer of
         all rights in the NDA to the Company and receipt by the Company of
         defined launch quantities of finished Gestiva(TM) suitable for
         commercial sale.

         In May 2007, the Company acquired the U.S. marketing rights to
         Evamist(TM), a new estrogen replacement therapy product delivered
         with a patented metered-dose transdermal spray system, from VIVUS,
         Inc. Under terms of the Asset Purchase Agreement, the Company paid
         $10,000 in cash at closing and agreed to make an additional cash
         payment of $141,500 upon final approval of the product by the U.S.
         Food and Drug Administration ("FDA"). The agreement also provides for
         two future payments upon achievement of certain net sales milestones.
         If Evamist(TM) achieves $100,000 of net sales in a fiscal year, a
         one-time payment of $10,000 will be made, and if net sales levels
         reach $200,000 in a fiscal year, a one-time payment of $20,000 will
         be made. For the year ended March 31, 2008, the Company recorded the
         $10,000 payment made at closing as in-process research and
         development expense because the product had not obtained FDA approval
         when the initial payment was made. In July 2007, FDA approval for
         Evamist(TM) was received and the payment of $141,500 was made to
         VIVUS, Inc. The preliminary purchase price allocation, which is
         subject to change based on the final fair value assessment, resulted
         in estimated identifiable intangible assets of $52,446 to product
         rights; $15,166 to trademark rights; $66,417 to rights under a
         sublicense agreement; and, $7,471 to a covenant not to compete. Upon
         FDA approval in July 2007, the Company began amortizing the product
         rights, trademark rights and rights under the sublicense agreement
         over 15 years and the covenant not to compete over nine years.

         In May 2005, the Company and FemmePharma, Inc. ("FemmePharma")
         mutually agreed to terminate the license agreement between them
         entered into in April 2002. As part of this transaction, the Company
         acquired all of the common stock of FemmePharma for $25,000 after
         certain assets of the entity had been distributed to FemmePharma's
         other shareholders. Under separate agreements, the Company had
         previously invested $5,000 in FemmePharma's convertible preferred
         stock. Included in the Company's acquisition of FemmePharma are the
         worldwide marketing rights to an endometriosis product that was
         originally part of the licensing arrangement with FemmePharma that
         provided the Company, among other things, marketing rights for the
         product principally in the U.S. In accordance with the new agreement,
         the Company acquired worldwide licensing rights of the endometriosis
         product, no longer was responsible for milestone payments and
         royalties specified in the original licensing agreement, and secured
         exclusive worldwide rights for use of the FemmePharma technology for
         vaginal anti-infective products. For the year ended March 31, 2006,
         the Company recorded expense of $30,441 in connection with the
         FemmePharma acquisition that consisted of $29,570 for acquired
         in-process research and development and $871 in direct expenses
         related to the transaction. The acquired in-process research and

                                      36

<PAGE>
<PAGE>

         development charge represented the estimated fair value of the
         endometriosis product being developed that, at the time of the
         acquisition, had no alternative future use and for which
         technological feasibility had not been established. The FemmePharma
         acquisition expense was determined by the Company to not be
         deductible for tax purposes. The Company also allocated $375 of the
         purchase price for a non-compete agreement and $300 of the purchase
         price for the royalty-free worldwide license to use FemmePharma's
         technology for vaginal anti-infective products acquired in the
         transaction.

4.       INVESTMENT SECURITIES
         ---------------------

         The carrying amount of available-for-sale securities and their
         approximate fair values at March 31, 2008 and 2007 were as follows.

<TABLE>
<CAPTION>
                                                                                  MARCH 31, 2008
                                                    ----------------------------------------------------------------------------
                                                                            GROSS                 GROSS
                                                                          UNREALIZED            UNREALIZED               FAIR
                                                        COST                GAINS                 LOSSES                 VALUE
                                                        ----                -----                 ------                 -----
<C>                                                 <C>                   <C>                   <C>                   <C>
         Short-term marketable securities.....      $   40,538            $       10            $      -              $   40,548
         Non-current auction rate
            securities........................          83,900                    -                 (2,384)               81,516
                                                    ----------            ----------            ----------            ----------
             Total............................      $  124,438            $       10            $   (2,384)           $  122,064
                                                    ==========            ==========            ==========            ==========


<CAPTION>
                                                                                  MARCH 31, 2007
                                                    ----------------------------------------------------------------------------
                                                                            GROSS                 GROSS
                                                                          UNREALIZED            UNREALIZED               FAIR
                                                        COST                GAINS                 LOSSES                 VALUE
                                                        ----                -----                 ------                 -----
<C>                                                 <C>                   <C>                   <C>                   <C>
         Short-term marketable securities.....      $   38,612            $       50            $      -              $   38,662
         Short-term auction rate
            securities........................         119,150                    -                    -                 119,150
                                                    ----------            ----------            ----------            ----------
             Total............................      $  157,762            $       50            $      -              $  157,812
                                                    ==========            ==========            ==========            ==========
</TABLE>


         The Company accounts for its investment securities in accordance with
         SFAS 115, "Accounting for Certain Investments in Debt and Equity
         Securities," and classifies them as "available for sale." The
         Company's marketable securities at March 31, 2008 are recorded at
         fair value based on quoted market prices using the specific
         identification method and consisted of mutual funds comprised of U.S.
         government investments. These marketable securities are classified as
         current assets as the Company has the ability to use them for current
         operating and investing purposes. For the year ended March 31, 2007,
         a realized loss of $270 was recognized when the Company determined
         that its unrealized loss on marketable securities had become
         other-than-temporary as the duration of the losses had surpassed 24
         months and the Company no longer intended to hold these securities to
         recovery. There were no realized gains or losses for the years ended
         March 31, 2008 and 2006.

         At March 31, 2008 and 2007, the Company also had $83,900 and $119,150
         of principal invested in auction rate securities ("ARS"). These
         securities all have a maturity in excess of 10 years. The Company's
         investments in ARS primarily represent interests in collateralized
         debt obligations supported by pools of student loans, the principal
         of which is guaranteed by the U.S. Government. ARS backed by student
         loans are viewed as having low default risk and therefore very low
         risk of credit downgrade. The ARS held by the Company are AAA rated
         securities with long-term nominal maturities for which the interest
         rates are reset through a dutch auction at pre-determined intervals,
         up to 35 days. The auctions historically have provided a liquid
         market for these securities.

         With the liquidity issues experienced in global credit and capital
         markets, the ARS held by the Company at March 31, 2008 have
         experienced multiple failed auctions beginning in February 2008 as
         the amount of securities


                                      37

<PAGE>
<PAGE>

         submitted for sale has exceeded the amount of purchase orders. Given
         the failed auctions, the Company's ARS are illiquid until a
         successful auction for them occurs.

         The estimated fair value of the Company's ARS holdings at March 31,
         2008 was $81,516, which reflects a $2,384 difference from the
         principal value of $83,900. Although the ARS continue to pay interest
         according to their stated terms, the Company has recorded an
         unrealized loss of $1,550, net of tax, as a reduction to
         shareholders' equity in accumulated other comprehensive loss,
         reflecting adjustments to the ARS holdings that the Company has
         concluded have a temporary decline in value.

         The ARS are valued based on a discounted cash flow model that
         considers, among other factors, the time to work out the market
         disruption in the traditional trading mechanism, the stream of cash
         flows (coupons) earned until maturity, the prevailing risk free yield
         curve, credit spreads applicable to a portfolio of student loans with
         various tenures and ratings and an illiquidity premium. These factors
         were used in a Monte Carlo simulation based methodology to derive the
         estimated fair value of the ARS.

         At March 31, 2007, ARS are classified as current assets and included
         in the line item "Marketable securities." Given the failed auctions,
         the Company's ARS are illiquid until there is a successful auction
         for them. Accordingly, the $81,516 of ARS have been reclassified at
         March 31, 2008 from current assets to non-current assets and are
         included in the line item "Investment securities."

5.       INVENTORIES
         -----------

         Inventories as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                        2008                  2007
                                                                        ----                  ----
                  <C>                                                <C>                   <C>
                  Finished goods.....................                $  27,654             $  35,420
                  Work-in-process....................                   15,925                13,294
                  Raw materials......................                   51,401                42,801
                                                                     ---------             ---------
                                                                     $  94,980             $  91,515
                                                                     =========             =========
</TABLE>

6.       PROPERTY AND EQUIPMENT
         ----------------------

         Property and equipment as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                                 2008                  2007
                                                                                 ----                  ----
                  <C>                                                         <C>                   <C>
                  Land and improvements.................................      $    6,253            $    6,253
                  Buildings and building improvements...................         109,128               108,631
                  Machinery and equipment...............................          86,490                73,461
                  Office furniture and equipment........................          32,417                27,819
                  Leasehold improvements................................          21,057                21,057
                  Construction-in-progress..............................          14,870                 5,865
                                                                              ----------            ----------
                                                                                 270,215               243,086
                  Less accumulated depreciation.........................         (74,015)              (56,186)
                                                                              ----------            ----------
                     Net property and equipment.........................      $  196,200            $  186,900
                                                                              ==========            ==========
</TABLE>

         Capital additions to property and equipment were $23,656, $25,066 and
         $58,334 for the years ended March 31, 2008, 2007 and 2006,
         respectively. Depreciation of property and equipment was $18,317,
         $16,208 and $11,916 for the years ended March 31, 2008, 2007 and
         2006, respectively.

         Property and equipment projects classified as
         construction-in-progress at March 31, 2008 are projected to be
         completed during the next 12 months at an estimated cost of $4,595.

         During the year ended March 31, 2006, the Company recorded
         capitalized interest on qualifying construction projects of $940. In
         fiscal 2008 and 2007, the Company did not record any capitalized
         interest.

                                      38

<PAGE>
<PAGE>

7.       INTANGIBLE ASSETS AND GOODWILL
         ------------------------------

         Intangible assets and goodwill as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                    2008                                         2007
                                                      ---------------------------------           ---------------------------------
                                                         GROSS                                       GROSS
                                                       CARRYING            ACCUMULATED              CARRYING            ACCUMULATED
                                                        AMOUNT             AMORTIZATION              AMOUNT            AMORTIZATION
                                                        ------             ------------              ------            ------------
         <C>                                          <C>                   <C>                   <C>                   <C>
         Product rights acquired:
            Micro-K(R)..........................      $   36,140            $  (16,318)           $   36,140            $  (14,513)
            PreCare(R)..........................           8,433                (3,654)                8,433                (3,233)
            Evamist(TM)..........................         52,446                (2,378)                   --                    --
         Trademarks acquired:
            Niferex(R)..........................          14,834                (3,709)               14,834                (2,967)
            Chromagen(R)/StrongStart(R)...........        27,642                (6,910)               27,642                (5,528)
            Evamist(TM)..........................         15,166                  (688)                   --                    --
         License agreements:
            Evamist(TM)..........................         66,417                (3,011)                   --                    --
            Other.............................             2,300                    --                 4,400                  (480)
         Covenants not to compete:
            Evamist(TM)..........................          7,471                  (565)                   --                    --
            Other.............................               375                  (109)                  375                   (72)
         Trademarks and patents...............             5,317                  (972)                4,196                  (774)
                                                      ----------            ----------            ----------            ----------
                  Total intangible assets.....           236,541               (38,314)               96,020               (27,567)
              Goodwill........................               557                     -                   557                     -
                                                      ----------            ----------            ----------            ----------
                                                      $  237,098            $  (38,314)           $   96,577            $  (27,567)
                                                      ==========            ==========            ==========            ==========
</TABLE>

         As of March 31, 2008, the Company's intangible assets have a weighted
         average useful life of approximately 16 years. Amortization of
         intangible assets was $11,491, $4,810 and $4,784 for the years ended
         March 31, 2008, 2007 and 2006, respectively.

         During the year ended March 31, 2008, the Company recognized an
         impairment charge of $1,140 for the intangible asset related to a
         product right acquired under an external development agreement. Price
         erosion on the product eliminated the economics of marketing the
         product. The entire balance of the intangible asset was written-off
         as the product is no longer expected to generate positive future cash
         flows. The impairment loss is included in "Amortization and
         impairment of intangible assets" in the Consolidated Statement of
         Income and is included under the All Other segment in Note 21.

         Assuming no other additions, disposals or adjustments are made to the
         carrying values and/or useful lives of the intangible assets, annual
         amortization expense on product rights, trademarks acquired and other
         intangible assets is estimated to be approximately $14,500 in each of
         the five succeeding fiscal years.


                                      39

<PAGE>
<PAGE>

8.       OTHER ASSETS
         ------------

         Other assets as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                                 2008                  2007
                                                                                 ----                  ----
                  <C>                                                         <C>                   <C>
                  Cash surrender value of life insurance...............       $    4,300            $    3,874
                  Preferred stock investments..........................           12,684                11,806
                  Accrued dividends on preferred stock ................            2,027                 1,198
                  Deferred financing costs, net........................              859                 2,159
                  Deposits.............................................            3,238                 1,366
                                                                              ----------            ----------
                                                                              $   23,108            $   20,403
                                                                              ==========            ==========
</TABLE>



9.       ACCRUED LIABILITIES
         -------------------

         Accrued liabilities as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                                  2008                 2007
                                                                                  ----                 ----
                  <C>                                                          <C>                  <C>
                  Salaries, wages, incentives and benefits.......              $  30,314            $   20,669
                  Accrued interest payable.......................                  2,721                 2,192
                  Professional fees..............................                  4,837                 5,921
                  Promotion expenses.............................                  4,984                   369
                  Stock option deposits..........................                  2,729                 2,560
                  Other..........................................                    931                 1,507
                                                                               ---------            ----------
                                                                               $  46,516            $   33,218
                                                                               =========            ==========
</TABLE>

10.      LONG-TERM DEBT
         --------------

         Long-term debt as of March 31, consists of:

<TABLE>
<CAPTION>
                                                                                 2008                  2007
                                                                                 ----                  ----
                  <C>                                                        <C>                   <C>
                  Building mortgages.............................            $    39,452           $    41,348
                  Line of credit.................................                 30,000                    --
                  Convertible notes..............................                200,000               200,000
                                                                             -----------           -----------
                                                                                 269,452               241,348
                  Less current portion...........................               (202,020)               (1,897)
                                                                             -----------           -----------
                                                                             $    67,432           $   239,451
                                                                             ===========           ===========
</TABLE>


         In June 2006, the Company entered into a credit agreement with ten
         banks that provides for a revolving line of credit for borrowing up
         to $320,000. This credit facility also includes a provision for
         increasing the revolving commitment, at the lenders' sole discretion,
         by up to an additional $50,000. The credit agreement is unsecured
         unless the Company, under certain specified circumstances, utilizes
         the facility to redeem part or all of its outstanding Notes. Interest
         is charged under the credit facility at the lower of the prime rate
         or LIBOR plus 62.5 to 150 basis points depending on the ratio of
         senior debt to EBITDA. The credit facility has a five-year term
         expiring in June 2011. The credit agreement contains financial
         covenants that impose limits on dividend payments, require minimum
         equity, a maximum senior leverage ratio and minimum fixed charge
         coverage ratio. At March 31, 2008, the Company had $942 in open
         letters of credit issued under the revolving credit line and $30,000
         of cash borrowings outstanding under the facility.

         In March 2006, the Company entered into a $43,000 mortgage loan
         agreement with one of its primary lenders, in part, to refinance
         $9,859 of existing mortgages. The $32,764 of net proceeds the Company
         received from the


                                      40

<PAGE>
<PAGE>

         mortgage loan was used for working capital and general corporate
         purposes. The mortgage loan, which is secured by three of the
         Company's buildings, bears interest at a rate of 5.91% and matures on
         April 1, 2021.

         In May 2003, the Company issued $200,000 principal amount of 2.5%
         Contingent Convertible Subordinated Notes due 2033 (the "Notes") that
         are convertible, under certain circumstances, into shares of Class A
         Common Stock at an initial conversion price of $23.01 per share. The
         Notes, which are due May 16, 2033, bear interest that is payable on
         May 16 and November 16 of each year at a rate of 2.50% per annum. The
         Company also is obligated to pay contingent interest at a rate equal
         to 0.5% per annum during any six-month period from May 16 to November
         15 and from November 16 to May 15, with the initial six-month period
         commencing May 16, 2006, if the average trading price of the Notes
         per $1,000 principal amount for the five trading day period ending on
         the third trading day immediately preceding the first day of the
         applicable six-month period equals $1,200 or more. In November 2007,
         the average trading price of the Notes reached the threshold for the
         five-day trading period that resulted in the payment of contingent
         interest and beginning November 16, 2007 the Notes began to bear
         interest at a rate of 3.00% per annum.

         The Company may redeem some or all of the Notes at any time on or
         after May 21, 2006, at a redemption price, payable in cash, of 100%
         of the principal amount of the Notes, plus accrued and unpaid
         interest, including contingent interest, if any. Holders may require
         the Company to repurchase all or a portion of their Notes on May 16,
         2008, 2013, 2018, 2023 and 2028 or upon a change in control, as
         defined in the indenture governing the Notes, at a purchase price,
         payable in cash, of 100% of the principal amount of the Notes, plus
         accrued and unpaid interest, including contingent interest, if any.
         Even though no holders required the Company to repurchase all or a
         portion of their Notes on May 16, 2008, the Company classified the
         Notes as a current liability as of March 31, 2008 due to the right
         the holders had to require the Company to repurchase the Notes on May
         16, 2008. Since the holders did not elect to cause us to repurchase
         any of the Notes, the Notes will be reclassified as long-term
         beginning with our consolidated balance sheet as of June 30, 2008.

         The Notes are subordinate to all of our existing and future senior
         obligations. The Notes are convertible, at the holders' option, into
         shares of the Company's Class A Common Stock prior to the maturity
         date under the following circumstances:

              o   during any quarter commencing after June 30, 2003, if the
                  closing sale price of the Company's Class A Common Stock
                  over a specified number of trading days during the previous
                  quarter is more than 120% of the conversion price of the
                  Notes on the last trading day of the previous quarter. The
                  Notes are initially convertible at a conversion price of
                  $23.01 per share, which is equal to a conversion rate of
                  approximately 43.4594 shares per $1,000 principal amount of
                  Notes;
              o   if the Company has called the Notes for redemption;
              o   during the five trading day period immediately following any
                  nine consecutive day trading period in which the trading
                  price of the Notes per $1,000 principal amount for each day
                  of such period was less than 95% of the product of the
                  closing sale price of our Class A Common Stock on that day
                  multiplied by the number of shares of our Class A Common
                  Stock issuable upon conversion of $1,000 principal amount of
                  the Notes; or
              o   upon the occurrence of specified corporate transactions.

         The Company has reserved 8,691,880 shares of Class A Common Stock for
         issuance in the event the Notes are converted.

         The contingent interest feature of the Notes meets the criteria of
         and qualifies as an embedded derivative. Although this feature
         represents an embedded derivative financial instrument, based on its
         de minimis value at the time of issuance and at March 31, 2008, no
         value has been assigned to this embedded derivative.

         The Notes, which are unsecured, do not contain any restrictions on
         the payment of dividends, the incurrence of additional indebtedness
         or the repurchase of the Company's securities, and do not contain any
         financial covenants.

                                      41

<PAGE>
<PAGE>

         The aggregate maturities of long-term debt as of March 31, 2008 are
         as follows:

                  Due in one year...............        $  202,020
                  Due in two years..............             2,144
                  Due in three years............             2,276
                  Due in four years.............            32,411
                  Due in five years.............             2,565
                  Thereafter....................            28,036
                                                        ----------
                                                        $  269,452
                                                        ==========

         The Company paid interest of $8,648 and $7,316 for the years ended
         March 31, 2008 and 2007, respectively. For the year ended March 31,
         2006, the Company paid interest, net of capitalized interest, of
         $4,692.

11.      TAXABLE INDUSTRIAL REVENUE BONDS
         --------------------------------

         In December 2005, the Company entered into a financing arrangement
         with St. Louis County, Missouri related to expansion of its
         operations in St. Louis County. Up to $135,500 of industrial revenue
         bonds may be issued to the Company by St. Louis County relative to
         capital improvements made through December 31, 2009. This agreement
         provides that 50% of the real and personal property taxes on up to
         $135,500 of capital improvements will be abated for a period of ten
         years subsequent to the property being placed in service. Industrial
         revenue bonds totaling $120,407 were outstanding at March 31, 2008.
         The industrial revenue bonds are issued by St. Louis County to the
         Company upon its payment of qualifying costs of capital improvements,
         which are then leased by the Company for a period ending December 1,
         2019, unless earlier terminated. The Company has the option at any
         time to discontinue the arrangement and regain full title to the
         abated property. The industrial revenue bonds bear interest at 4.25%
         per annum and are payable as to principal and interest concurrently
         with payments due under the terms of the lease. The Company has
         classified the leased assets as property and equipment and has
         established a capital lease obligation equal to the outstanding
         principal balance of the industrial revenue bonds. Lease payments may
         be made by tendering an equivalent portion of the industrial revenue
         bonds. As the capital lease payments to St. Louis County may be
         satisfied by tendering industrial revenue bonds (which is the
         Company's intention), the capital lease obligation, industrial
         revenue bonds and related interest expense and interest income,
         respectively, have been offset for presentation purposes in the
         consolidated financial statements.

12.      COMMITMENTS AND CONTINGENCIES
         -----------------------------

         LEASES

         The Company leases manufacturing, office and warehouse facilities,
         equipment and automobiles under operating leases expiring through
         fiscal 2021. Total rent expense for the years ended March 31, 2008,
         2007 and 2006 was $4,536, $4,132 and $3,819, respectively.

         Future minimum lease commitments under non-cancelable operating
         leases are as follows:

                  2009..........................          $  2,183
                  2010..........................             1,531
                  2011..........................             1,378
                  2012..........................             1,255
                  2013..........................               861
                  Thereafter....................               939


                                      42

<PAGE>
<PAGE>

         CONTINGENCIES

         The Company is currently subject to legal proceedings and claims that
         have arisen in the ordinary course of business. While the Company is
         not presently able to determine the potential liability, if any,
         related to such matters, the Company believes none of the matters it
         currently faces, individually or in the aggregate, will have a
         material adverse effect on its financial condition or operations
         except for the specific cases described in "Litigation" below.

         The Company has licensed the exclusive rights to co-develop and
         market various generic equivalent products with other drug delivery
         companies. These collaboration agreements require the Company to make
         up-front and ongoing payments as development milestones are attained.
         If all milestones remaining under these agreements were reached,
         payments by the Company could total up to $31,000.

         LITIGATION

         The Company and its subsidiaries Drugtech Corporation and Ther-Rx
         Corporation were named as defendants in a declaratory judgment case
         filed in the U.S. District Court for the District of Delaware by
         Lannett Company, Inc. ("Lannett") on June 6, 2008 and styled Lannett
         Company Inc. v. KV Pharmaceuticals et. al. Lannett has subsequently
         amended its complaint. The action seeks a declaratory judgment of
         patent invalidity, patent non-infringement, and patent
         unenforceability for inequitable conduct with respect to five patents
         owned by, and two patents licensed to, the Company or its
         subsidiaries and pertaining to the PrimaCare ONE(R) product marketed
         by Ther-Rx Corporation; unfair competition; deceptive trade
         practices; and antitrust violations. No specific amount of damages
         was stated in the complaint or amended complaint. We have not yet
         been served with either the complaint or the amended complaint.
         However, on June 17 2008, the Company filed a counterclaim against
         Lannett in that action asserting patent infringement; federal and
         common law trademark infringement, false advertising, and unfair
         competition; federal false designation of origin, false description
         and false representation; and common law misappropriation. The
         Company has requested a temporary restraining order and preliminary
         injunction against Lannett's continued sale of its product and
         continued infringement of the Company's trademarks and patents,
         unfair competition or misappropriation, and to require Lannett to
         recall all of its shipped product. A briefing schedule has been set
         by the court on the Company's motion and a hearing has been scheduled
         before the court on the Company's motion on June 25, 2008. No
         discovery has yet commenced nor a trial date been set.

         The Company is named as a defendant in a patent infringement case
         filed in the U.S. District Court for the District of Delaware by UCB,
         Inc. and Celltech Manufacturing CA, Inc. (collectively, "UCB") on
         April 21, 2008 and styled UCB, Inc. et al. v. KV Pharmaceutical
         Company. After the Company filed an ANDA with the FDA seeking
         permission to market a generic version of the 40 mg, 50 mg and 60 mg
         strengths of Metadate CD(R) methylphenidate hydrochloride
         extended-release capsules, UCB filed this lawsuit under a patent
         owned by Celltech. In a Paragraph IV certification accompanying the
         ANDA, KV contended that its proposed 40mg generic formulation would
         not infringe Celltech's patent. Because the patent was not listed in
         the Orange Book for the 50mg and 60mg dosages, a Paragraph I
         certification was filed with respect to them. Pursuant to the
         Hatch-Waxman Act, the filing of the suit against the Company
         instituted an automatic stay of FDA approval of the Company's ANDA
         with respect to the 40 mg strength of this product until the earlier
         of a judgment in the Company's favor, or 30 months from the date of
         suit. Inasmuch as the Celltech patent was not listed in the Orange
         Book with respect to the 50 mg and 60 mg strengths, it is the
         Company's belief that the automatic stay does not apply to the
         Company's 50 mg and 60 mg strengths of this product. UCB may,
         however, seek to keep these strengths tied up in the litigation. The
         Company has filed an answer, asserted certain affirmative defenses
         (including that Plaintiffs are estopped to assert infringement of the
         50 mg and 60 mg dosages due to their not listing the Celltech patent
         in the Orange Book for these dosages), and has asserted a
         counterclaim in which it seeks a declaratory judgment of invalidity
         and non-infringement of the claims in the Celltech patent, and an
         award of attorneys fees and costs. The case has recently commenced
         and no trial date has yet been set. The Company intends to vigorously
         defend its interests; however, it cannot give any assurance that it
         will prevail.

                                      43

<PAGE>
<PAGE>

         The Company is named as a defendant in a patent infringement case
         filed in the U.S. District Court for the District of New Jersey by
         Janssen, L.P., Janssen Pharmaceutica N.V. and Ortho-McNeil
         Neurologics, Inc. (collectively, "Janssen") on December 14, 2007 and
         styled Janssen, L.P. et al. v. KV Pharmaceutical Company. After the
         Company filed an ANDA with the FDA seeking permission to market a
         generic version of the 8 mg and 16 mg strengths of Razadyne(R) ER
         (formerly Reminyl(R)) galantamine hydrobromide extended-release
         capsules, Janssen filed this lawsuit for patent infringement under a
         patent owned by Janssen. In the Company's Paragraph IV certification,
         KV contended that its proposed generic versions do not infringe
         Janssen's patent. Pursuant to the Hatch-Waxman Act, the filing date
         of the suit against the Company instituted an automatic stay of FDA
         approval of the Company's ANDA until the earlier of a judgment, or 30
         months from the date of the suit. The Company has filed an answer and
         counterclaim for declaratory judgment of non-infringement and patent
         invalidity. Discovery is on-going, but no trial date has yet been
         set. Following the Company's filing of an ANDA pertaining to a
         generic version of the 24 mg strength of Razadyne(R) ER (formerly
         Reminyl(R)) galantamine hydrobromide extended-release capsules and
         the Company's giving of notice of this filing to Janssen, Janssen has
         filed in June 2008 a second complaint in the same federal court,
         naming the Company as a defendant in a related patent infringement
         case under the same Janssen patent with respect to such 24 mg generic
         version. The time to answer the new complaint has not yet run. The
         Company anticipates that both cases will be coordinated before the
         court. The Company intends to vigorously defend its interests;
         however, it cannot give any assurance that it will prevail.

         The Company is named as a defendant in a patent infringement case
         filed in the U.S. District Court for the District of New Jersey by
         Celgene Corporation ("Celgene") and Novartis Pharmaceuticals
         Corporation and Novartis Pharma AG (collectively, "Novartis") on
         October 4, 2007 and styled Celgene Corporation et al. v. KV
         Pharmaceutical Company. After the Company filed an ANDA with the FDA
         seeking permission to market a generic version of the 10 mg, 20 mg,
         30 mg, and 40 mg strengths of Ritalin LA(R) methylphenidate
         hydrochloride extended-release capsules, Celgene and Novartis filed
         this lawsuit for patent infringement under the provisions of the
         Hatch-Waxman Act with respect to two patents owned by Celgene and
         licensed to Novartis. In the Company's Paragraph IV certification, KV
         contended that its proposed generic versions do not infringe
         Celgene's patents. Pursuant to the Hatch-Waxman Act, the filing date
         of the suit against the Company instituted an automatic stay of FDA
         approval of the Company's ANDA until the earlier of a judgment, or 30
         months from the date of the suit. The Company has been served with
         this complaint and has filed its answer and a counterclaim in the
         case, seeking a declaratory judgment of non-infringement, patent
         invalidity, and inequitable conduct in obtaining the patents. The
         case is just commencing and no trial date has yet been set. Celgene
         has moved to disqualify the Company's counsel in the case, asserting
         a conflict of interest despite its signing of an advance waiver with
         such counsel, and this motion is pending before the court. Should
         this motion be granted, the Company will need to retain new counsel.
         The Company does not believe that this would materially delay the
         progress of the lawsuit. The Company has filed a motion for sanctions
         against plaintiffs pursuant to Rule 11 of the Federal Rules of Civil
         Procedure for bringing an action without proper basis and is seeking
         an order dismissing the patent infringement complaint filed by
         plaintiffs, and awarding the Company its costs and attorneys' fees.
         Celgene has asked the court to dismiss the Company's Rule 11 motion,
         and the matter is pending before the court. The Company intends to
         vigorously defend its interests; however, it cannot give any
         assurance that it will prevail.

         The Company is named as a defendant in a patent infringement case
         brought by Purdue Pharma L.P., The P.F. Laboratories, Inc., and
         Purdue Pharmaceuticals L.P. ("Purdue") on January 17, 2007 against it
         and an unrelated third party and styled Purdue Pharma L.P. et al. v.
         KV Pharmaceutical Company et al. filed in the U.S. District Court for
         the District of Delaware. After the Company filed an ANDA with the
         FDA seeking permission to market a generic version of the 10 mg, 20
         mg, 40 mg, and 80 mg strengths of OxyContin(R) in extended-release
         tablet form, Purdue filed a lawsuit against KV for patent
         infringement under the provisions of the Hatch-Waxman Act with
         respect to three Purdue patents. In the Company's Paragraph IV
         certification, KV contended that Purdue's patents are invalid,
         unenforceable, or will not be infringed by KV's proposed generic
         versions. On February 12, 2007, a second patent infringement lawsuit
         was filed in the same court against the Company by Purdue, asserting
         patent infringement under the same three patents with respect to the
         Company's filing of an amendment to its ANDA with FDA to sell a
         generic equivalent of Purdue's OxyContin(R), 30 mg and 60 mg
         strengths, products. On June 6, 2007, a third patent infringement
         lawsuit was filed against the Company by Purdue in the U.S. District
         Court for the Southern District of New York, asserting patent
         infringement under the


                                      44

<PAGE>
<PAGE>

         same three patents with respect to the Company's filing of an
         amendment to its ANDA with FDA to sell a generic equivalent of
         Purdue's OxyContin(R), 15 mg strength, product. The two lawsuits
         filed in federal court in Delaware have been transferred to the
         federal court in New York for multi-district litigation purposes
         together with an additional lawsuit by Purdue against another
         unrelated company, also in federal court in New York. Purdue
         currently has similar lawsuits pending against additional unrelated
         companies in federal court in New York.

         The Company filed answers and counterclaims against Purdue in all
         three lawsuits, asserting various defenses to Purdue's claims;
         seeking declaratory relief of the invalidity, unenforceability and
         non-infringement of the Purdue patents; and asserting counterclaims
         against Purdue for violations of federal antitrust law, including
         Sherman Act Section 1 and Section 2 for monopolization, attempt to
         monopolize, and conspiracy to monopolize with respect to the U.S.
         market for controlled-release oxycodone, and agreements in
         unreasonable restraint of competition, and for intentional
         interference with valid business expectancy. Purdue has filed replies
         to the Company's counterclaims.

         Pursuant to the Hatch-Waxman Act, the filing date of the suit against
         the Company instituted an automatic stay of FDA approval of the
         Company's ANDA until the earlier of a judgment, or 30 months from the
         date of the suit. The court initially stayed all proceedings pending
         determining whether Purdue committed inequitable conduct in its
         dealings with the U.S. Patent and Trademark Office with respect to
         the issuance of its patents, which would render such patents
         unenforceable, and the court's subsequent decision on the issue. On
         January 7, 2008, the court issued its decision finding that Purdue
         had not committed inequitable conduct with respect to the patents in
         suit. The Company, among others, has asked the court to lift the stay
         so that the remainder of the case may resume but the stay has not yet
         been lifted. Discovery in the suit has not yet commenced but is
         expected to commence shortly after the stay is lifted on the case. No
         trial date has yet been set. The Company intends to vigorously defend
         its interests; however, it cannot give any assurance that it will
         prevail.

         The Company and ETHEX are named as defendants in a case brought by
         CIMA LABS, Inc. and Schwarz Pharma, Inc. and styled CIMA LABS, Inc.
         et. al. v. KV Pharmaceutical Company et. al. filed in U.S. District
         Court for the District of Minnesota. CIMA alleged that the Company
         and ETHEX infringed on a CIMA patent in connection with the
         manufacture and sale of Hyoscyamine Sulfate Orally Dissolvable
         Tablets, 0.125 mg. The court has entered a stay pending the outcome
         of the U.S. Patent and Trademark Office's reexamination of a patent
         at issue in the suit. The Patent and Trademark Office has, to date,
         issued a final office action rejecting all existing and proposed new
         claims by CIMA with respect to this patent. CIMA has certain rights
         of appeal of this rejection of its claims and has exercised those
         rights. The product involved in this lawsuit is currently subject to
         a hold on the Company's inventory of certain unapproved products
         notified to the Company in March 2008 by representatives of the
         Missouri Department of Health and Senior Services and the FDA. In the
         event that such hold is lifted, ETHEX intends to resume marketing the
         product during the stay in the lawsuit with CIMA. The Company intends
         to vigorously defend its interests when or if the stay is lifted;
         however, it cannot give any assurance it will prevail or that the
         stay will be lifted.

         The Company and ETHEX are named as defendants in a case brought by
         Axcan ScandiPharm Inc. and styled Axcan ScandiPharm Inc. v. ETHEX
         Corporation et. al., filed in U.S. District Court in Minnesota on
         June 1, 2007. In general, Axcan alleges that ETHEX's comparative
         promotion of its Pangestyme(TM) UL12 and Pangestyme(TM) UL18 products
         to Axcan's Ultrase(R) MT12 and Ultrase(R) MT18 products resulted in
         false advertising and misleading statements under various federal and
         state laws, and constituted unfair and deceptive trade practices. The
         Company filed a motion for judgment on the pleadings in its favor on
         several grounds. The motion has been granted in part and denied in
         part by the court on October 19, 2007, with the court applying the
         statute of limitations to cut off Axcan's claims concerning conduct
         prior to June 2001, determining that it was too early to determine
         whether laches or res judicata barred the suit, and rejecting the
         remaining bases for dismissal. Discovery has since commenced and a
         trial date has been set for January 2010. Plaintiffs have recently
         filed a motion to amend their complaint to seek declaratory judgments
         that Axcan does not have "unclean hands" nor violated any antitrust
         or unfair competition laws. This motion is pending before the court.
         The Company intends to vigorously defend its interests; however, it
         cannot give any assurance that it will prevail.

         The Company has been advised that one of its former distributor
         customers is being sued in Florida state court in a case captioned
         Darrian Kelly v. K-Mart et. al. for personal injury allegedly caused
         by ingestion of K-Mart diet


                                      45

<PAGE>
<PAGE>

         caplets that are alleged to have been manufactured by the Company and
         to contain phenylpropanolamine, or PPA. The distributor has tendered
         defense of the case to the Company and has asserted a right to
         indemnification for any financial judgment it must pay. The Company
         previously notified its product liability insurer of this claim in
         1999 and again in 2004, and the Company has demanded that the insurer
         assume the Company's defense. The insurer has stated that it has
         retained counsel to secure additional factual information and will
         defer its coverage decision until that information is received. The
         Company intends to vigorously defend its interests; however, it
         cannot give any assurance that it will not be impleaded into the
         action, or that, if it is impleaded, that it would prevail.

         KV's product liability coverage for PPA claims expired for claims
         made after June 15, 2002. Although the Company renewed its product
         liability coverage for coverage after June 15, 2002, that policy
         excludes future PPA claims in accordance with the standard industry
         exclusion. Consequently, as of June 15, 2002, the Company will
         provide for legal defense costs and indemnity payments involving PPA
         claims on a going forward basis as incurred. Moreover, the Company
         may not be able to obtain product liability insurance in the future
         for PPA claims with adequate coverage limits at commercially
         reasonable prices for subsequent periods. From time to time in the
         future, KV may be subject to further litigation resulting from
         products containing PPA that it formerly distributed. The Company
         intends to vigorously defend its interests in the event of such
         future litigation; however, it cannot give any assurance it will
         prevail.

         The Company was named as a defendant in a case filed in U.S. District
         Court in Missouri by AstraZeneca AB, Aktiebolaget Hassle and
         AstraZeneca LP (collectively, "AstraZeneca") and styled AstraZeneca
         AB et. al. v. KV Pharmaceutical Company. After the Company filed
         ANDAs with the FDA seeking permission to market a generic version of
         the 25 mg, 50 mg, 100 mg, and 200 mg strengths of Toprol-XL(R) in
         extended-release capsule form, AstraZeneca filed lawsuits against KV
         for patent infringement under the provisions of the Hatch-Waxman Act.
         In the Company's Paragraph IV certification, KV contended that its
         proposed generic versions do not infringe AstraZeneca's patents.
         Pursuant to the Hatch-Waxman Act, the filing date of the suit against
         the Company instituted an automatic stay of FDA approval of the
         Company's ANDA until the earlier of a judgment, or 30 months from the
         date of the suit. The Company filed motions for summary judgment with
         the District Court in Missouri alleging, among other things, that
         AstraZeneca's patent is invalid and unenforceable. These motions were
         granted and AstraZeneca appealed. On July 23, 2007, the Court of
         Appeals for the Federal Circuit affirmed the decision of the District
         Court below with respect to the invalidity of AstraZeneca's patent
         but reversed and remanded with respect to inequitable conduct by
         AstraZeneca. AstraZeneca filed for rehearing by the Federal Circuit,
         which was denied and the time has now run with respect to any
         petition for certiorari to the United States Supreme Court. As a
         result, the Company no longer faces the prospect of any liability to
         AstraZeneca in connection with this lawsuit. KV continued to proceed
         with its counterclaim against AstraZeneca for inequitable conduct in
         obtaining the patents that have been ruled invalid, in order to
         recover the Company's defense costs, including legal fees. In May
         2008, the Company entered into a settlement agreement with
         AstraZeneca and settled its remaining counterclaims against
         AstraZeneca in exchange for a payment of $2,700.

         The Company and/or ETHEX have been named as defendants in certain
         multi-defendant cases alleging that the defendants reported improper
         or fraudulent pharmaceutical pricing information, i.e., Average
         Wholesale Price, or AWP, and/or Wholesale Acquisition Cost, or WAC,
         information, which caused the governmental plaintiffs to incur
         excessive costs for pharmaceutical products under the Medicaid
         program. Cases of this type have been filed against the Company
         and/or ETHEX and other pharmaceutical manufacturer defendants by the
         States of Massachusetts, Alabama, Mississippi, Utah and Iowa, New
         York City, and approximately 45 counties in New York State. The State
         of Mississippi effectively voluntarily dismissed the Company and
         ETHEX without prejudice on October 5, 2006 by virtue of the State's
         filing an Amended Complaint on such date that does not name either
         the Company or ETHEX as a defendant. In the remaining cases, only
         ETHEX is a named defendant. On August 13, 2007, ETHEX settled the
         Massachusetts lawsuit for $575 in cash and pharmaceutical products
         valued at $150, both of which are to be paid or delivered over the
         next two years, and received a general release; no admission of
         liability was made. The New York City case and all New York county
         cases (other than the Erie, Oswego and Schenectady County cases) have
         been transferred to the U.S. District Court for the District of
         Massachusetts for coordinated or consolidated pretrial proceedings
         under the Average Wholesale Price Multidistrict Litigation (MDL No.
         1456). The cases pertaining to the State of Alabama, Erie County,
         Oswego


                                      46

<PAGE>
<PAGE>

         County, and Schenectady County were removed to federal court by a
         co-defendant in October 2006, but all of these cases have since been
         remanded to the state courts in which they originally were filed. A
         motion is pending in New York state court to coordinate the Oswego,
         Erie and Schenectady Counties cases. Each of these actions is in the
         early stages, with fact discovery commencing or ongoing in the
         Alabama case and the federal cases involving New York City and 42 New
         York counties. On October 24, 2007, ETHEX was served with a complaint
         filed in Utah state court by the State of Utah naming it and nine
         other pharmaceutical companies as defendants in a pricing suit. On
         November 19, 2007, the State of Utah filed an amended complaint. The
         Utah suit has been removed to federal court and a motion has been
         filed to transfer the case to the MDL litigation for pretrial
         coordination. The State is seeking to remand the case to state court,
         and the decision is pending before the court. The time for ETHEX to
         answer or respond to the Utah complaint has not yet run. On October
         9, 2007, the State of Iowa filed a complaint in federal court in Iowa
         naming ETHEX and 77 other pharmaceutical companies as defendants in a
         pricing suit. ETHEX and the other defendants have filed a motion to
         dismiss the Iowa complaint. The Company intends to vigorously defend
         its interests in the actions described above; however, it cannot give
         any assurance it will prevail.

         The Company believes that various other governmental entities have
         commenced investigations into the generic and branded pharmaceutical
         industry at large regarding pricing and price reporting practices.
         Although the Company believes its pricing and reporting practices
         have complied in all material respects with its legal obligations, it
         cannot give any assurance that it would prevail if legal actions are
         instituted by these governmental entities.

         The Company and ETHEX were named as co-defendants in a suit in the
         U.S. District Court for the Southern District of Florida filed by the
         personal representative of the estate of Joyce Hoyle and her children
         in connection with Ms. Hoyle's death in 2003, allegedly from
         oxycodone toxicity styled Thomas Hoyle v. Purdue Pharma et al. The
         suit alleged that between June 2001 and May 2003 Ms. Hoyle was
         prescribed and took three different opiate pain medications
         manufactured and sold by the defendants, including one product,
         oxycodone, that was manufactured by the Company and marketed by
         ETHEX, and that such medications were promoted without sufficient
         warnings about the side effect of addiction. The causes of action
         were strict liability for an inherently dangerous product,
         negligence, breach of express and implied warranty and breach of
         implied warranty of fitness for a particular purpose. The discovery
         process had not yet begun, and the court had set the trial to
         commence in July 2007. The plaintiff and the Company agreed, however,
         to a tolling agreement, under which the plaintiff dismissed the case
         without prejudice in return for the Company's agreement to toll the
         statute of limitations in the event the plaintiff refiled its case in
         the future. The case was dismissed without prejudice. On January 18,
         2008, the Company and ETHEX were served with a new complaint,
         substantially similar to the earlier law suit. KV and ETHEX have
         filed an answer to the new complaint, as well as a motion to dismiss
         the lawsuit based on expiration of the statute of limitations. This
         motion is pending before the court, with a hearing scheduled by the
         court on July 7, 2008. A trial date has been set for November 2008.
         The Company intends to vigorously defend its interests; however, it
         cannot give any assurance that it will prevail.

         On September 15, 2006, a shareholder derivative suit, captioned
         Fuhrman v. Hermelin et al., was filed in state court in St. Louis,
         Missouri against the Company, as nominal defendant, and seven present
         or former officers and directors, alleging that defendants had
         breached their fiduciary duties and engaged in unjust enrichment in
         connection with the granting, dating, expensing and accounting
         treatment of past grants of stock options between 1995 and 2002 to
         six current or former directors or officers. Relief sought included
         damages, disgorgement of backdated stock options and their proceeds,
         attorneys' fees, and equitable relief. On February 26, 2007, the
         Fuhrman lawsuit was dismissed without prejudice by the plaintiff in
         state court, and a lawsuit, captioned Krasick v. Hermelin et al., was
         filed in the U.S. District Court for the Eastern District of Missouri
         by the same law firms as in the Fuhrman lawsuit, with a different
         plaintiff. The Krasick lawsuit was also a shareholder derivative suit
         filed against the Company, as nominal defendant, and 19 present or
         former officers and directors. The complaint asserted within its
         fiduciary duties claims allegations that the officers and/or
         directors of KV improperly (including through collusion and aiding
         and abetting) backdated stock option grants in violation of
         shareholder-approved plans, improperly recorded and accounted for the
         allegedly backdated options in violation of GAAP, improperly took tax
         deductions under the Internal Revenue Code, disseminated and filed
         false financials and false SEC filings in violation of federal
         securities laws and rules thereunder, and engaged in insider trading
         and


                                      47

<PAGE>
<PAGE>

         misappropriation of information. Relief sought included damages, a
         demand for accounting and recovery of the benefits allegedly
         improperly received, rescission of the allegedly backdated stock
         options and disgorgement of their proceeds, and reasonable attorney's
         fees, in addition to equitable relief, including an injunction to
         require the Company to change certain of its corporate governance and
         internal control procedures. On May 11, 2007, the Company learned of
         the filing of another lawsuit, captioned Gradwell v. Hermelin et al.,
         also in the U.S. District Court for the Eastern District of Missouri.
         The complaint was brought by the same law firms that brought the
         Krasick litigation and was substantively the same as in the Krasick
         litigation, other than being brought on behalf of a different
         plaintiff and eliminating one individual defendant from the suit. On
         July 18, 2007, the Krasick and Gradwell suits were refiled as a
         consolidated action in U.S. District Court for the Eastern District
         of Missouri, styled In re K-V Pharmaceutical Company Derivative
         Litigation, which was substantively the same as the Krasick and
         Gradwell suits. The Company moved to terminate the litigation based
         on a determination by members of a Special Committee of the Board of
         Directors that continuation of the litigation was not in the best
         interest of KV and its shareholders. All individual officer and
         director defendants joined in that motion. Plaintiffs filed a motion
         for rule to show cause why the defendants' motion to terminate the
         lawsuit should not be stricken and dismissed. On February 15, 2008,
         the court stayed proceedings in the case until April 9, 2008, to
         permit mediation pursuant to the parties' stipulation. Mediation
         occurred on April 2, 2008. On May 23, 2008, all remaining parties to
         the litigation filed a proposed settlement with the court which, if
         approved by the court, would resolve all claims asserted in the
         Action. The proposed settlement provides for a payment of fees and
         expenses to plaintiffs' counsel not to exceed $1,650, which amount is
         expected to be covered by insurance. The proposed settlement received
         preliminary approval by the court on June 3, 2008. Notice of the
         terms of the settlement has been mailed to all shareholders of record
         as of May 23, 2008 and a final fairness hearing has been scheduled by
         the court to be conducted on August 26, 2008.

         In the course of the Special Committee's investigation, by letter
         dated December 18, 2006, the Company was notified by the SEC staff
         that it had commenced an investigation with respect to the Company's
         stock option plans, grants, exercises, and accounting treatment. The
         Company has cooperated with the SEC staff in its investigation and,
         among other things, has provided them with copies of the Special
         Committee's report and all documents collected by the Special
         Committee in the course of its review. In December 2007, the SEC
         staff, pursuant to a formal order of investigation, issued subpoenas
         for additional documents and testimony by certain employees. The
         production of additional documents called for by the subpoena and the
         testimony of the employees was completed in May 2008.

         The Company has received a subpoena from the Office of Inspector
         General of the Department of Health and Human Services, seeking
         documents with respect to two of ETHEX's nitroglycerin products. Both
         are unapproved products, that is, they have not received FDA
         approval. (FDA approval is not necessarily required for all drugs to
         be sold in the marketplace, such as pre-1938 "grandfathered" products
         or certain drugs reviewed under the so-called DESI process. The
         Company believes that its two products come within these exceptions.)
         The subpoena states that it is in connection with an investigation
         into potential false claims under Title 42 of the U.S. Code, and
         appears to pertain to whether these products are eligible for
         reimbursement under federal health care programs, such as Medicaid
         and VA programs.

         Resolution of any of the matters discussed above could have a
         material adverse effect on the Company's results of operations or
         financial condition.

         From time to time, the Company is involved in various other legal
         proceedings in the ordinary course of its business. While it is not
         feasible to predict the ultimate outcome of such other proceedings,
         the Company believes the ultimate outcome of such other proceedings
         will not have a material adverse effect on its results of operations
         or financial condition.

         There are uncertainties and risks associated with all litigation and
         there can be no assurance the Company will prevail in any particular
         litigation.



                                      48

<PAGE>
<PAGE>

13.      EMPLOYMENT AGREEMENTS
         ---------------------

         The Company has employment agreements with certain officers and key
         employees which extend for one to five years. These agreements
         provide for base levels of compensation and, in certain instances,
         also provide for incentive bonuses and separation benefits. Also, the
         agreement with the Chief Executive Officer ("CEO") contains
         provisions for partial salary continuation under certain conditions,
         contingent upon non-compete restrictions and providing consulting
         services to the Company as specified in the agreement. In addition,
         the CEO is entitled to receive retirement compensation paid in the
         form of a single annuity equal to 30% of the CEO's final average
         compensation payable each year beginning at retirement and continuing
         for the longer of ten years or the life of the CEO. In accordance
         with this agreement, the Company recognized retirement expense of
         $2,232, $877 and $965 for the years ended March 31, 2008, 2007 and
         2006, respectively.

14.      GAIN FROM LEGAL SETTLEMENT
         --------------------------

         In January 2007, the Company received a $3,600 payment from an
         insurance company in accordance with a settlement agreement entered
         into with the insurance company for insurance coverage associated
         with the Healthpoint litigation. The payment was reflected by the
         Company in the "Selling and Administrative" expense line item of
         operating income for the year ended March 31, 2007 and was recorded
         net of approximately $1,192 of attorney-related fees.

15.      INCOME TAXES
         ------------

         The income tax provisions for the years ended March 31, 2008, 2007
         and 2006, are based on estimated federal and state taxable income
         using the applicable statutory rates. The current and deferred
         federal and state income tax provisions, excluding income taxes
         related to the cumulative effect of a change in accounting, for the
         years ended March 31, 2008, 2007 and 2006 are as follows:

<TABLE>
<CAPTION>
                                                                              2008             2007              2006
                                                                              ----             ----              ----
                  <C>                                                       <C>              <C>               <C>
                  PROVISION
                     Current:
                        Federal...............................              $ 44,280         $ 23,434          $ 17,035
                        State.................................                 3,414            1,918             1,552
                                                                            --------         --------          --------
                                                                              47,694           25,352            18,587
                                                                            --------         --------          --------
                     Deferred:
                        Federal...............................                (4,073)           7,042             5,521
                        State.................................                  (312)             564               325
                                                                            --------         --------          --------
                                                                              (4,385)           7,606             5,846
                                                                            --------         --------          --------
                                                                            $ 43,309         $ 32,958          $ 24,433
                                                                            ========         ========          ========
</TABLE>

The reasons for the differences between the provision for income taxes and the
expected federal income taxes at the U.S. statutory rate are as follows:


<TABLE>
<CAPTION>
                                                                              2008             2007              2006
                                                                              ----             ----              ----
                  <C>                                                      <C>               <C>              <C>
                  Expected income tax expense.................             $  46,082         $ 31,175         $  12,547
                  Purchased in-process research
                     and development..........................                    --               --            10,654
                  State income taxes, net of
                     federal income tax benefit...............                 2,016            1,613             1,218
                  Business credits............................                (1,213)            (945)             (831)
                  Domestic manufacturer deduction.............                (2,829)            (707)             (512)
                  Adjustment to unrecognized tax benefits.....                (2,464)           1,910             1,712
                  Other ......................................                 1,717              (88)             (355)
                                                                           ---------         --------         ---------
                  Provision for income tax expense............             $  43,309         $ 32,958         $  24,433
                                                                           =========         ========         =========
</TABLE>

                                      49

<PAGE>
<PAGE>


         As of March 31, 2008 and 2007, the tax effect of temporary
         differences between the tax basis of assets and liabilities and their
         financial reporting amounts are as follows:

<TABLE>
<CAPTION>
                                                                   2008                                         2007
                                                     --------------------------------            ---------------------------------
                                                      CURRENT             NON-CURRENT             CURRENT              NON-CURRENT
                                                      -------             -----------             -------              -----------
         <C>                                         <C>                  <C>                    <C>                   <C>
         Fixed asset basis differences........       $      --            $  (16,996)            $      --             $  (14,121)
         Reserves for inventory and
            receivables.......................          14,728                    --                10,307                     --
         Accrued compensation.................           1,612                    --                    --                     --
         Deferred compensation................              --                 3,138                    --                  2,320
         Amortization.........................              --                 2,120                    --                 (3,440)
         Convertible notes interest...........              --               (30,305)                   --                (22,766)
         Stock-based compensation.............           2,592                    --                 1,525                     --
         Payroll taxes........................           3,227                    --                 2,196                     --
         Other................................             653                 2,744                   336                     --
                                                     ---------            ----------             ---------             ----------
            Net deferred tax asset (liability)       $  22,812            $  (39,299)            $  14,364             $  (38,007)
                                                     =========            ==========             =========             ==========
</TABLE>

         In assessing the realizability of deferred tax assets, management
         considers whether it is more likely than not that some portion or all
         of the deferred tax assets will not be realized. The ultimate
         realization of deferred tax assets is dependent upon the generation
         of future taxable income during the periods in which those temporary
         differences become deductible. Management considers the timing of
         deferred tax liability reversals and projected future taxable income.
         Based upon the level of historical taxable income and projections for
         future taxable income over the periods in which the temporary
         differences are deductible, management believes it more likely than
         not the Company will realize the benefits of these deductible
         differences.

         An income tax benefit has resulted from the determination that
         certain non-qualified stock options for which stock-based
         compensation expense was recorded will create an income tax
         deduction. This tax benefit has resulted in an increase to the
         Company's deferred tax assets for stock options prior to the
         occurrence of a taxable event or the forfeiture of the related
         options. Upon the occurrence of a taxable event or forfeiture of the
         underlying options, the corresponding deferred tax asset is reversed
         and the excess or deficiency in the deferred tax asset is recorded to
         paid-in capital in the period in which the taxable event or
         forfeiture occurs.

         The Company paid income taxes of $49,862, $22,134, and $15,482 during
         the years ended March 31, 2008, 2007 and 2006, respectively.

         The Company adopted FIN 48 effective April 1, 2007. The adoption of
         FIN 48 was not material to the Company's consolidated financial
         position, however, certain reclassifications of various income tax
         related balance sheet amounts were required.

         Upon adoption of FIN 48, the Company had $12,980 of gross
         unrecognized tax benefits, of which $12,980 represents the amount of
         unrecognized tax benefits that, if recognized, would favorably affect
         the effective income tax rate in future periods.



                                      50

<PAGE>
<PAGE>

         A reconciliation of the unrecognized tax benefits at the beginning
and end of the period is as follows:

<TABLE>
                  <C>                                                                                                 <C>
                  Balance of unrecognized tax benefits at April 1, 2007                                               $ 12,980

                  Increase/(decrease) in unrecognized tax benefits
                  resulting from tax positions taken during current period                                               1,347

                  Increase/(decrease) in unrecognized tax benefits
                  resulting from tax positions taken in prior periods                                                        0

                  Reduction to unrecognized tax benefits as a result
                  of a settlement with taxing authorities                                                                    0

                  Reduction to unrecognized tax benefits as a result
                  of the lapse of the applicable statute of limitations                                                 (2,670)
                                                                                                                      --------

                  Balance of unrecognized tax benefits at March 31, 2008                                              $ 11,657
                                                                                                                      ========
</TABLE>

         The Company recognizes interest and penalties associated with
         uncertain tax positions as a component of income tax expense. At
         April 1, 2007, the Company had accrued $1,950 for interest and
         penalties. Through March 31, 2008, the Company accrued an additional
         $1,450 of interest and penalties and released $1,248 of interest and
         penalties as a result of the expiration of the statute of
         limitations. As of March 31, 2008, the accrual for interest and
         penalties was $2,152.

         It is anticipated the Company will recognize approximately $1,100 of
         unrecognized tax benefits within the next 12 months. This recognition
         is as a result of the expected expiration of the relevant statute of
         limitations.

         The Company is subject to taxation in the U.S. and various states and
         is subject to examination by those authorities. The Company's federal
         statute of limitations has expired for fiscal years prior to 2005 and
         the relevant state statutes vary. The Company currently is being
         audited by the IRS for its March 31, 2006 and 2007 tax years. The IRS
         is also currently auditing the employment tax returns of the Company
         for calendar years 2004, 2005, 2006 and 2007. Various information
         requests with respect to the periods under audit have been received
         and responded to. The Company expects the IRS to issue additional
         information requests. The Company does not have any state
         examinations in progress at this time.

         Management regularly reevaluates the Company's tax positions taken on
         filed tax returns using information about recent court decisions and
         legislative activities. Many factors are considered in making these
         evaluations, including past history, recent interpretations of tax
         law, and the specific facts and circumstances of each matter. Because
         tax law and regulations are subject to interpretation and tax
         litigation is inherently uncertain, these evaluations can involve a
         series of complex judgments about future events and can rely heavily
         on estimates and assumptions. The recorded tax liabilities are based
         on estimates and assumptions that have been deemed reasonable by
         management. However, if the Company's estimates are not
         representative of actual outcomes, recorded tax liabilities could be
         materially impacted.

         The Company determined that certain options previously classified as
         ISO grants were determined to have been granted with an exercise
         price below the fair market value of the Company's stock on the
         revised measurement dates. Under Internal Revenue Code Section 422,
         ISOs may not be granted with an exercise price less than the fair
         market value on the date of grant, and therefore these grants would
         not likely qualify for ISO tax treatment. The disqualification of ISO
         classification exposes the Company and the affected employees to
         payroll related withholding taxes once the underlying shares are
         released from the post exercise two-year forfeiture period and the
         substantial risk of forfeiture has lapsed, which creates a taxable
         event. The Company and the affected employees may also be subject to
         interest and penalties for failing to properly withhold taxes and
         report the taxable event on their respective tax returns. The Company
         is currently reviewing the potential disqualification of ISO grants
         and the related withholding tax implications with the IRS in an
         effort to reach agreement on the


                                      51

<PAGE>
<PAGE>

         resulting tax liability. The Company recorded liabilities related to
         this matter of $9,765 as of March 31, 2008 in accrued liabilities on
         the consolidated balance sheet.

16.      STOCK-BASED COMPENSATION
         ------------------------

         In August 2002, the Company's shareholders approved KV's 2001
         Incentive Stock Option Plan (the "2001 Plan"), which allows for the
         issuance of up to 4,500 shares of common stock. Under the Company's
         stock option plan, options to acquire shares of common stock have
         been made available for grant to certain employees. Each option
         granted has an exercise price of not less than 100% of the market
         value of the common stock on the date of grant. The contractual life
         of each option is generally ten years and the options vest at the
         rate of 10% per year from the date of grant.

         The Company estimates the fair value of stock options granted using
         the Black-Scholes option pricing model (the "Option Model"). The
         Option Model requires the use of subjective and complex assumptions,
         including the option's expected term and the estimated future price
         volatility of the underlying stock, which determine the fair value of
         the share-based awards. The Company's estimate of expected term was
         determined based on the average period of time that options granted
         are expected to be outstanding considering current vesting schedules
         and the historical exercise patterns of existing option plans and the
         two-year forfeiture period. The expected volatility assumption used
         in the Option Model is based on historical volatility over a period
         commensurate with the expected term of the related options. The
         risk-free interest rate used in the Option Model is based on the
         yield of U.S. Treasuries with a maturity closest to the expected term
         of the Company's stock options.

         The Company's stock option agreements include a post-exercise service
         condition which provides that exercised options are to be held by the
         Company for a two-year period during which time the shares can not be
         sold by the employee. If the employee terminates employment
         voluntarily or involuntarily (other than by retirement, death or
         disability) during the two-year period, the stock option agreements
         provide the Company with the option of repurchasing the shares at the
         lower of the exercise price or the fair market value of the stock on
         the date of termination. This repurchase option is considered a
         forfeiture provision and the two-year period is included in
         determining the requisite service period over which stock-based
         compensation expense is recognized. The requisite service period
         initially is equal to the expected term (as discussed above) and is
         revised when an option exercise occurs.

         If stock options expire unexercised or an employee terminates
         employment after options become exercisable, no compensation expense
         associated with the exercisable, but unexercised, options is
         reversed. In those instances where an employee terminates employment
         before options become exercisable or the Company repurchases the
         shares during the two-year forfeiture period, compensation expense
         for these options is reversed as a forfeiture.

         When an employee exercises stock options, the exercise proceeds
         received by the Company are recorded as a deposit and classified as a
         current liability for the two-year forfeiture period. The shares
         issuable upon exercise of these options are accounted for as issued
         when the two-year forfeiture period lapses. Until the two-year
         forfeiture requirement is met, the underlying shares are not
         considered outstanding and not included in calculating basic earnings
         per share. In accordance with the provisions of SFAS 123R,
         share-based compensation expense recognized during a period is based
         on the value of the portion of share-based awards that are expected
         to vest with employees. Accordingly, the recognition of share-based
         compensation expense beginning April 1, 2006 has been reduced for
         estimated future forfeitures. SFAS 123R requires forfeitures to be
         estimated at the time of grant with adjustments recorded in
         subsequent period compensation expense if actual forfeitures differ
         from those estimates. Prior to adoption, the Company accounted for
         forfeitures as they occurred for the disclosure of pro forma
         information presented in the Notes to Consolidated Financial
         Statements for prior periods. Upon adoption of SFAS 123R on April 1,
         2006, the Company recognized the cumulative effect of a change in
         accounting principle to reflect the effect of estimated forfeitures
         related to outstanding awards that are not expected to vest as of the
         adoption date. For the year ended March 31, 2007, the cumulative
         adjustment increased net income by $1,976, net of tax, and increased
         diluted earnings per share for Class A and Class B shares by $0.03
         and $0.03, respectively.

                                      52

<PAGE>
<PAGE>

         The Company recognized, in accordance with SFAS 123R, stock-based
         compensation expense of $5,205 and $3,984, respectively, and related
         tax benefits of $1,250 and $1,134, respectively, for the years ended
         March 31, 2008 and 2007. Stock-based compensation expense of $927 and
         a related tax benefit of $286 were recognized in the year ended March
         31, 2006. There was no stock-based employee compensation cost
         capitalized as of March 31, 2008 or 2007. Cash received as deposits
         for option exercises was $1,514, $4,264, and $1,187 and the actual
         tax benefit realized for the tax deductions from option exercises (at
         expiration of two-year forfeiture period) was $1,522, $934, and
         $1,709 for 2008, 2007 and 2006, respectively.

         The following weighted average assumptions were used for stock
         options granted during the years ended March 31, 2008, 2007 and 2006:

<TABLE>
<CAPTION>
                                                                      YEARS ENDED MARCH 31,
                                                             ---------------------------------------
                                                               2008           2007            2006
                                                               ----           ----            ----
         <C>                                                <C>            <C>             <C>
         Dividend yield...........................               None           None            None
         Expected volatility......................                42%            45%             48%
         Risk-free interest rate..................              4.53%          4.93%           4.91%
         Expected term............................          9.0 years      8.9 years       8.8 years
         Weighted average fair value per
            share at grant date...................          $   15.40      $   12.98       $   12.74
</TABLE>

         A summary of the changes in the Company's stock option plan for the
         years ended March 31, 2008, 2007 and 2006 consisted of the following:

<TABLE>
<CAPTION>
                                                                          WEIGHTED AVERAGE
                                                                    -----------------------------
                                                                                        REMAINING      AGGREGATE
                                                                    EXERCISE            EXPECTED       INTRINSIC
                                                      SHARES         PRICE                TERM           VALUE
                                                      ------         -----                ----           -----
     <C>                                              <C>           <C>                 <C>            <C>
     Balance, March 31, 2005...............            3,853        $ 12.53
     Options granted.......................              955          18.99
     Options exercised.....................             (481)          5.80                            $ 8,519
     Options canceled......................             (401)         14.59
                                                      ------
     Balance, March 31, 2006...............            3,926          14.71
     Options granted.......................              555          21.64
     Options exercised.....................             (360)          8.80                              5,631
     Options canceled......................             (455)         16.62
                                                      ------
     Balance, March 31, 2007...............            3,666          16.11
     Options granted.......................              944          27.02
     Options exercised.....................             (184)          5.19                              3,644
     Options canceled......................             (493)         19.28
                                                      ------
     Balance, March 31, 2008...............            3,933        $ 18.84               5.8          $24,114
                                                      ======

     Expected to vest at
          March 31, 2008...................            3,048        $ 18.84               5.8          $18,688

     Options exercisable at March 31, 2008
      (excluding shares in the two-year
          forfeiture period)...............            1,197       $  16.64               5.1          $10,210
</TABLE>

         As of March 31, 2008, the Company had $42,137 of total unrecognized
         compensation expense, related to stock option grants, which will be
         recognized over the remaining weighted average period of 5.0 years.

                                      53

<PAGE>
<PAGE>

17.      EMPLOYEE BENEFITS
         -----------------

         PROFIT SHARING PLAN

         The Company has a qualified trustee profit sharing plan (the "Plan")
         covering substantially all non-union employees. The Company's annual
         contribution to the Plan, as determined by the Board of Directors, is
         discretionary and was $500, $500 and $400 for the years ended March
         31, 2008, 2007 and 2006, respectively. The Plan includes features as
         described under Section 401(k) of the Internal Revenue Code.

         The Company's contributions to the 401(k) investment funds are 50% of
         the first 7% of the salary contributed by each participant.
         Contributions of $2,477, $2,227 and $1,877 were made to the 401(k)
         investment funds for the years ended March 31, 2008, 2007 and 2006,
         respectively.

         PENSION PLANS

         Contributions are made to a multi-employer defined benefit plan
         administered by Teamsters Negotiated Pension Plan for certain union
         employees. In the event of a withdrawal from the multi-employer
         pension plan, the Company would incur an obligation to the plan for
         the portion of the unfunded benefit obligation applicable to its
         employees covered by the plan. Amounts charged to pension expense and
         contributed to this plan were $170, $197 and $180 for the years ended
         March 31, 2008, 2007 and 2006, respectively.

         In January 2008,133 employees represented by the Teamsters Union
         voted to decertify union representation effective February 7, 2008.
         As a result of the decertification, the Company recorded in fiscal
         2008 a withdrawal liability of $923 for the portion of the unfunded
         benefit obligation associated with the multi-employer pension plan
         administered by the union applicable to its employees covered by the
         plan.

         HEALTH AND MEDICAL INSURANCE PLAN

         The Company contributes to health and medical insurance programs for
         its non-union and union employees. For non-union employees, the
         Company self-insures the first $150,000 of each employee's covered
         medical claims. In fiscal 2005, the Company established a Voluntary
         Employees' Beneficiary Association ("VEBA") for its non-union
         employees to fund payments made by the Company for covered medical
         claims. As a result of funding this plan, the Company's liability for
         claims incurred but not reported was reduced by $797 and $935 at
         March 31, 2008 and 2007, respectively. For union employees, the
         Company participated in a fully funded insurance plan sponsored by
         the union. The Company's participation in the union plan ended as a
         result of the decertification of union representation effective
         February 7, 2008. Total health and medical insurance expense for the
         two plans was $13,731, $12,029 and $9,662 for the years ended March
         31, 2008, 2007 and 2006, respectively.

18.      RELATED PARTY TRANSACTIONS
         --------------------------

         The Company currently leases certain real property from an affiliated
         partnership of the Chairman and CEO of the Company. Lease payments
         made for this property for the years ended March 31, 2008, 2007 and
         2006 totaled $303, $296, and $284, respectively.

19.      EQUITY TRANSACTIONS
         -------------------

         As of March 31, 2008 and 2007, the Company had 40,000 shares of 7%
         Cumulative Convertible Preferred Stock (par value $.01 per share)
         outstanding at a stated value of $25 per share. The preferred stock
         is non-voting with dividends payable quarterly. The preferred stock
         is redeemable by the Company at its stated value. Each share of
         preferred stock is convertible into Class A Common Stock at a
         conversion price of $2.96 per share. The preferred stock has a
         liquidation preference of $25 per share plus all accrued but unpaid
         dividends prior to any liquidation distributions to holders of Class
         A or Class B Common Stock. No dividends may be paid on Class A or
         Class B Common Stock unless all dividends on the Cumulative
         Convertible Preferred Stock have been declared and paid.


                                     54

<PAGE>
<PAGE>

         There were no undeclared and accrued cumulative preferred dividends
         at March 31, 2008 and 2007. Also, under the terms of its credit
         agreement, the Company may not pay cash dividends in excess of 25% of
         the prior fiscal year's consolidated net income.

         The Company has reserved 750,000 shares of Class A Common Stock for
         issuance under KV's 2002 Consultants Plan. These shares may be issued
         from time to time in consideration for consulting and other services
         provided to the Company by independent consultants. Since inception
         of this plan, the Company has issued 47,732 Class A shares as payment
         for certain milestones under product development agreements.

         Holders of Class A Common Stock are entitled to receive dividends per
         share equal to 120% of the dividends per share paid on the Class B
         Common Stock and have one-twentieth vote per share in the election of
         directors and on other matters.

         Under the terms of the Company's current loan agreement (see Note
         10), the Company has limitations on paying dividends, except in
         stock, on its Class A and Class B Common Stock. Payment of dividends
         may also be restricted under Delaware corporation law.

         In accordance with the Special Committee's investigation of the
         Company's stock option grant practices, a remediation plan was
         developed by the Committee that recommended reimbursement of $1,401
         by the Company's CEO. The recommended reimbursement was made by the
         CEO in November 2007 by delivery to the Company of 45,531 shares of
         Class A Common Stock.





                                     55

<PAGE>
<PAGE>

20.      EARNINGS PER SHARE
         ------------------

         The following table sets forth the computation of basic and diluted
         earnings per share:

<TABLE>
<CAPTION>

                                                                2008                       2007                      2006
                                                        CLASS A      CLASS B      CLASS A       CLASS B      CLASS A        CLASS B
                                                       --------      --------     --------      --------     -------        -------
<C>                                                    <C>           <C>          <C>           <C>          <C>            <C>
Basic earnings per share:
    Numerator:
      Allocation of undistributed earnings before
        cumulative effect of change in accounting
        principle                                      $ 69,317      $ 18,967     $ 43,768      $ 12,276     $  8,725       $ 2,621
      Allocation of cumulative effect of
        change in accounting principle                        -             -        1,543           433            -             -
                                                       --------      --------     --------      --------     --------       -------
      Allocation of undistributed earnings             $ 69,317      $ 18,967     $ 45,311      $ 12,709     $  8,725       $ 2,621
                                                       ========      ========     ========      ========     ========       =======
    Denominator:
      Weighted average shares outstanding                37,582        12,299       37,180        12,455       36,277        13,065
      Less - weighted average unvested
        common shares subject to repurchase                (432)         (101)        (367)          (65)        (435)         (147)
                                                       --------      --------     --------      --------     --------       -------
      Number of shares used in per
        share computations                               37,150        12,198       36,813        12,390       35,842        12,918
                                                       ========      ========     ========      ========     ========       =======

Basic earnings per share before cumulative
    effect of change in accounting principle           $   1.87      $   1.55     $   1.19      $   0.99     $   0.24       $  0.20
Per share effect of cumulative effect of
    change in accounting principle                            -             -         0.04          0.04            -             -
                                                       --------      --------     --------      --------     --------       -------
Basic earnings per share                               $   1.87      $   1.55     $   1.23      $   1.03     $   0.24       $  0.20
                                                       ========      ========     ========      ========     ========       =======

Diluted earnings per share:
    Numerator:
      Allocation of undistributed earnings
        for basic computation before cumulative
        effect of change in accounting principle       $ 69,317      $ 18,967     $ 43,768      $ 12,276     $  8,725       $ 2,621
      Reallocation of undistributed earnings as a
        result of conversion of Class B to
        Class A shares                                   18,967             -       12,276             -        2,621             -
      Reallocation of undistributed earnings to
        Class B shares                                        -        (2,344)           -        (1,297)           -           (12)
      Add - preferred stock dividends                        70             -           70             -           70             -
      Add - interest expense convertible notes            4,388             -        3,883             -            -             -
                                                       --------      --------     --------      --------     --------       -------
      Allocation of undistributed earnings
        for diluted computation before cumulative
        effect of change in accounting principle         92,742        16,623       59,997        10,979       11,416         2,609
      Allocation of cumulative effect of
        change in accounting principle                        -             -        1,976           362            -             -
                                                       --------      --------     --------      --------     --------       -------
      Allocation of undistributed earnings             $ 92,742      $ 16,623     $ 61,973      $ 11,341     $ 11,416       $ 2,609
                                                       ========      ========     ========      ========     ========       =======

      (CONTINUED)


                                     56

<PAGE>
<PAGE>

<CAPTION>
                                                       -----------------------------------------------------------------------------
                                                                  2008                       2007                       2006
                                                       ------------------------   ------------------------   -----------------------
                                                         CLASS A      CLASS B       CLASS A      CLASS B       CLASS A     CLASS B
                                                       -----------  -----------   -----------  -----------   -----------  ----------
<C>                                                    <C>          <C>           <C>          <C>           <C>          <C>
Diluted earnings per share (continued):
  Denominator:
    Number of shares used in basic computation            37,150       12,198        36,813       12,390        35,842       12,918
    Weighted average effect of dilutive securities:
      Conversion of Class B to Class A shares             12,198            -        12,390            -        12,918            -
      Employee stock options                                 766           83           720           99           899          195
      Convertible preferred stock                            338            -           338            -           338            -
      Convertible notes                                    8,692            -         8,692            -             -            -
                                                       ---------    ---------     ---------    ---------     ---------    ---------
    Number of shares used in per share
      computations                                        59,144       12,281        58,953       12,489        49,997       13,113
                                                       =========    =========     =========    =========     =========    =========

Diluted earnings per share before cumulative
    effect of change in accounting principle           $    1.57    $    1.35     $    1.02    $    0.88     $    0.23    $    0.20
Per share effect of cumulative effect of
    change in accounting principle                             -            -          0.03         0.03             -            -
                                                       ---------    ---------     ---------    ---------     ---------    ---------
Diluted earnings per share (1) (2)                     $    1.57    $    1.35     $    1.05    $    0.91     $    0.23    $    0.20
                                                       ==========   =========     =========    =========     =========    =========

<FN>
---------------------------
(1)           Excluded from the computation of diluted earnings per share were
              outstanding stock options whose exercise prices were greater
              than the average market price of the common shares for the
              period reported. For the years ended March 31, 2008, 2007 and
              2006, excluded from the computation were options to purchase
              649, 216 and 291 of Class A and Class B common shares,
              respectively.

(2)           For the year ended March 31, 2006, the $200,000 principal amount
              of Notes convertible into 8,692 shares of Class A Common Stock
              were excluded from the computation of diluted earnings per share
              because their effect would have been anti-dilutive.
</TABLE>

21.      SEGMENT REPORTING
         -----------------

         The reportable operating segments of the Company are branded
         products, specialty generic/non-branded and specialty materials. The
         branded products segment includes patent-protected products and
         certain trademarked off-patent products that the Company sells and
         markets as brand pharmaceutical products. The specialty generics
         segment includes off-patent pharmaceutical products that are
         therapeutically equivalent to proprietary products. The Company sells
         its branded and generic/non-branded products primarily to
         pharmaceutical wholesalers, drug distributors and chain drug stores.
         The specialty materials segment is distinguished as a single segment
         because of differences in products, marketing and regulatory approval
         when compared to the other segments.

         Accounting policies of the segments are the same as the Company's
         consolidated accounting policies. Segment profits are measured based
         on income before taxes and are determined based on each segment's
         direct revenues and expenses. The majority of research and
         development expense, corporate general and administrative expenses,
         amortization and interest expense, as well as interest and other
         income, are not allocated to segments, but included in the "all
         other" classification. Identifiable assets for the three reportable
         operating segments primarily include receivables, inventory, and
         property and equipment. For the "all other" classification,
         identifiable assets consist of cash and cash equivalents, corporate
         property and equipment, intangible and other assets and all income
         tax related assets.


                                     57

<PAGE>
<PAGE>

         The following represents information for the Company's reportable
operating segments for fiscal 2008, 2007 and 2006.

<TABLE>
<CAPTION>
                                     YEAR
                                     ENDED       BRANDED      SPECIALTY     SPECIALTY     ALL
                                   MARCH 31,     PRODUCTS     GENERICS      MATERIALS    OTHER    ELIMINATIONS     CONSOLIDATED
                                   ---------     --------     --------      ---------    -----    ------------     ------------
   ------------------------------------------------------------------------------------------------------------------------------
<C>                                   <C>        <C>          <C>            <C>      <C>         <C>               <C>
   NET REVENUES
                                      2008       $214,863     $367,862       $18,020     $1,151   $        -        $601,896
                                      2007        188,681      235,594        17,436      1,916            -         443,627
                                      2006        145,503      203,787        16,988      1,362            -         367,640
   ------------------------------------------------------------------------------------------------------------------------------
   SEGMENT PROFIT (LOSS)
                                      2008         95,143      218,111         5,900   (187,491)           -         131,663
                                      2007         87,346      125,596         2,799   (126,669)           -          89,072
                                      2006         58,704      100,731         1,082   (124,668)           -          35,849
   ------------------------------------------------------------------------------------------------------------------------------
   IDENTIFIABLE ASSETS
                                      2008         39,955       99,567         7,990    722,673       (1,158)        869,027
                                      2007         32,995       84,581         8,410    582,955       (1,158)        707,783
                                      2006         23,582       62,953         7,353    526,583       (1,158)        619,313
   ------------------------------------------------------------------------------------------------------------------------------
   PROPERTY AND EQUIPMENT ADDITIONS
                                      2008            257            -           119     23,280            -          23,656
                                      2007             96            -           108     24,862            -          25,066
                                      2006            540        1,097           269     56,428            -          58,334
   ------------------------------------------------------------------------------------------------------------------------------
   DEPRECIATION AND AMORTIZATION
                                      2008            753          319           177     29,871            -          31,120
                                      2007            709          338           163     21,178            -          22,388
                                      2006            587          317           173     16,925            -          18,002
   ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Consolidated revenues are principally derived from customers in North
         America and substantially all property and equipment is located in
         the St. Louis, Missouri metropolitan area.

22.      QUARTERLY FINANCIAL RESULTS (UNAUDITED)
         ---------------------------------------

<TABLE>
<CAPTION>
                                                 1ST            2ND            3RD           4TH           FULL
                                               QUARTER        QUARTER        QUARTER       QUARTER         YEAR
                                              --------------------------------------------------------------------
YEAR ENDED MARCH 31, 2008
-------------------------
<C>                                           <C>             <C>            <C>          <C>             <C>
Net revenues                                  $ 114,358       $172,925       $161,623     $ 152,990       $601,896
Gross profit                                     74,788        127,793        111,627       101,133        415,341
Income before income taxes                        9,917         62,002         46,093        13,651        131,663
Net income                                        6,200         40,223         32,612         9,319         88,354

Earnings per share:
   Basic - Class A common                          0.13           0.85           0.69          0.20           1.87
   Basic - Class B common                          0.11           0.71           0.57          0.16           1.55
   Diluted - Class A common                        0.12           0.70           0.57          0.18           1.57
   Diluted - Class B common                        0.10           0.60           0.49          0.15           1.35



                                     58

<PAGE>
<PAGE>

<CAPTION>
                                                          1ST            2ND            3RD           4TH           FULL
                                                        QUARTER        QUARTER        QUARTER       QUARTER         YEAR
                                                        ---------------------------------------------------------------------
YEAR ENDED MARCH 31, 2007
-------------------------
<C>                                                     <C>            <C>            <C>           <C>             <C>
 Net revenues........................................   $ 96,200       $108,983       $ 117,949       $120,495       $443,627
 Gross profit........................................     62,738         70,104          79,510         84,012        296,364
 Income before income taxes and cumulative
      effect of change in accounting principle.......     13,335         19,655          28,048         28,034         89,072
 Income before cumulative effect of change
      in accounting principle........................      8,122         12,085          18,462         17,445         56,114
 Cumulative effect of change in accounting
      principle......................................      1,976              -               -              -          1,976
 Net income..........................................     10,098         12,085          18,462         17,445         58,090

Earnings per share before effect of change
  in accounting principle:
        Basic - Class A common.......................      $0.17          $0.26           $0.39          $0.37          $1.19
        Basic - Class B common.......................       0.14           0.21            0.33           0.31           0.99
        Diluted - Class A common.....................       0.15           0.22            0.33           0.31           1.02
        Diluted - Class B common.....................       0.13           0.19            0.29           0.27           0.88
Per share effect of cumulative effect of
  change in accounting principle:
        Basic - Class A common.......................       0.04              -               -              -           0.04
        Basic - Class B common.......................       0.04              -               -              -           0.04
        Diluted - Class A common.....................       0.04              -               -              -           0.03
        Diluted - Class B common.....................       0.03              -               -              -           0.03
Earnings per share:
        Basic - Class A common.......................       0.21           0.26            0.39           0.37           1.23
        Basic - Class B common.......................       0.18           0.21            0.33           0.31           1.03
        Diluted - Class A common.....................       0.19           0.22            0.33           0.31           1.05
        Diluted - Class B common.....................       0.16           0.19            0.29           0.27           0.91
</TABLE>



                                     59

<PAGE>
<PAGE>

Report of Independent Registered Public Accounting Firm
-------------------------------------------------------


The Board of Directors and Shareholders
K-V Pharmaceutical Company:

We have audited K-V Pharmaceutical Company's (the Company) internal control
over financial reporting as of March 31, 2008, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's
Report on Internal Control Over Financial Reporting, appearing under Item
9A(a). Our responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company's annual or interim
financial statements will not be prevented or detected on a timely basis. A
material weakness has been identified and included in management's assessment
that states the Company had inadequate policies and procedures over the
accounting for customer rebates.



                                     60

<PAGE>
<PAGE>

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
K-V Pharmaceutical Company and subsidiaries as of March 31, 2008 and 2007, and
the related consolidated statements of income, comprehensive income,
shareholders' equity and cash flows for each of the years in the three-year
period ended March 31, 2008. This material weakness was considered in
determining the nature, timing and extent of audit tests applied in our audit
of the March 31, 2008 consolidated financial statements, and this report does
not affect our report dated June 25, 2008, which expressed an unqualified
opinion on those consolidated financial statements.

In our opinion, because of the effect of the aforementioned material weakness
on the achievement of the objectives of the control criteria, K-V
Pharmaceutical Company has not maintained effective internal control over
financial reporting as of March 31, 2008, based on criteria established in
Internal Control - Integrated Framework issued by COSO.



St. Louis, Missouri
June 25, 2008






                                     61

<PAGE>
<PAGE>

                                    PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
         ---------------------------------------

<TABLE>
<CAPTION>
(a)      1. Financial Statements:                                                          Page
<C>                                                                                        <C>
         The following consolidated financial statements of the Company are
         included in Part II, Item 8 of this report:

         Report of Independent Registered Public Accounting Firm........................    66

         Consolidated Balance Sheets as of March 31, 2008 and 2007......................    67

         Consolidated  Statements of Income for the Years Ended March 31,
         2008, 2007 and 2006............................................................   68-69

         Consolidated  Statements of Comprehensive Income for the Years
         Ended March 31, 2008, 2007 and 2006............................................    70

         Consolidated Statements of Shareholders' Equity for the Years
         Ended March 31, 2008, 2007 and 2006............................................    71

         Consolidated Statements of Cash Flows for the Years Ended
         March 31, 2008, 2007 and 2006..................................................    72

         Notes to Consolidated Financial Statements.....................................  73-105

         2. Financial Statement Schedules:

         Schedule II - Valuation and Qualifying Accounts................................   115
</TABLE>

(b)      Exhibits. See Exhibit Index on pages 116 through 121 of this Report.
         Management contracts and compensatory plans are designated on the
         Exhibit Index.



                                     62

<PAGE>
<PAGE>

                                  SIGNATURES

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

                                 K-V PHARMACEUTICAL COMPANY


Date: June 27, 2008                 By       /s/  Ronald J. Kanterman
      -------------------             -----------------------------------------
                                     Vice President and Chief Financial Officer
                                     (Principal Financial Officer)




                                       63

<PAGE>
<PAGE>

                                 EXHIBIT INDEX

Exhibit No.                              Description
-----------                              -----------

   3(a)         The Company's Certificate of Incorporation, which was filed
                as Exhibit 3(a) to the Company's Annual Report on Form 10-K
                for the year ended March 31, 1981, is incorporated herein by
                this reference.

   3(b)         Certificate of Amendment to Certificate of Incorporation of
                the Company, effective March 7, 1983, which was filed as
                Exhibit 3(c) to the Company's Annual Report on Form 10-K for
                the year ended March 31, 1983, is incorporated herein by
                this reference.

   3(c)         Certificate of Amendment to Certificate of Incorporation of
                the Company, effective June 9, 1987, which was filed as
                Exhibit 3(d) to the Company's Annual Report on Form 10-K for
                the year ended March 31, 1988, is incorporated herein by
                this reference.

   3(d)         Certificate of Amendment to Certificate of Incorporation of
                the Company, effective September 24, 1987, which was filed
                as Exhibit 3(f) to the Company's Annual Report on Form 10-K
                for the year ended March 31, 1988, is incorporated herein by
                this reference.

   3(e)         Certificate of Amendment to Certificate of Incorporation of
                the Company, effective July 17, 1986, which was filed as
                Exhibit 3(e) to the Company's Annual Report on Form 10-K for
                the year ended March 31, 1996, is incorporated herein by
                this reference.

   3(f)         Certificate of Amendment to Certificate of Incorporation of
                the Company, effective December 23, 1991, which was filed as
                Exhibit 3(f) to the Company's Annual Report on Form 10-K for
                the year ended March 31, 1996, is incorporated herein by
                this reference.

   3(g)         Certificate of Amendment to Certificate of Incorporation of
                the Company, effective September 3, 1998, which was filed as
                Exhibit 4(g) to the Company's Registration Statement on Form
                S-3 (Registration Statement No. 333-87402), filed May 1,
                2002, is incorporated herein by this reference.

   3(h)         Bylaws of the Company, as amended through November 18, 1982,
                which was filed as Exhibit 3(e) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 1993, is
                incorporated herein by this reference.

   3(i)         Amendment to Bylaws of the Company, effective July 2, 1984,
                which was filed as Exhibit 4(i) to the Company's
                Registration Statement on Form S-3 (Registration Statement
                No. 333-87402), filed May 1, 2002, is incorporated herein by
                this reference.

   3(j)         Amendment to Bylaws of the Company, effective December 4,
                1986, which was filed as Exhibit 4(j) to the Company's
                Registration Statement on Form S-3 (Registration Statement
                No. 333-87402), filed May 1, 2002, is incorporated herein by
                this reference.

   3(k)         Amendment to Bylaws of the Company, effective March 17,
                1992, which was filed as Exhibit 4(k) to the Company's
                Registration Statement on Form S-3 (Registration Statement
                No. 333-87402), filed May 1, 2002, is incorporated herein by
                this reference.

   3(l)         Amendment to Bylaws of the Company, effective November 18,
                1992, which was filed as Exhibit 4(l) to the Company's
                Registration Statement on Form S-3 (Registration Statement
                No. 333-87402), filed May 1, 2002, is incorporated herein by
                this reference.

                                       64

<PAGE>
<PAGE>

   3(m)         Amendment to Bylaws of the Company, effective December 30,
                1993, which was filed as Exhibit 3(h) to the Company's
                Annual Report on Form 10-K for the year ended March 31,
                1996, is incorporated herein by this reference.

   3(n)         Amendment to Bylaws of the Company, effective September 24,
                2002, which was filed as Exhibit 4(n) to the Company's
                Registration Statement on Form S-3 (Registration Statement
                No. 333-106294), filed June 19, 2003, is incorporated herein
                by this reference.

   3(o)         Amendment to Bylaws of the Company, effective June 28, 2004,
                which was filed as Exhibit 3(o) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 2006, is
                incorporated herein by this reference.

   3(p)         Amendment to Bylaws of the Company, effective June 28, 2004,
                which was filed as Exhibit 3(p) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 2006, is
                incorporated herein by this reference.

   3(q)         Amendment to Bylaws of the Company, effective November 30,
                2007, which was filed as Exhibit 99 to the Company's Current
                Report on Form 8-K, filed December 31, 2007, is incorporated
                herein by this reference.

   3(r)         Amendment to Bylaws of the Company, effective March 26,
                2008, which was filed as Exhibit 3.1 to the Company's
                current Report on Form 8-K, filed March 28, 2008, is
                incorporated herein by this reference.

   4(a)         Certificate of Designation of Rights and Preferences of 7%
                Cumulative Convertible preferred stock of the Company,
                effective June 9, 1987, and related Certificate of
                Correction, dated June 17, 1987, which was filed as Exhibit
                4(f) to the Company's Annual Report on Form 10-K for the
                year ended March 31, 1987, is incorporated herein by this
                reference.

   4(b)         Indenture dated as of May 16, 2003, by and between the
                Company and Deutsche Bank Trust Company Americas, filed on
                May 21, 2003, as Exhibit 4.1 to the Company's Current Report
                on Form 8-K, is incorporated herein by this reference.

   4(c)         Registration Rights Agreement dated as of May 16, 2003, by
                and between the Company and Deutsche Bank Securities, Inc.,
                as representative of the several Purchasers, filed on May
                21, 2003 as Exhibit 4.2 to the Company's Current Report on
                Form 8-K, is incorporated herein by this reference.

   4(e)         Promissory Note, dated March 23, 2006 between MECW, LLC and
                LaSalle National Bank Association, filed on March 29, 2006,
                as Exhibit 99 to the Company's Current Report on Form 8-K,
                is incorporated herein by this reference.

   4(g)         Credit Agreement, dated as of June 9, 2006, among the
                Company and its subsidiaries, LaSalle Bank National
                Association, Citibank, F.S.B. and the other lenders thereto,
                which was filed as Exhibit 4(g) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 2006, is
                incorporated herein by this reference.

   10(b)*       Employment Agreement between the Company and Raymond F.
                Chiostri, Corporate Vice-President and
                President-Pharmaceutical Division, which was filed as
                Exhibit 10(l) to the Company's Annual Report on Form 10-K
                for the year ended March 31, 1992, is incorporated herein by
                this reference.

   10(c)        Lease of the Company's facility at 2503 South Hanley Road,
                St. Louis, Missouri, and amendment thereto, between the
                Company as Lessee and Marc S. Hermelin as Lessor, which was
                filed as Exhibit 10(n) to the Company's Annual Report on
                Form 10-K for the year ended March 31, 1983, is incorporated
                herein by this reference.

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<PAGE>
<PAGE>

   10(d)        Amendment to the Lease for the facility located at 2503
                South Hanley Road, St. Louis, Missouri, between the Company
                as Lessee and Marc S. Hermelin as Lessor, which was filed as
                Exhibit 10(p) to the Company's Annual Report on Form 10-K
                for the year ended March 31, 1992, is incorporated herein by
                this reference.

   10(e)*       KV Pharmaceutical Company Fourth Restated Profit Sharing
                Plan and Trust Agreement dated September 18, 1990, which was
                filed as Exhibit 4.1 to the Company's Registration Statement
                on Form S-8 No. 33-36400, is incorporated herein by this
                reference.

   10(f)*       First Amendment to the KV Pharmaceutical Company Fourth
                Restated Profit Sharing Plan and Trust dated September 18,
                1990, is incorporated herein by this reference.

   10(g)*       Fourth Amendment to and Restatement, dated as of January 2,
                1997, of the KV Pharmaceutical Company 1991 Incentive Stock
                Option Plan, which was filed as Exhibit 10(y) to the
                Company's Annual Report on Form 10-K for the year ended
                March 31, 1997, is incorporated herein by this reference.

   10(h)*       Agreement between the Company and Marc S. Hermelin, dated
                December 16, 1996, with supplemental letter attached, which
                was filed as Exhibit 10(z) to the Company's Annual Report on
                Form 10-K for the year ended March 31, 1997, is incorporated
                herein by this reference.

   10(i)        Amendment to Lease dated February 17, 1997, for the facility
                located at 2503 South Hanley Road, St. Louis, Missouri,
                between the Company as Lessee and Marc S. Hermelin as
                Lessor, which was filed as Exhibit 10(aa) to the Company's
                Annual Report on Form 10-K for the year ended March 31,
                1997, is incorporated herein by this reference.

   10(j)*       Amendment, dated as of October 30, 1998, to Employment
                Agreement between the Company and Marc S. Hermelin, which
                was filed as Exhibit 10(ee) to the Company's Annual Report
                on Form 10-K for the year ended March 31, 1999, is
                incorporated herein by this reference.

   10(k)        Exclusive License Agreement, dated as of April 1, 1999
                between Victor M. Hermelin as licenser and the Company as
                licensee, which was filed as Exhibit 10(ff) to the Company's
                Annual Report on Form 10-K for the year ended March 31, 1999
                is incorporated herein by this reference.

   10(l)*       Amendment, dated December 2, 1999, to Employment Agreement
                between the Company and Marc S. Hermelin, which was filed as
                Exhibit 10(ii) to the Company's Annual Report on Form 10-K
                for the year ended March 31, 2000, is incorporated by this
                reference.

   10(n)*       Consulting Agreement, dated as of May 1, 1999, between the
                Company and Victor M. Hermelin, Chairman, which was filed as
                Exhibit 10(kk) to the Company's Annual Report on Form 10-K
                for the year ended March 31, 2000, is incorporated by this
                reference.

   10(o)*       Stock Option Agreement dated as of April 9, 2001, granting a
                stock option to Kevin S. Carlie, which was filed as Exhibit
                10(ii) to the Company's Annual Report on Form 10-K for the
                year ended March 31, 2002, is incorporated herein by this
                reference.

   10(p)*       Stock Option Agreement dated as of July 26, 2002, granting a
                stock option to Marc S. Hermelin, which was filed as Exhibit
                10(rr) to the Company's Annual Report on Form 10-K for the
                year ended March 31, 2003, is incorporated herein by this
                reference.

   10(q)        Stock Option Agreement dated as of May 30, 2003, granting a
                stock option to Marc S. Hermelin, which was filed as Exhibit
                10(yy) to the Company's Annual Report on Form 10-K for the
                year ended March 31, 2004, is incorporated herein by this
                reference.


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<PAGE>
<PAGE>

   10(r)*       Amendment, dated November 5, 2004, to Employment Agreement
                between the Company and Marc S. Hermelin, which was filed as
                Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
                for the quarter ended September 30, 2004, is incorporated
                herein by this reference.

   10(s)*       K-V Pharmaceutical 2001 Incentive Stock Option Plan, which
                was filed as Exhibit 10.1 to the Company's Current report on
                Form 8-K filed November 22, 2005, is incorporated by this
                reference.

   10(t)*       Form of 2001 Incentive Stock Option Plan Award Agreement for
                Employees, which was filed as Exhibit 10.2 to the Company's
                Current Report on Form 8-K filed November 22, 2005, is
                incorporated by this reference.

   10(u)*       Form of 2001 Incentive Stock Option Plan Award Agreement for
                Directors, which was filed as Exhibit 10.3 to the Company's
                Current Report on Form 8-K filed November 22, 2005, is
                incorporated by this reference.

   10(v)*       Employment Agreement between ETHEX and Patricia McCullough,
                Chief Executive Officer of ETHEX, dated January 30, 2006,
                which was filed as Exhibit 10(aa) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 2006, is
                incorporated herein by this reference.

   10(w)*       Employment Agreement between the Company and Michael S.
                Anderson, Corporate Vice President, Industry Presence and
                Development, dated May 23, 1994, and amendments thereto,
                which was filed as Exhibit 10(bb) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 2006, is
                incorporated herein by this reference.

   10(x)*       Employment Agreement between the Company and Ronald J.
                Kanterman, Vice President, Treasurer dated January 26, 2004,
                which was filed as Exhibit 10(x) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 2007, is
                incorporated herein by this reference.

   10(y)*       Employment Agreement between the Company and Gregory S.
                Bentley, Senior Vice President and General Counsel, dated
                April 24, 2006, which was filed as Exhibit 10(y) to the
                Company's Annual Report on Form 10-K for the year ended
                March 31, 2007, is incorporated herein by this reference.

   10(z)*       Employment Agreement between the Company and David A. Van
                Vliet, Chief Administration Officer, dated September 29,
                2006, which was filed as Exhibit 10(z) to the Company's
                Annual Report on Form 10-K for the year ended March 31,
                2007, is incorporated herein by this reference.

   10(aa)*      Employment Agreement between the Company and Rita E. Bleser,
                President, Pharmaceutical Division, dated April 30, 2007,
                which was filed as Exhibit 10(aa) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 2007, is
                incorporated herein by this reference.

   10(bb)*      Employment Agreement between Ther-Rx and Gregory J. Divis,
                Jr., President, Ther-Rx Corporation, dated July 20, 2007,
                which was filed as Exhibit 10(bb) to the Company's Annual
                Report on Form 10-K for the year ended March 31, 2007, is
                incorporated herein by this reference.

   10(cc)*      Employment Agreement by and between the Company and Richard
                H. Chibnall, Vice President, Finance and Chief Accounting
                Officer, dated December 22, 1995, as amended by amendment
                dated April 1, 2005, is incorporated herein by this
                reference.

   10(dd)*      Employment Agreement by and between Particle Dynamics, Inc.
                and Paul T. Brady, President, Particle Dynamics, Inc., dated
                May 5, 2005, which was filed as Exhibit 10(dd) to the
                Company's Annual Report on Form 10-K for the year ended March
                31, 2007, is incorporated herein by this reference,

   10(ee)*      Employment Agreement between the Company and David S.
                Hermelin, Vice President, Corporate Strategy and Operations
                Analysis, dated April 8, 1998, as amended by amendment dated
                August 16,


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<PAGE>
<PAGE>

                2004, which was filed as Exhibit 10(ee) to the Company's
                Annual Report on Form 10-K for the year ended March 31, 2007,
                is incorporated herein by this reference.

   10(ff)*      Amendment to Employment Agreement between the Company and
                Ronald J. Kanterman, Vice President and Chief Financial
                Officer, dated March 23, 2008, which was filed as Exhibit
                10(ff) to the Company's Annual Report on Form 10-K for the
                year ended March 31, 2008, is incorporated herein by this
                reference.

   10(gg)*      Consulting agreement, dated March 23, 2008, between the
                Company and Gerald R. Mitchell, which was filed as Exhibit
                10(gg) to the Company's Annual Report on Form 10-K for the
                year ended March 31, 2008, is incorporated herein by this
                reference.

   10(hh)**     Asset Purchase Agreement by and between the Company and
                VIVUS, Inc., dated as of March 30, 2007, which was filed as
                Exhibit 10.1 to The Company's Quarterly Report on Form 10-Q
                for the quarter ended September 30, 2007, is incorporated
                herein by this reference.

   10(ii)       Asset Purchase Agreement by and among the Company, CYTYC
                Prenatal Products, Corp. and Hologic, Inc., dated as of
                January 16, 2008, which was filed as Exhibit 10(ii) to the
                Company's Annual Report on Form 10-K for the year ended March
                31, 2008, is incorporated herein by this reference.




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<PAGE>
<PAGE>


   21           List of Subsidiaries, which was filed as Exhibit 21 to the
                Company's Annual Report on Form 10-K for the year ended March
                31, 2008, is incorporated herein by this reference.

   23.1         Consent of KPMG LLP, filed herewith.

   31.1         Certification of Chief Executive Officer pursuant to Rule
                13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section
                302 of the Sarbanes-Oxley Act of 2002, filed herewith.

   31.2         Certification of Chief Financial Officer pursuant to Rule
                13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section
                302 of the Sarbanes-Oxley Act of 2002, filed herewith.

   32.1         Certification pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
                filed herewith.

   32.2         Certification pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
                filed herewith.


<FN>
*Management contract or compensation plan.

**  Confidential portions of this exhibit have been redacted and filed
    separately with the Commission pursuant to a confidential treatment
    request in accordance with Rule 24b-2 of the Securities Exchange Act of
    1934, as amended.





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