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_______________________________________________________________________________

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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

                    For the fiscal year ended March 31, 2002

                         Commission file number 1-9601

                           K-V Pharmaceutical Company
                             2503 South Hanley Road
                              St. Louis, MO 63144
                                 (314) 645-6600

Incorporated in Delaware              IRS Employer identification No. 43-0618919

          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 (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. [X]

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. [ ]

The aggregate market value of the 15,946,635 shares of Class A and 5,107,068
shares of Class B Common Stock held by nonaffiliates of the Registrant as of May
29, 2002, was $501,521,671 and $165,469,003, respectively. As of May 29,
2002, the Registrant had outstanding 20,130,733 and 10,658,222 shares of Class A
and Class B Common Stock, respectively, exclusive of treasury shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Part III: Portions of the definitive proxy statement of the Registrant (to be
filed pursuant to Regulation 14A for Registrant's 2002 Annual Meeting of
Shareholders, which involves the election of directors), are incorporated by
reference into Items 10, 11, 12 and 13 to the extent stated in such items.

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           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Form 10-K, including the documents that we incorporate herein by reference,
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Any statements about our expectations, beliefs,
plans, objectives, assumptions or future events or performance are not
historical facts and may be forward-looking. These statements are often, but not
always, made through the use of words or phrases such as "anticipate,"
"estimate," "plans," "projects," "continuing," "ongoing," "expects," "management
believes," "we believe," "we intend" and similar words or phrases. Accordingly,
these statements involve estimates, assumptions and uncertainties that could
cause actual results to differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this Form 10-K.

Factors that could cause actual results to differ materially from the
forward-looking statements include, but are not limited to, the following: (1)
the degree to which we are successful in developing new products and
commercializing products under development; (2) the degree to which we are
successful in acquiring new pharmaceutical products, drug delivery technologies
and/or companies that offer these properties; (3) the difficulty of predicting
FDA approvals; (4) acceptance and demand for new pharmaceutical products; (5)
the impact of competitive products and pricing; (6) the availability of raw
materials; (7) the regulatory environment; (8) fluctuations in operating
results; (9) the difficulty of predicting the pattern of inventory movements by
our customers; (10) the impact of competitive response to our efforts to
leverage our brand power with product innovation, promotional programs, and new
advertising; (11) the risks detailed from time to time in our filings with the
Securities and Exchange Commission; (12) the availability of third-party
reimbursement for our products; and (13) our dependence on sales to a limited
number of large pharmacy chains and wholesale drug distributors for a large
portion of our total net sales.

Because the factors referred to above, as well as the statements included under
the caption "Narrative Description of Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10-K, could cause actual results or outcomes to differ materially from
those expressed in any forward-looking statements made by us or on our behalf,
you should not place undue reliance on any forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which it is made
and, unless applicable law requires to the contrary, we undertake no obligation
to update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which factors will arise, when they will arise and/or
their effects. In addition, we cannot assess the impact of each factor on our
business or financial condition or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.


ITEM 1. DESCRIPTION OF BUSINESS

     (a)   GENERAL DEVELOPMENT OF BUSINESS

           Generally, when we use the words "we," "our," "us" or "our company"
           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 Chairman and founder, invented and obtained initial
           patents for early controlled release and enteric coating which became
           part of our core business and a platform for future drug delivery
           emphasis.

           We are a leader in the development of advanced drug delivery
           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) bioadhesives; tastemasking;
           controlled release; and 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 1991, we established a generic marketing capability through a
           wholly-owned subsidiary, ETHEX Corporation ("ETHEX"), which makes it
           one of the only drug delivery research and development companies that
           also markets "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.

           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.

           (Hereinafter, KV, ETHEX, PDI and Ther-Rx are sometimes referred to
           collectively as "We," "KV" or the "Company").

     (b)   INDUSTRY SEGMENTS

           We operate principally in four industry segments, consisting of
           branded products marketing, specialty generics marketing, specialty
           raw materials marketing and manufacturing, and pharmaceutical
           manufacturing. Our discussion of the Company's business and operating
           results is focused primarily on the marketing segments. Revenues are
           derived primarily from directly marketing our own technologically
           distinguished generic and brand-name products. 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
           18 to our consolidated financial statements).

     (c)   NARRATIVE DESCRIPTION OF BUSINESS



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OVERVIEW

     We are a fully integrated specialty pharmaceutical company that develops,
acquires, manufactures and markets technologically distinguished branded and
generic prescription pharmaceutical products. We have a broad range of internal
dosage form capabilities including tablets, capsules, creams, liquids and
ointments. We conduct our branded pharmaceutical operations through Ther-Rx
Corporation. Ther-Rx currently markets products focused on the women's health
and cardiovascular therapeutic areas. We conduct our generic pharmaceutical
operations through ETHEX Corporation, which focuses principally on
technologically distinguished generic products in multiple therapeutic
categories, with a particular emphasis on the cardiovascular, women's health,
pain management and respiratory areas. Through Particle Dynamics, Inc., 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 a broad portfolio of drug delivery technologies which we leverage
to create technologically distinguished brand name and specialty generic
products. We have developed and patented 14 drug delivery and formulation
technologies primarily in four principal areas: SITE RELEASE(R) bioadhesives,
oral controlled release, tastemasking, and 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 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 earlier 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. More recently, we have chosen to focus our
drug development expertise on internally developed products for our branded and
generic pharmaceutical businesses. For example, since its inception in March
1999, our Ther-Rx business has launched five internally developed branded
pharmaceutical products, all of which incorporate our drug delivery
technologies. In addition, most of the internally developed generic products
marketed by our ETHEX business incorporate one or more of our drug delivery
technologies.

     Our drug delivery technology has allowed us to differentiate our products
in the marketplace, both in the branded and generic pharmaceutical arenas. We
believe that this differentiation provides substantial competitive advantages
for our products, allowing us to establish a record of growth and profitability
and a leadership position in certain segments of our industry. Over the past
five years, we have grown net revenues and net income at compounded annual
growth rates of 20.2% and 29.2%, respectively.

THER-RX -- OUR BRAND NAME PHARMACEUTICAL BUSINESS

     We established our Ther-Rx business in 1999 to market brand name
pharmaceutical products which incorporate our proprietary technologies. We
currently focus on the areas of women's health and cardiovascular therapeutic
categories. Since its inception, Ther-Rx has introduced seven products, two of
which were acquired and five of which were developed internally using our
proprietary technologies. As we evaluate product development and acquisition
opportunities, we may expand our therapeutic focus. Ther-Rx generated $40.4
million of net sales during fiscal 2002, which represented 19.8% of our net
revenues.

     We established our women's health care franchise through the August 1999
acquisition of PreCare(R), a prescription prenatal vitamin, from UCB Pharma,
Inc. Since the acquisition, Ther-Rx reformulated the original product
incorporating our controlled release technology and proprietary ingredients, and
subsequently has launched four 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.

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     The first of our internally developed, patented line extensions to
PreCare(R) was PreCare(R) Chewables, the world's first prescription chewable
prenatal vitamin. PreCare(R) Chewables address a longstanding challenge to
improve pregnant women's compliance with prenatal vitamin regimens by
alleviating the difficulty that patients experience in swallowing large prenatal
pills. Ther-Rx's second internally developed product, PremesisRx(TM), is an
innovative prenatal prescription product that incorporates our controlled
release Vitamin B(6). 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. The third product, PreCare(R)
Conceive(TM), is the first single nutritional pre-conception supplement designed
for use by both men and women. The fourth product, PrimaCare(TM), 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. All of the
products in the PreCare(R) product line have been formulated to contain 1 mg. of
folic acid, which has been shown to reduce the incidence of fetal neural tube
defects by at least 50%.

     In June 2000, Ther-Rx launched its first new drug application, or 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(R), the only clinically proven and Federal Food
and Drug Administration, or FDA, approved controlled release bioadhesive system.
Since its launch, the product has gained a 13% market share in the U.S.
prescription vaginal antifungal cream market. In addition, we have entered into
four licensing agreements for the right to market Gynazole-1(R) in 49 countries
outside of the United States. We expect to continue to license marketing rights
for Gynazole-1(R) in additional international markets.

     Ther-Rx's cardiovascular product line consists of Micro-K(R), an
extended-release potassium supplement used to replenish the electrolytes,
primarily in patients who are on medication which depletes the levels of
potassium in the body. We acquired Micro-K(R) in March 1999 from the
pharmaceutical division of Wyeth.

     Ther-Rx has approximately 150 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 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 pharmaceuticals. By focusing on difficult to produce niche
generic products, we often experience limited competition for our products. As a
result, many of our generic products enjoy high gross margins.

     We have incorporated our proprietary drug delivery technology in many of
our generic pharmaceutical products. For example, we have included METER
RELEASE(R), one of our proprietary controlled release technologies, into the
only generic equivalent to Norpace(R) CR, an antiarrhythmic that is taken twice
daily. Further, we have used our KV/24(R) once daily technology in the generic
equivalent to IMDUR(R), a cardiovascular drug that is taken once per day. In
addition, utilizing our specialty manufacturing expertise and a sublingual
delivery system, we produced and marketed the first non-branded alternative to
Nitrostat(R) sublingual, an anti-angina product which historically has been
difficult to manufacture.

     To capitalize on ETHEX's unique generic product capabilities, we continue
to expand our generic product portfolio. Over the past two years, we have
introduced more than 20 new generic products and have a number of generic
products currently in development. In the first six months of calendar year
2002, we have received five new abbreviated new drug application, or ANDA,
approvals and have several currently pending.

     ETHEX's current product line consists of more than 80 products, of which
approximately 58% are identified by IMS as the leading products in their
respective generic categories. ETHEX's net sales were $141.0 million for fiscal
2002, which represented 69.1% of our net revenues. ETHEX primarily focuses on
the therapeutic categories of cardiovascular, women's health, pain management
and respiratory, leveraging

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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 technology
and our specialty manufacturing expertise.

     CARDIOVASCULAR.  ETHEX currently markets 17 products in its cardiovascular
line, including products to treat angina, arrhythmia and hypertension, as well
as for potassium supplementation. In addition to the generic versions of
IMDUR(R) and Norpace CR(R), we recently received approvals to market the generic
equivalents to Cardura(R) and Rythmol(R). The cardiovascular line accounted for
approximately 45% of ETHEX's net revenues in fiscal 2002.

     WOMEN'S HEALTH CARE.  ETHEX currently markets 18 products in its women's
health care line, all of which are prescription prenatal vitamins. Based on the
number of units sold, ETHEX is the leading provider of prescription prenatal
vitamins in the United States. The women's health care line accounted for
approximately 16% of ETHEX's net revenues in fiscal 2002.

     PAIN MANAGEMENT.  ETHEX currently markets 13 products in its pain
management line. Included in this line are several controlled substance drugs,
such as morphine and hydromorphone, as well as oxycodone capsules, which are
currently the only alternative to OxyIR(R) capsules. The pain management line
accounted for approximately 11% of ETHEX's net revenues in fiscal 2002.

     RESPIRATORY.  ETHEX currently markets over 20 products in its respiratory
line, which consists primarily of cough/cold products. ETHEX is the leading
provider on a unit basis of prescription cough/ cold products in the United
States today. The cough/cold line accounted for approximately 16% of ETHEX's net
revenues in fiscal 2002.

     OTHER THERAPEUTICS.  In addition to our core therapeutic lines, ETHEX
markets over 20 products in the gastrointestinal, dermatological,
anti-inflammatory, digestive enzyme and general nutritional categories. These
categories accounted for approximately 12% of ETHEX's net revenues in fiscal
2002.

     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 and distributors and
national drugstore chains, as well as hospitals, nursing homes, independent
pharmacies and mail order firms. The inside sales force calls on independent
pharmacies to create pull-through at the wholesale level.

PARTICLE DYNAMICS, INC. -- OUR VALUE-ADDED RAW MATERIAL BUSINESS

     Particle Dynamics develops and markets specialty raw material product lines
for the pharmaceutical, nutritional, food and personal care 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 and benefits. Particle Dynamics is also a
significant supplier of value-added raw material for our Ther-Rx and ETHEX
businesses. Net sales for Particle Dynamics were $19.6 million in fiscal 2002,
which represented 9.6% of our net revenues. Particle Dynamics currently offers
three distinct lines of specialty raw material products:

     - DESCOTE(R) is a family of microencapsulated tastemasked vitamins and
       minerals for use in chewable nutritional products, quick dissolve dosage
       forms, foods, children's vitamins and other products. This technology is
       incorporated in Centrum(R) and Centrum Jr.(R) vitamins and
       Flintstones(R), Bugs Bunny(R) and One a Day(R) vitamins.

     - DESTAB(TM) is a family of direct compression products that enables
       pharmaceutical manufacturers to produce tablets and caplets more
       efficiently and economically. This technology is incorporated in
       Di-gel(R), Maalox(R) Quick Dissolve, Tylenol PM(R) and Mylanta(R)
       gelcaps, Centrum(R) and Centrum Jr.(R) vitamins and Flintstones(R), Bugs
       Bunny(R) and One a Day(R) vitamins.

     - MicroMask(TM) is a family of products designed to alleviate problems
       associated with swallowing tablets. This is accomplished by offering
       superior tasting, chewable or quick dissolving dosage forms

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of medication. This technology is incorporated in Triaminic(R) Soft Chew and
Children's Sudafed(R). In addition, we use MicroMask(TM) technology in
PreCare(R) Prenatal caplet, PreCare(R) Chewables and PreCare(R) Conceive(TM),
      all of which are marketed by Ther-Rx.

STRATEGIES

     Our goal is to enhance our position as a leading specialty pharmaceutical
company that utilizes its expanding drug delivery expertise to bring
technologically distinguished brand name and generic 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 products which can expand our existing franchises. Since the
acquisition and reformulation of PreCare(R), we have successfully introduced
four internally developed brand name products, including PreCare(R) Chewables,
PremesisRx(TM), PreCare(R) Conceive(TM) and PrimaCare(TM). These products
incorporate our proprietary oral extended release and tastemasking technologies.
In June 2000, Ther-Rx launched its first NDA approved product, Gynazole-1(R),
the only one-dose prescription cream treatment for vaginal yeast infections. 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. We currently have a number of products in clinical
development, including product candidates in Phase III clinical trials.

     CAPITALIZE ON ACQUISITION OPPORTUNITIES.  We actively seek acquisition
opportunities for both Ther-Rx and ETHEX. Ther-Rx continually looks for platform
acquisition opportunities similar to PreCare(R) around which we 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 increasingly
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:

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

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

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

     - 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 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. Currently, we have
approximately 150 sales representatives who call on gynecologists and
obstetricians. We plan to continue to build our sales force as necessary to
accommodate future expansion of our product line.

     PURSUE ATTRACTIVE GROWTH OPPORTUNITIES WITHIN THE GENERIC INDUSTRY.  We
intend to continue to introduce generic counterparts to drugs whose patents have
expired. When patents no longer protect a branded product, opportunities exist
for ETHEX to introduce generic counterparts to branded products. Such generic or
off-patent pharmaceutical products are generally sold at significantly lower
prices than the branded product. Accordingly, off-patent pharmaceuticals provide
a cost-efficient alternative to users of branded products. We believe the health
care industry will continue to support growth in the generic

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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 our competitively priced, technologically distinguished
generic products can help contain costs and improve patient compliance.

     ADVANCE EXISTING AND DEVELOP NEW DRUG DELIVERY TECHNOLOGIES.  We believe
our drug delivery platform of 14 distinguished technologies has unique breadth
and depth. These technologies have enabled us to create innovative products,
including Gynazole-1(R), the only one-dose vaginal antifungal prescription cream
treatment for yeast infections, incorporating 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 plan to continue to develop our drug delivery technologies and have
identified various technologies with substantial growth potential, such as
TransCell(TM), a novel bioadhesive, controlled release delivery system that may
permit oral delivery of bioactive peptides and proteins that are normally
degraded by stomach enzymes or first-pass liver effects.

OUR PROPRIETARY DRUG DELIVERY TECHNOLOGIES

     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 products. Additionally, we continue to invest
our resources in the development 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. Our fully developed
technologies include the following:

     - VagiSite(TM) is a controlled release bioadhesive delivery system that
       incorporates advanced polyphasic principles to create a bioemulsion
       system delivering therapeutic agents to the vagina. We have outlicensed
       VagiSite(TM) for sale in international markets for the treatment of
       vaginal infections. VagiSite(TM) technology is used in Gynazole-1(R), a
       one-dose prescription cream treatment for vaginal yeast infections.

     - DermaSite(TM) is a semi-solid SITE RELEASE(R) configuration for topical
       applications to the skin. The bioadhesive and controlled release
       properties of the delivery platform have made possible the development of
       products requiring a significantly reduced frequency of application.
       DermaSite(TM) technology is used in Dermarin-L(TM), a topical antifungal
       product being marketed by the leading over-the-counter company in Japan,
       Taisho Pharmaceutical, Ltd.

     - OraSite(R) is a controlled release mucoadhesive delivery system
       administered orally in a solid or liquid form. A drug formulated with the
       OraSite(R) technology may be formulated as a liquid or as a lozenge in
       which the dosage form liquifies upon insertion and adheres to the mucosal
       surface of the mouth, throat and esophagus. OraSite(R) possesses
       characteristics particularly advantageous to therapeutic categories such
       as oral hygiene, sore throat and periodontal and upper gastointestinal
       tract disorders.

     - OraSert(TM) is a solid dosage-form application system specifically
       designed for localized delivery of active agents to the oral tissues. The
       product is formulated as a "cough drop" type tablet, which immediately
       liquifies upon placement in the mouth and bioadheres to mucosal tissue in
       the mouth, throat and esophagus. OraSert(TM) possesses characteristics
       particularly advantageous to therapeutic applications such as periodontal
       disease, respiratory conditions, pharyngeal conditions and upper
       gastrointestinal tract disorders.

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     - BioSert(TM) is a bioadhesive delivery system in a solid insert
       formulation for vaginal or rectal administration, similar in appearance
       to a vaginal or rectal suppository, which can be used for both local and
       systemic delivery of drugs. The BioSert(TM) dosage form liquifies and
       bioadheres to vaginal or rectal tissues, which is of particular benefit
       when a patient can no longer tolerate orally administered medications. We
       are currently developing several drug products that utilize the
       BioSert(TM) technology, including non-steroidal anti-inflammatory drugs,
       or NSAIDs, and antifungals for a local effect and opioids for a systemic
       effect.

     In addition, the following SITE RELEASE(R) technologies are currently under
development:

     - TransCell(TM) is a novel bioadhesive, controlled release delivery system
       that may permit oral delivery of bioactive peptides and proteins that are
       normally degraded by stomach enzymes or first-pass liver effects. The
       TransCell(TM) technology was specifically designed to provide an oral
       delivery alternative to biotechnology and other compounds that currently
       are delivered as injections or infused. In "proof of principle" and
       "proof of concept" studies conducted during fiscal 2002, the
       TransCell(TM) delivery system demonstrated the successful oral delivery
       of the hormone calcitonin, a drug used in the treatment and prevention of
       osteoporosis and to normalize calcium levels in renal dialysis patients.

     - OcuSite(TM) is a liquid, microemulsion delivery system intended for
       topical applications in the eye. The microemulsion formulation lends
       optical clarity to the application and is ideal for ophthalmic use. The
       bioadhesive and controlled release properties of this delivery system
       allow for reduced dosing regimentation.

     - PulmoSite(TM) applies bioadhesive and controlled release characteristics
       to drug agents that are to be inhaled for either local action to the lung
       or for systemic absorption.

     ORAL CONTROLLED RELEASE TECHNOLOGIES.  The technological preeminence 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
Isosorbide-5-Mononitrate (an AB rated generic equivalent to IMDUR(R)) and
Disopyramide Phosphate (an AB rated generic equivalent of Norpace(R) CR). Our
patented technologies include the following:

     - KV/24(R) is a multi-particulate drug delivery system that encapsulates
       one or more drug compounds into spherical particles which release the
       active drug or drugs systemically over an 18- to 24-hour period,
       permitting the development of once-a-day drug formulations. We believe
       that our KV/24(R) oral dosing system is the only commercialized 24-hour
       oral controlled release system that is successfully able to incorporate
       more than one active compound.

     - METER RELEASE(R) is a polymer-based drug delivery system that offers
       different release characteristics than KV/24(R) and is used for products
       that require drug release rates of between eight and 12 hours. We have
       developed METER RELEASE(R) systems in tablet, capsule and caplet form
       that have been commercialized in ETHEX products in the cardiovascular,
       gastrointestinal and upper respiratory product categories.

     - MICRO RELEASE(R) is a microparticulate formulation that encapsulates
       therapeutic agents, employing smaller particles than KV/24(R) and METER
       RELEASE(R). This system is used to extend the release of drugs in the
       body where precise release profiles are less important.

       MICRO RELEASE(R) has been commercialized in prescription products
       marketed by ETHEX and Ther-Rx as well as over-the-counter nutritional
       products.

     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

                                       7
<PAGE>
ETHEX products, including PreCare(R) Chewables and most of the liquid products
that are sold in ETHEX's cough/cold line. Our patented technologies include the
following:

     - LIQUETTE(R) is a tastemasking system that incorporates unpleasant tasting
       drugs into a hydrophilic and lipophilic polymer matrix to suppress the
       taste of a drug. This technology is used for mildly to moderately
       distasteful drugs where low manufacturing costs are particularly
       important.

     - FlavorTech(R) is a liquid formulation technology designed to reduce the
       objectionable taste of a wide variety of therapeutic products.
       FlavorTech(R) technology has been used in cough/cold syrup products sold
       by ETHEX and has special application to other products, such as
       antibiotic, geriatric and pediatric pharmaceuticals.

     - MicroMask(TM) is a tastemasking technology that incorporates a dry
       powder, microparticulate approach to reducing objectionable tastes by
       sequestering the unpleasant drug agent in a specialized matrix. This
       formulation technique has the effect of "shielding" the drug from the
       taste receptors without interfering with the dissolution and ultimate
       absorption of the agent within the gastrointestinal tract. MicroMask(TM)
       is a more potent tastemasking technology than LIQUETTE(R) and has been
       used in connection with two Ther-Rx products.

     QUICK DISSOLVING TECHNOLOGY.  Our OraQuick(TM) system is a quick-dissolving
tablet technology that 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. While still under development, this system allows
for a drug to be quickly dissolved in the mouth, and can be combined with
tastemasking capabilities that offer a unique dosage form for the most bitter
tasting drug compounds. We have been issued patents and have patents pending for
this system with the PTO.

SALES AND MARKETING

     Ther-Rx has a national sales and marketing infrastructure which includes
approximately 150 sales representatives dedicated to promoting and marketing our
branded pharmaceutical products to targeted physician specialists. By targeting
physician specialists, we believe we can compete successfully without the need
to build a larger sales force. We also have a national sales management team, as
well as a sales team dedicated to managed care and trade accounts and an inside
sales team.

     We seek to increase the 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 four more line extensions to address unmet needs,
including the launch of PreCare(R) Chewables, Premesis Rx(TM), PreCare(R)
Conceive(TM) and PrimaCare(TM). 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 yeast infections. By offering multiple products to the same group of
physician specialists, we are able to maximize the effectiveness of our
experienced sale 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 calls on independent
pharmacies to create pull-through 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, technologically distinguished generic
products can fulfill the increasing need of these markets to contain costs and
improve
                                       8
<PAGE>

patient compliance. Accordingly, we intend to continue to devote significant
marketing resources to the penetration of such markets.

     Particle Dynamics has a specialized technical sales group that calls on the
leading companies in the pharmaceutical, nutritional, personal care, food and
other markets in the United States.

     During fiscal 2002 and 2001, the Company's three largest customers
accounted for 20%, 19% and 13%, and 23%, 20% and 14%, respectively, of gross
revenues. These customers were McKesson Drug Company, Cardinal Health and
Amerisource Corporation, respectively. In fiscal 2000, the Company's two largest
customers, McKesson Drug Company and Cardinal Health accounted for 18% and 12%,
respectively, of the Company's gross revenue.

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

RESEARCH AND DEVELOPMENT

     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 versions of previously approved brand name pharmaceutical products. In
fiscal 2000, 2001 and 2002, total research and development expenses were $8.0
million, $9.3 million, and $10.7 million, respectively.

     Ther-Rx currently has a number of products in its research and development
pipeline at various stages of development, including product candidates in Phase
III clinical trials. 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.

     ETHEX currently has more than 30 products in its research and development
pipeline at various stages of development and exploration. Our development
process consists of formulation, development and laboratory testing, and where
required (1) preliminary bioequivalency studies of pilot batches of the
manufactured product, (2) full scale bioequivalency studies using commercial
quantities of the manufactured product and (3) submission of an ANDA, to the
FDA. We believe that, unlike many generic drug companies, we have the technical
expertise required to develop generic substitutes to the hard-to-copy branded
pharmaceutical products.

     Since January 1, 2002, ETHEX has received five ANDA approvals from the FDA.
The five products approved include generic equivalents to Rythmol(R), Buspar(R),
Lortab(R) Elixir, K-Dur(R) and Prelone(R).

     In addition to our internal marketing efforts, we have licensed the
exclusive rights to co-develop and market nine products with other drug delivery
companies. These products will be generic equivalents to brand name products
with aggregate annual sales totaling approximately $2.5 billion and are expected
to be launched at various times beginning in fiscal 2005.

     Particle Dynamics currently has more than 20 products in its research and
development pipeline at various stages of development. Particle Dynamics applies
its technologies to a diverse number of active and inactive chemicals for more
efficient processing of materials to achieve benefits such as prolonged action
of release, tastemasking, making materials more site specific and other
benefits. Typically, the finished products into which the specialty raw
materials are incorporated do not require FDA approval. We expect to market a
number of new specialty raw material products in fiscal 2003.

     We continually apply our scientific and development expertise to refine and
enhance our existing drug delivery systems and formulation technologies and to
create new technologies that may be used in our drug development programs.
Certain of these technologies currently under development include advanced oral
controlled release systems, quick dissolving oral delivery systems (with and
without tastemasking characteristics) and transesophageal and intrapulmonary
delivery technologies.

PATENTS AND OTHER PROPRIETARY RIGHTS

     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 2018 relating
to our controlled release, site-specific, quick dissolve and tastemasking
technologies. We have been granted 28 U.S. patents and have 17 U.S. patent
applications pending. In addition, we have 36 foreign issued

                                       9
<PAGE>

patents and a total of 64 patent applications pending primarily in Canada,
Europe, Australia, Japan and South Korea.

     Our success will also depend to a significant extent on our ability to
obtain and enforce patents, maintain trade secret protection and operate without
infringing on the proprietary rights of third parties. The pharmaceutical
industry is crowded and a substantial number of patents have been issued. In
addition, the patent position of pharmaceutical companies can be highly
uncertain and frequently involves complex legal and factual questions. As a
result, the breadth of claims allowed in patents relating to pharmaceutical
applications or their enforceability cannot be predicted. To the extent we
endeavor to protect our inventions outside the United States, statutory
differences in patentable subject matter may limit the protection we can obtain.
For example, methods of treating humans are not patentable in some countries
outside of the United States. These and other issues may prevent us from
obtaining patent protection outside of the United States. Patents are examined
for patentability at patent offices against bodies of prior art which by their
nature may be incomplete and imperfectly categorized. Therefore, even presuming
that the examiner has been able to identify and cite the best prior art
available to him during the examination process, any patent issued to us could
later be found by a court or a patent office during post issuance proceedings to
be invalid in view of newly-discovered prior art or already considered prior
art. Furthermore, there are categories of "secret" prior art unavailable to any
examiner, such as the prior inventive activities of others, which could form the
basis for invalidating any patent. In addition, there are other reasons why a
patent may be found to be invalid, such as an offer for sale or public use of
the patented invention in the United States more than one year before the filing
date of the patent application. Moreover, a patent may be deemed unenforceable
if, for example, the inventor or the inventor's agents failed to disclose prior
art to the U.S. Patent and Trademark Office, or PTO, that they knew was material
to patentability.

     The coverage claimed in a patent application can be significantly reduced
before a patent is issued, either in the United States or abroad. Consequently,
there can be no assurance that any of our pending or future patent applications
will result in the issuance of patents. Patents issued to us may be subjected to
further proceedings limiting their scope and may not provide significant
proprietary protection or competitive advantage. Our patents also may be
challenged, circumvented, invalidated or deemed unenforceable. In addition,
because patent applications in the United States filed prior to November 29,
2000 are currently maintained in secrecy until and unless patents issue, and
patent applications in certain other countries generally are not published until
more than 18 months after they are first filed (which generally is the case in
the United States for applications filed on or after November 29, 2000), and
because publication of discoveries in scientific or patent literature often lags
behind actual discoveries, we cannot be certain that we or any licensor was the
first creator of inventions covered by pending patent applications or that we or
licensors will be entitled to any rights in purported inventions claimed in
pending or future patent applications or that we or our licensors were the first
to file patent applications on such inventions. Furthermore, patents already
issued to us or our pending applications may become subject to dispute, and any
dispute could be resolved against us. For example, we may become involved in re-
examination, reissue or interference proceedings in the PTO, or opposition
proceedings in a foreign country. The result of these proceedings can be the
invalidation or substantial narrowing of our patent claims. We also could be
subject to court proceedings that could find our patents invalid or
unenforceable or could substantially narrow the scope of our patent claims. In
addition, statutory differences in patentable subject matter may limit the
protection we can obtain on some of our inventions outside of the United States.
For example, methods of treating humans are not patentable in many countries
outside of the United States. These and other issues may prevent us from
obtaining patent protection outside of the United States.

     We also rely upon trade secrets, unpatented proprietary know-how and
continuing technological innovation to develop and maintain our competitive
position. We enter into confidentiality agreements with each of our employees
and consultants upon the commencement of an employment or consulting
relationship. These agreements generally provide that all inventions, ideas,
discoveries, improvements and copyrightable material made or conceived by the
individual arising out of the employment or consulting relationship and all
confidential information developed or made known to the individual during the
term of

                                       10

<PAGE>

the relationship is our exclusive property. We cannot assure the enforceability
of these agreements or that they will not be breached. We also cannot be certain
that we will have adequate remedies for any breach. Disputes may arise
concerning the ownership of intellectual property or the applicability or
enforceability of our confidentiality agreements, and there can be no assurance
that any such disputes would be resolved in our favor. Further, others may
acquire or independently develop similar technology, or if patents are not
issued with respect to products arising from research, we may not be able to
maintain information pertinent to such research as proprietary technology or
trade secrets.

     We currently own more than 45 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.

     It is possible that third parties may own or could acquire rights in
trademarks or domain names in the United States or abroad that are confusingly
similar to or otherwise compete unfairly with our marks and domain names, or
that our use of trademarks or domain names may infringe or otherwise violate the
intellectual property rights of third parties. The use of similar marks or
domain names by third parties could decrease the value of our trademarks or
domain names and hurt our business, for which there may be no adequate remedy.

     We may be required to defend against charges of infringement of patent or
other proprietary rights of third parties. Such defense could require us to
incur substantial expense and to divert significant effort of our technical and
management personnel, and could result in our loss of rights to develop or make
certain products or require us to pay monetary damages or royalties to license
proprietary rights from third parties. Although patent and other intellectual
property disputes in the pharmaceutical product area have often been settled
through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot be certain that the necessary licenses would be available
to us on acceptable terms, if at all. Accordingly, an adverse determination in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent us from manufacturing and selling certain of our products.
Litigation may also be necessary to enforce our patents against others or to
protect our trademarks, know-how or trade secrets. Such litigation could result
in substantial expense and there cannot be assurance that any litigation will be
resolved in our favor.

MANUFACTURING AND FACILITIES

     We believe that our administrative, research, manufacturing and
distribution facilities are an important factor in achieving our long-term
growth objectives. All facilities, aggregating approximately 835,000 square
feet, are located in the St. Louis, Missouri area. We own approximately 299,000
square feet, with the balance under various leases at pre-determined annual
rates under agreements expiring from 2002 through 2012, subject in most cases to
renewal at our option. We believe the facilities are suitable for the purposes
for which they are used and adequate to meet our needs for at least the next
three years.

     We manufacture drug products in liquid, semi-solid, tablet, capsule and
caplet forms for distribution by Ther-Rx, ETHEX and its corporate licensees and
value-added specialty raw materials for distribution by Particle Dynamics. We
believe that all of our facilities comply with applicable regulatory
requirements.

     We seek to maintain inventories at sufficient levels to support current
production and sales levels. During fiscal 2002, we encountered no serious
shortage of any particular raw materials and have no indication that significant
shortages will occur in the foreseeable future.

                                       11
<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 pharmaceutical products may
be subject to competition from pharmaceutical companies engaged in the
development of alternatives to the generic 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 position 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 with other pharmaceutical companies that acquire
branded product lines from other pharmaceutical companies. These competitors may
have substantially greater financial and managerial 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. A full NDA may also need to
be submitted for a drug product with a previously approved active ingredient if,
among other things, the drug will be used to treat an indication for which the
drug was not previously approved, or if the abbreviated procedure discussed
below is otherwise not available. A manufacturer intending to conduct clinical
trials in humans for a new drug may be required first to submit a Notice of
Claimed Investigational Exception for a New Drug, or IND, to the FDA containing
information relating to preclinical and clinical studies. INDs and full NDAs may
be required to be filed to obtain approval of certain of our products, including
those that do not qualify for abbreviated application procedures. The full NDA
process, including clinical development and testing, is expensive and time
consuming.

     The Drug Price Competition and Patent Restoration Act of 1984, known as the
Waxman-Hatch 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. "Bioequivalence" for this purpose, with certain exceptions,
generally means that the proposed generic formulation is absorbed by the body at
the same rate and extent as a previously approved "reference drug." Approval to
manufacture these drugs is obtained by filing abbreviated

                                       12
<PAGE>

applications, such as ANDAs. As a substitute for clinical studies, the FDA
requires data indicating the ANDA drug formulation is bio-equivalent to a
previously approved reference drug among other requirements. Analogous
abbreviated application procedures apply to antibiotic drug products that are
bio-equivalent to previously approved antibiotics. The advantage of the ANDA
approval mechanism, compared to an NDA, is that an ANDA applicant is not
required to conduct preclinical and clinical studies to demonstrate that the
product is safe and effective for its intended use and may rely, instead, on
studies demonstrating bio-equivalence to a previously approved reference drug.

     In addition to establishing ANDA approval mechanisms, the Waxman-Hatch 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. 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 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 the subject of conflicting 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 invalid or will not be infringed by our 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 noninfringement or invalidity by filing suit for patent
infringement, which would prevent FDA approval until the suit is resolved or
until at least 30 months has elapsed (or until 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.

     In addition to marketing drugs which are subject to FDA review and
approval, we market products under (a) certain "grandfather" clauses of the FDCA
that exempt certain categories of drugs from some or all pre-market approval
requirements, and (b) additional statutory and regulatory exceptions from pre-
market approval requirements that apply to certain drug products that fall
outside of the legal definition of a "new drug." A determination as to whether a
particular product does or does not require pre-market NDA or ANDA approval can
involve numerous complex considerations. The FDA has published a Compliance
Policy Guide that recognizes the marketing of certain categories of drug
products without an approved NDA or ANDA as long as those products are not
significantly different in formulation than products marketed before November
13, 1984. With respect to these products, any enforcement action initiated by
the FDA would typically affect all similarly situated products at the same time
and in a similar manner. If a product is significantly different from all
products marketed before November 13, 1984 or falls outside of the scope of the
Compliance Guide or raises significant new questions of safety or effectiveness,
however, the FDA could make a determination whether or not the new drug
provisions are applicable to it without first implementing the procedures called
for by the policy guide and could single out the product for immediate
regulatory action, including seizure or injunction against further marketing. We
list all of our marketed drug products, as required, with the FDA. We believe
that each of our generic products which has been marketed without FDA approval
qualifies for deferral of regulatory action under the Compliance Policy Guide or
under other agency policies. The FDA has initiated no regulatory or judicial
proceeding to prevent the marketing of any of these products. However, if a
determination is made by the FDA that a particular drug requires an approved NDA
or ANDA, we may be required to cease distribution of the product until such
approval is obtained.

                                       13
<PAGE>
     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 Drug Enforcement Agency,
or DEA, and similar state and local regulatory authorities if they handle
controlled substances, and with the EPA and similar state and local regulatory
authorities if they generate toxic or dangerous wastes. 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 NDA's, ANDA's 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. It also imposes detailed
requirements on the distribution of prescription drug samples 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.

     For international markets, a pharmaceutical company is subject to
regulatory requirements, inspections and product approvals substantially the
same as those in the United States. In connection with any future marketing,
distribution and license agreements that we may enter, 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
lesser 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 is
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 regulation 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 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, 2002, we employed a total of 860 employees. We are party to
a collective bargaining agreement covering 149 employees that will expire
December 31, 2004. We believe that our relations with our employees are good.

                                       14
<PAGE>
ENVIRONMENT

The Company does not expect that compliance with Federal, state or local
provisions regulating the discharge of materials into the environment or
otherwise relating to the protecting of the environment will have a material
effect on its capital expenditures, earnings or competitive position.


                                       15
<PAGE>

ITEM 2. PROPERTIES

           Our corporate headquarters is located at 2503 South Hanley Road in
           St. Louis County, Missouri, and contains approximately 25,000 square
           feet of floor space. We have a lease on the building for a period of
           ten years expiring December 31, 2006, with one five-year option to
           renew.

           In addition, we lease or own the facilities shown in the following
           table:

<Table>
<Caption>
  SQ FT                                      LEASE            RENEWAL
 LEASED  USAGE                              EXPIRES           OPTIONS
 ------  -----                              --------         ----------
<S>      <C>                                <C>              <C>
 31,630  PDI Office/Mfg./Whse.              11/30/02         5 Years(1)
 10,000  PDI/KV Lab/Whse.                   11/30/03         None
 23,000  KV Office/R&D/Mfg.                 12/31/06         5 Years(2)
 16,800  KV Mfg. Oper.                      06/30/02         None
122,350  KV Office/Whse./Lab                Owned            N/A
 90,000  KV Mfg. Oper.                      Owned            N/A
 87,020  ETHEX/Ther-Rx/Whse.                Owned            N/A
260,160  ETHEX/Ther-Rx/PDI Distribution     04/30/12         5 Years(2)
 40,000  KV Warehouse                       11/30/03         None
128,960  ETHEX/Ther-Rx/PDI Office/Whse.     05/31/11         5 Years(2)
</Table>

----------
(1) Three five-year options.

(2) Two five-year options.

           Properties used in our operations are considered suitable for the
           purposes for which they are used and are believed to be adequate to
           meet our Company's needs for the reasonably foreseeable future.
           However, we will consider leasing or purchasing additional facilities
           from time to time, when attractive facilities become available, to
           accommodate the consolidation of certain operations and to meet
           future expansion plans.

ITEM 3. LEGAL PROCEEDINGS

ETHEX is a defendant in a lawsuit styled Healthpoint, Ltd. v. ETHEX Corporation,
pending in federal court in the Western District of Texas, San Antonio Division.
The suit was filed by Healthpoint, Ltd., or Healthpoint, on August 3, 2000 and
later was joined by companies affiliated with Healthpoint. In general, the
plaintiffs allege that ETHEX's promotion of its Ethezyme(TM) product as an
alternative to Healthpoint's Accuzyme(R) product resulted in false advertising
and misleading statements under various federal and state laws, and constituted
unfair competition and misappropriation of trade secrets. On September 28, 2001,
the jury returned verdicts, in the form of special interrogatories, against
ETHEX on certain false advertising, unfair competition, and misappropriation
claims. The jury awarded compensatory and punitive damages totaling $16.5
million. In addition, Healthpoint has asked the court to enter judgment in
accordance with the jury's verdict with respect to compensatory and punitive
damages. Healthpoint has also asked the court to award $10 million in enhanced
damages ($2.7 million more than the jury recommended), and attorneys fees which
are believed to be in excess of $1 million. We and our counsel believe that the
jury's recommended award is excessive and is not sufficiently supported by the
facts or the law. We intend to vigorously appeal any adverse judgment the court
may enter. In the event an adverse decision against us occurs, appropriate
provision for liability, if any, would be provided for in our financial
statements at the time of the court's ruling. We have filed motions asking the
court to overrule the jury's verdicts or, in the alternative, grant a new trial.
However, we can offer no assurances that we will prevail or that the jury's
verdicts will be reduced or set aside. If we do not prevail and are ordered by
the court to pay damages in accordance with the jury's verdicts or the higher
amount sought by Healthpoint, our profitability would be impaired and our
liquidity reduced.

     We previously manufactured two low volume pharmaceutical products that
contained phenylpropanolame, or PPA, and that were discontinued in 2000 and
2001, respectively. We have been named one of several defendants in two product
liability lawsuits in federal court in Nevada and Kentucky, respectively,
involving PPA. These two lawsuits have been transferred to the nationwide,
multi-district litigation for PPA claims now pending in the U.S. District Court
for the Western District of Washington. Each lawsuit alleges bodily injury,
wrongful death, economic injury, punitive damages, loss of consortium and/or
loss of services from the use of our manufactured, marketed and/or distributed
pharmaceuticals containing PPA that have since been discontinued and/or
reformulated to exclude PPA. Discovery in these cases is ongoing. We believe
that we have substantial defenses to these claims, though the ultimate outcome
of these cases and the potential material affect on us cannot be determined.

     We are being defended and indemnified in these two PPA lawsuits by our
primary commercial general liability insurer subject to aggregate
products-completed operations policy limits in the amount of $10 million and
subject to a reservation of rights. Our product liability-completed operations
coverage was obtained on a claims made basis and provides coverage for
judgments, settlements and defense costs arising from product liability claims.
However, such insurance may not be adequate to remove the risk from some or all
product liability claims, including PPA claims, and is subject to the
limitations described in the terms of the policies. Furthermore, in accordance
with a standard industry exclusion, our product liability coverage for PPA
claims will expire on June 15, 2002. We are currently in the process of
reviewing our product liability insurances and expect to be able to obtain new
coverage soon, however, we may not be able to obtain product liability insurance
in the future for PPA claims or other product liability claims with adequate
coverage limits at commercially reasonable prices. Consequently, as of June 16,
2002, we may have to provide for legal defense costs and indemnity payments
involving PPA claims and/or other product liability claims on a going forward
basis. From time to time in the future, we may be subject to further litigation
resulting from products containing PPA that we formerly manufactured and sold
and we intend to vigorously defend any claims that may be raised in the current
and future litigations.

From time to time, we become involved in various legal matters in addition to
the above described matters, that we consider to be in the ordinary course of


                                       17
<PAGE>

business. While we are not presently able to determine the potential liability,
if any, related to such matters, we believe none of such matters, individually
or in the aggregate, will have a material adverse effect on our financial
position.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           No such matters were submitted during the fourth quarter of the
           Company's fiscal year ended March 31, 2002.


ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT

           The following is a list of current executive officers of our Company,
           their ages, their positions with our Company and their principal
           occupations for at least the past five years.

<Table>
<Caption>
NAME                  AGE     POSITION HELD AND PAST EXPERIENCE
----                  ---     ---------------------------------
<S>                   <C>     <C>
Victor M. Hermelin    88      Director, Chairman of the Board.(1)

Marc S. Hermelin      60      Director, Vice-Chairman of the Board and Chief
                              Executive Officer.

Alan G. Johnson       67      Director, Senior Vice President-Strategic
                              Planning and Corporate Growth since September 27,
                              1999 and Secretary of the Company; Chairman of
                              Johnson Research & Capital, Inc., an investment
                              banking and institutional research firm from
                              January to September 1999; Member of the law
                              firm Gallop, Johnson & Neuman, L.C. 1976 to 1998;
                              Director of Siboney Corporation.

Raymond F. Chiostri   68      Vice President and Group President of KV since
                              1986 and Chief Executive Officer of Particle
                              Dynamics, Inc. since 1995; President,
                              Pharmaceutical Division of KV 1986 to 1995.

Gerald R. Mitchell    63      Vice President, Treasurer and Chief Financial
                              Officer since 1981.
</Table>

           The term of office for each executive officer of the Company expires
           at the next annual meeting of the Board of Directors or at such time
           as his successor has been elected and qualified.

----------

(1)  Victor M. Hermelin is the father of Marc S. Hermelin.


                                       18
<PAGE>

                                     PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
        MATTERS

     a)    PRINCIPAL MARKET

           Our Class A Common Stock and Class B Common Stock are traded on the
           New York Stock Exchange under the symbols KV.A and KV.B,
           respectively.

     b)    APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK

           The number of holders of record of Class A and Class B Common Stock
           as of June 6, 2002 was 693 and 478, respectively (not separately
           counting shareholders whose shares are held in "nominee" or "street"
           names, which are estimated to represent approximately 6,000 of Class
           A and of Class B additional shareholders combined).

     c)    STOCK PRICE AND DIVIDEND INFORMATION

           The high and low closing sales prices of our Class A and Class B
           Common Stock, as reported on the New York Stock Exchange, during each
           quarter of fiscal 2002 and 2001 were as follows:

           CLASS A COMMON STOCK

<Table>
<Caption>
                             FISCAL 2002                       FISCAL 2001
                        ----------------------           ----------------------
QUARTER                  HIGH            LOW              HIGH            LOW
-------                 ------          ------           ------          ------
<S>                     <C>             <C>              <C>             <C>
First                   $27.75          $16.50           $17.88          $12.63
Second                   30.95           24.00            35.13           17.29
Third                    29.50           23.79            40.00           18.44
Fourth                   29.43           23.90            30.40           16.60
</Table>

           CLASS B COMMON STOCK

<Table>
<Caption>
                             FISCAL 2002                     FISCAL 2001
                        ----------------------          ----------------------
QUARTER                  HIGH            LOW             HIGH            LOW
-------                 ------          ------          ------          ------
<S>                     <C>             <C>             <C>             <C>
First                   $33.50          $16.25          $18.17          $13.17
Second                   33.00           26.30           34.50           17.25
Third                    32.46           26.80           39.88           18.63
Fourth                   33.03           27.00           30.50           16.70
</Table>

           All per share data reflects the three-for-two stock split effected in
           the form of a 50% stock dividend that occurred on September 7, 2000.

           Since 1980, we have not declared or paid any cash dividends on our
           common stock and we do not plan to do so in the foreseeable future.
           No dividends may be paid on Class A common stock or Class B common
           stock unless all dividends on the Cumulative Convertible Preferred
           Stock have been declared and paid. Dividends must be paid on Class A
           common stock when, and if, we declare and distribute dividends on the
           Class B common stock. Undeclared and unaccrued cumulative preferred
           dividends were approximately $2.2 million, or $9.14 per share, at
           March 31, 2000 and 2001 and $366,000, or $9.14 per share, at March
           31, 2002. Also, under the terms of our credit agreement, we may not
           pay cash dividends in excess of 25% of the prior year's consolidated
           net income. Dividends of $70,000 and $420,000 were paid in fiscal
           2002 and 2001, respectively, on 40,000 and 240,000 shares of
           Cumulative Convertible Preferred Stock, respectively. For the
           foreseeable future, we plan to use cash generated from operations for
           general corporate purposes, including funding potential acquisitions,
           research and development and working capital. Our board of directors
           reviews our dividend policy periodically. Any payment of dividends in
           the future will depend upon our earnings, capital requirements,
           financial condition and other factors considered relevant by our
           board of directors.


                                       19

<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

<Table>
<Caption>
                                         ($ IN 000'S, EXCEPT PER SHARE DATA)
                                                  YEARS ENDED MARCH 31,
                           --------------------------------------------------------------------
                             2002          2001          2000            1999            1998
                           --------      --------      --------        --------        --------
<S>                        <C>           <C>           <C>             <C>             <C>
BALANCE SHEET DATA:

Total assets               $195,192      $151,417      $140,385        $127,990        $ 68,361

Long-term debt                4,387         5,080        16,779          31,491           4,902

Shareholders' equity        158,792       125,942        97,799          67,548          44,164


INCOME STATEMENT DATA:

Revenues(a)                $204,105      $177,767      $142,734        $112,853        $ 97,714

   % Increase                  14.8%         24.5%         26.5%           15.5%           68.8%

Net income(b)              $ 31,464      $ 23,625      $ 24,308(b)     $ 23,340(b)     $ 11,304

Net income
   per common
   share-diluted(c)        $   0.98      $   0.74      $   0.80(b)     $   0.78(b)     $   0.39
</Table>

     (a) Certain reclassifications to prior years' financial information have
         been made to conform to the fiscal 2002 presentation. These
         reclassifications include amounts associated with tradeshow allowances
         and administrative cost rebates paid to resellers which were previously
         classified as selling and administrative expenses that have been
         reclassified as a reduction of net revenues.

     (b) Net income in fiscal 2000 and 1999 includes non-recurring gains
         associated with $7.0 million and $13.3 million in arbitration awards,
         respectively. The awards net of applicable income taxes and expenses
         (see Note 16 of Notes to Consolidated Financial Statements) were as
         follows:

<Table>
<Caption>
                              NET INCOME            PER DILUTED SHARE
                          -------------------     ---------------------
                           2000        1999         2000         1999
                          -------     -------     --------     --------
<S>                       <C>         <C>         <C>          <C>
NET INCOME WITHOUT
    NONRECURRING GAIN     $20,430     $15,385     $   0.67     $   0.51
NONRECURRING GAIN           3,878       7,955          .13          .27
                          -------     -------     --------     --------
   TOTAL NET INCOME       $24,308     $23,340     $   0.80     $   0.78
                          =======     =======     ========     ========
</Table>

     (c) Previously reported amounts give effect to the three-for-two stock
         splits effected in the form of a 50% stock dividend that occurred on
         September 7, 2000 and April 17, 1998.


                                       20

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS, AND
        LIQUIDITY AND CAPITAL RESOURCES

     Except for the historical information contained herein, the following
discussion contains forward-looking statements that are subject to known and
unknown risks, uncertainties, and other factors that may cause our actual
results to differ materially from those expressed or implied by such
forward-looking statements. These risks, uncertainties and other factors are
discussed throughout this report and specifically under the caption "Cautionary
Statement Regarding Forward-Looking Information." In addition, the following
discussion and analysis of the financial condition and results of operations
should be read in conjunction with "Selected Financial Data" and our
consolidated financial statements and notes thereto appearing elsewhere in this
Form 10-K.

BACKGROUND

     We develop, acquire, manufacture and market technologically distinguished
branded and generic prescription pharmaceutical products. We also enter into
licensing agreements with pharmaceutical marketing companies to develop and
commercialize additional brand name products. Until the mid-1990's, we derived
most of our revenues from our manufacturing and licensing activities. Today, we
derive most of our revenues from our product sales. While we expect to continue
to enter into new licensing agreements, we emphasize the development or
acquisition and marketing of technologically distinguished prescription
products, whether branded or generic, through our Ther-Rx and ETHEX business
lines, as well as specialty raw materials through Particle Dynamics.

     In 1990, we established our ETHEX business to market and distribute
technologically distinguished generic and non-branded alternative drugs that use
our proprietary technologies. Net revenues from ETHEX have increased from $13.5
million in fiscal 1994 to $141.0 million in fiscal 2002.

     We launched our Ther-Rx business in 1999 to market branded pharmaceutical
products. We acquired and introduced our first two of seven Ther-Rx branded
products, Micro-K(R) and PreCare(R), in March and August 1999, respectively.
Ther-Rx has also introduced four internally developed product line extensions to
PreCare(R) since October 1999, including PrimaCare(TM), 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. In June 2000, we
launched our first NDA approved product, Gynazole-1(R), a one-dose prescription
cream treatment for vaginal yeast infections. Net revenues from Ther-Rx have
increased from $1.8 million in fiscal 1999 to $40.4 million in fiscal 2002.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our significant accounting policies are described in Note 2 to our
consolidated financial statements. These financial statements have been prepared
in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. On an on-going
basis, we evaluate our estimates, including those related to the allowance for
doubtful accounts receivable, allowance for inventories, sales allowances and
useful life or impairment of other intangibles. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis of
judgments regarding the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

     We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

     REVENUE RECOGNITION AND SALES ALLOWANCES.  We recognize revenue at the time
product is shipped to customers. We establish sales provisions for estimated
chargebacks, discounts, rebates, returns, pricing adjustments and other sales
allowances concurrently with the recognition of revenue. The sales provisions


                                       22
<PAGE>
are established based upon consideration of a variety of factors, including but
not limited to, actual return and historical experience by product type, the
number and timing of competitive products approved for sale, the expected market
for the product, estimated customer inventory levels by product, price declines
and current and projected economic conditions and levels of competition. Actual
product returns, chargebacks and other sales allowances incurred are, however,
dependent upon future events. We continually monitor the factors that influence
sales allowance estimates and make adjustments to these provisions when
management believes that actual product returns, chargebacks and other sales
allowances may differ from established allowances.

     ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE.  We maintain an allowance for
doubtful accounts receivable for estimated losses resulting from the inability
of customers to make required payments. We extend credit on an uncollateralized
basis primarily to wholesale drug distributors and retail pharmacy chains
throughout the United States. Management specifically analyzes accounts
receivable, historical bad debts, customer concentrations, customer
credit-worthiness, percentage of accounts receivable by aging category and
changes in customer payment terms when evaluating the adequacy of the allowance
for doubtful accounts. We also perform ongoing credit evaluations of our
customers. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. Historically, our actual losses from uncollectible
accounts have been insignificant.

     ALLOWANCE FOR INVENTORIES.  Our inventories are stated at the lower of cost
or market, with cost determined on the first-in, first-out basis. In evaluating
whether inventory is stated at the lower of cost or market, management considers
such factors as the amount of inventory on hand and in the distribution channel,
estimated time required to sell such inventory, remaining shelf life and current
and expected market conditions, including levels of competition. As appropriate,
we make provisions to reduce inventories to their net realizable value.

     OTHER INTANGIBLE ASSETS.  Other intangible assets consist of brand product
rights purchased from other pharmaceutical companies, all of which are being
amortized over 20-year periods. The amortization periods for product rights are
based on our assessment of various factors impacting estimated useful lives and
cash flows of the acquired products. These factors include the product's
position in its life cycle, competitive positioning, the existence or absence of
like products in the market and various competitive and technical issues. Other
intangible assets also consist of patents and trademarks, which are being
amortized over periods ranging from five to 17 years. As of March 31, 2002, the
net carrying amount of other intangibles was $40.7 million. Amortization is
calculated using the straight-line method over the estimated useful life.
Intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In accordance with Statement of Financial Accounting Standards, or
SFAS, No. 142, Goodwill and Other Intangible Assets, we are in the process of
reassessing the useful lives of our intangible assets, determining which
intangible assets, if any, have indefinite lives and evaluating the extent of
impairment, if any, of indefinite-lived intangible assets that may need to be
recorded (see "-- Recently Issued Accounting Standards" below for a discussion
on SFAS 142). We do not expect that the adoption of SFAS 142 will have a
material effect on our financial condition or results of operations.


                                       23
<PAGE>

RESULTS OF OPERATIONS

     In the following table, we have summarized our historical results of
operations as a percentage of net revenues. You should read this information in
conjunction with our consolidated financial statements and related notes.

<Table>
<Caption>
                                                         YEAR ENDED MARCH 31,
                                   ----------------------------------------------------------------
                                          2000                  2001                   2002
                                   ------------------    -------------------    -------------------
                                   AMOUNT     PERCENT     AMOUNT     PERCENT     AMOUNT     PERCENT
                                   -------    -------    --------    -------    --------    -------
                                                        (DOLLARS IN THOUSANDS)
<S>                                <C>        <C>        <C>         <C>        <C>         <C>
NET REVENUES:
Generic products.................  $98,106      68.7%    $132,154      74.3%    $141,007      69.1%
Branded products.................   23,469      16.5       25,206      14.2       40,424      19.8
Specialty materials..............   17,182      12.0       17,088       9.6       19,557       9.6
Contract services/other..........    3,977       2.8        3,319       1.9        3,117       1.5
                                   -------     -----     --------     -----     --------     -----
     Total net revenues..........  142,734     100.0      177,767     100.0      204,105     100.0
Cost of sales....................   63,446      44.5       70,663      39.7       80,403      39.4
                                   -------     -----     --------     -----     --------     -----
Gross profit.....................   79,288      55.5      107,104      60.3      123,702      60.6
                                   -------     -----     --------     -----     --------     -----
OPERATING AND OTHER EXPENSES:
Research and development.........    8,043       5.6        9,282       5.2       10,712       5.2
Selling and administrative.......   34,746      24.3       57,480      32.4       61,325      30.0
Other (income) expense, net......   (4,907)     (3.4)         908       0.5          (61)       --
Amortization.....................    2,307       1.6        2,370       1.3        2,371       1.2
                                   -------     -----     --------     -----     --------     -----
     Total operating and other
       expenses..................   40,189      28.1       70,040      39.4       74,347      36.4
                                   -------     -----     --------     -----     --------     -----
Income before income taxes.......   39,099      27.4       37,064      20.9       49,355      24.2
Provision for income taxes.......   14,791      10.4       13,439       7.6       17,891       8.8
                                   -------     -----     --------     -----     --------     -----
Net income.......................  $24,308      17.0%    $ 23,625      13.3%    $ 31,464      15.4%
                                   =======     =====     ========     =====     ========     =====
</Table>

FISCAL 2002 COMPARED TO FISCAL 2001

     REVENUES.  Net revenues increased $26.3 million, or 14.8%, to $204.1
million in fiscal 2002 compared to $177.8 million in fiscal 2001. The increase
in net revenues was due to increased sales of branded products, specialty
generics and specialty materials.

     Branded product sales increased $15.2 million, or 60.4%, to $40.4 million
in fiscal 2002 compared to $25.2 million in fiscal 2001. Branded product sales
comprised 19.8% of net revenues in fiscal 2002 compared to 14.2% of net revenues
in fiscal 2001. The increase in branded product sales was due to increased sales
volume among all product categories. Sales from the women's health care family
of products increased $11.3 million, or 69.2%, in fiscal 2002. Included in
women's health care is the PreCare(R) family of prenatal products, which
contributed $9.1 million of incremental sales in fiscal 2002 due to
volume-related increases in market share. During the fourth quarter of fiscal
2002, Ther-Rx introduced PrimaCare(TM), a prescription prenatal/postnatal
multivitamin and mineral supplement with essential fatty acids. We also market
Gynazole-1(R), a vaginal antifungal product introduced in the first quarter of
fiscal 2001. Due to its continued growth in market share, Gynazole-1(R) sales
increased $2.2 million, or 38.1%, in fiscal 2002. Sales from the cardiovascular
disease product line increased $4.0 million, or 47.8%, in fiscal 2002 as
customer inventories returned to normal levels.

     Specialty generic product sales increased $8.9 million, or 6.7%, to $141.0
million in fiscal 2002 compared to $132.2 million in fiscal 2001. Specialty
generic product sales comprised 69.1% of net revenues in fiscal 2002 compared to
74.3% of net revenues in fiscal 2001. The increase in specialty generic sales
was primarily due to a $17.8 million increase in the sales volume of existing
products coupled with


                                       24
<PAGE>
$10.8 million of incremental sales from new products. The cardiovascular product
line, which comprised 45.4% of specialty generic sales, accounted for $7.2
million of the total sales growth. We introduced 14 new products in fiscal 2002.
The volume growth experienced by specialty generics was partially offset by
$19.7 million of product price erosion that resulted from normal and expected
competitive pricing pressures on certain products.

     Specialty raw material product sales increased $2.5 million, or 14.4%, to
$19.6 million in fiscal 2002 compared to $17.1 million in fiscal 2001. Specialty
raw material product sales comprised 9.6% of net revenues in both fiscal 2002
and fiscal 2001. The increase in specialty raw material product sales was
primarily due to sales of new products and increased sales of existing products.

     GROSS PROFIT.  Gross profit increased $16.6 million, or 15.5%, to $123.7
million in fiscal 2002 compared to $107.1 million in fiscal 2001. The increase
in gross profit was primarily attributable to the increased level of product
sales. Gross profit as a percentage of net revenues increased slightly to 60.6%
in fiscal 2002 compared to 60.3% in fiscal 2001. The higher gross profit
percentage in fiscal 2002 resulted primarily from a shift in the mix of product
sales toward higher margin branded products comprising a larger percentage of
net revenues and favorable cost variances associated with increased production.
The positive impact of these two factors was partially offset by the price
erosion in certain specialty generic products discussed above.

     OPERATING EXPENSES.  Research and development expense increased $1.4
million, or 15.4%, to $10.7 million in fiscal 2002 compared to $9.3 million in
fiscal 2001. The increase in research and development expense was primarily due
to higher costs associated with clinical testing connected to our internal
product development efforts and higher personnel expenses related to expansion
of our research and development staff. Research and development expense as a
percentage of net revenues was flat at 5.2% in fiscal 2002 compared to fiscal
2001. In April 2002, we announced that we had received favorable results from
screening studies on a number of products utilizing one of our newest drug
delivery technologies. Because of the significant revenue and profit potential
of these products, we plan to increase our research and development expenditures
by approximately 75% to 80% in fiscal 2003 over fiscal 2002 levels.

     Selling and administrative expense increased $3.8 million, or 6.7%, to
$61.3 million in fiscal 2002 compared to $57.5 million in fiscal 2001. The
increase in selling and administrative expense was due primarily to an increase
in personnel costs associated with administration and branded marketing. Selling
and administrative expense as a percentage of net revenues decreased to 30.0% in
fiscal 2002 compared to 32.4% in fiscal 2001.

     OTHER EXPENSE (INCOME).  Interest expense decreased $0.7 million, or 67.4%,
to $0.4 million in fiscal 2002 compared to $1.1 million in fiscal 2001. The
decrease in interest expense was due to a corresponding reduction in debt.

     NET INCOME.  As a result of the factors discussed above, net income
improved by $7.8 million, or 33.2%, to $31.5 million in fiscal 2002 compared to
$23.6 million in fiscal 2001.

FISCAL 2001 COMPARED TO FISCAL 2000

     REVENUES.  Net revenues increased $35.0 million, or 24.5%, to $177.8
million in fiscal 2001 compared to $142.7 million in fiscal 2000. The increase
in net revenues was due primarily to higher sales of specialty generic and
branded products.

     Branded product sales increased $1.7 million, or 7.4%, to $25.2 million in
fiscal 2001 compared to $23.5 million in fiscal 2000. The increase in sales was
due to the introduction of Gynazole-1(R), a vaginal antifungal product, at the
end of the first quarter of the fiscal year and higher sales of existing women's
health care products. The introduction of Gynazole-1(R) contributed $6.0 million
of incremental sales in fiscal 2001 due to increases in market share. Since its
June 2000 launch, the product has captured 13.0% of total prescriptions written
for vaginal antifungal creams. Existing women's health care products increased
$5.3 million, or 101%, in fiscal 2001, due primarily to higher volume associated
with increased market share of the PreCare(R) brand prenatal vitamin line.
Including Gynazole-1(R), total sales of women's health


                                       25
<PAGE>
care products increased 216% in fiscal 2001. These increases were partially
offset by lower sales of the Micro-K(R) cardiovascular potassium supplement.
Micro-K(R) sales were down $9.6 million in fiscal 2001 compared to fiscal 2000
as a result of speculative customer buying during the latter half of the prior
year in anticipation of a year-end price increase.

     Specialty generic product sales increased $34.0 million, or 34.7%, to
$132.2 million in fiscal 2001 compared to $98.1 million in fiscal 2000. The
increase was due to incremental volume from new products introduced in fiscal
2001 ($18.1 million), a full year of sales of products introduced in fiscal 2000
($2.2 million), net volume increases across the existing product line ($8.2
million), and increased pricing ($5.5 million), primarily on cardiovascular
products. We introduced 10 new products in fiscal 2001. The increase in volume
of the existing products was attributable to higher generic substitution rates,
increased sales associated with trade shows and price increase buy-ins.

     Specialty raw material product sales were practically flat at $17.1 million
in fiscal 2001 compared to fiscal 2000 due to a soft market in the general
industry.

     Contract services and other revenues declined $0.7 million, or 16.5%, to
$3.3 million in fiscal 2001 compared to $4.0 million in fiscal 2000. The
decrease in contract services and licensing revenues was primarily due to lower
contract manufacturing volume, reflecting a smaller customer base as we
purposefully have de-emphasized lower margin contract manufacturing in our
business strategy.

     GROSS PROFIT.  Gross profit increased $27.8 million, or 35.1%, to $107.1
million in fiscal 2001 compared to $79.3 million in fiscal 2000. The increase in
gross profit was primarily attributable to the increased level of product sales.
Gross profit as a percentage of net revenues increased to 60.3% in fiscal 2001
compared to 55.5% in fiscal 2000. The higher gross profit percentage in fiscal
2001 was due primarily to favorable changes in product mix, lower costs within
the specialty generic line, and higher pricing in the branded and generic line.
Lower costs in specialty generics were due to favorable cost variances from
increased volume and lower prices for material and ingredients. Of the 4.8
percentage point net increase, changes in product mix accounted for 2.4%, higher
pricing accounted for 1.7% and lower costs accounted for 0.7% of the
improvement.

     OPERATING EXPENSES.  Research and development expense increased $1.2
million, or 15.4%, to $9.3 million in fiscal 2001 compared to $8.0 million in
fiscal 2000. The increase in research and development expense was primarily due
to payments made in connection with product co-development agreements and
expansion of the research and development staff. Research and development
expense as a percentage of net revenues decreased to 5.2% in fiscal 2001
compared to 5.6% in fiscal 2000.

     Selling and administrative expense increased $22.7 million, or 65.4%, to
$57.5 million in fiscal 2001 compared to $34.7 million in fiscal 2000. The
increase was due primarily to higher corporate administrative expenses,
incremental marketing expenses in support of the specialty generics product line
and continued investment in expanding the sales force for the branded products
marketing division. Selling and administrative expense as a percentage of net
revenues increased to 32.4% in fiscal 2001 compared to 24.3% in fiscal 2000.
Corporate administrative expense was higher due to increases in payroll-related
expenses of $2.7 million associated with expanding our management and
administrative infrastructure to keep pace with our continued growth, higher
professional fees of $2.1 million for various legal and consulting services and
increased lease expense of $1.0 million from the acquisition of a leased
facility for future expansion of our distribution operations and administrative
offices. Marketing and selling expense associated with branded products
increased $14.7 million in fiscal 2001, due primarily to expenses associated
with the increase in the branded sales force and increased sampling costs in
connection with the introduction of Gynazole-1(R) in fiscal 2001.

     Amortization expense was primarily attributable to the product acquisitions
of Micro-K(R) and Pre-Care(R). These product acquisitions are being amortized on
a straight-line basis over 20 years and there was no change compared to the
prior year.


                                       26
<PAGE>


     OTHER INCOME (EXPENSE).  Interest expense decreased $0.9 million, or 44.5%,
to $1.1 million in fiscal 2001 compared to $2.0 million in fiscal 2000. The
decrease in interest expense was due to lower long-term debt outstanding on our
line of credit.

     Other income decreased $6.7 million in fiscal 2001 due primarily to a
non-recurring gain related to an arbitration award of $6.1 million received in
fiscal 2000 and a decrease in interest income of $0.6 million. See Note 16 to
our consolidated financial statements.

     NET INCOME.  As a result of the factors described above, net income
decreased $0.7 million, or 2.8%, to $23.6 million in fiscal 2001 compared to
$24.3 million in fiscal 2000. Excluding the effect of the non-recurring gain,
net income increased $3.2 million, or 15.6%, to $23.6 million in fiscal 2001
compared to $20.4 in fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

     Our cash and cash equivalents and working capital were $12.1 million and
$81.4 million, respectively, at March 31, 2002, compared to $4.1 million and
$50.9 million, respectively, at March 31, 2001. The increasing level of net
income associated with higher product sales continues to be the primary source
of operating capital which we utilize to fund our businesses. The net cash flow
from operating activities was $15.9 million in fiscal 2002 compared to $17.1
million in fiscal 2001. The 6.9% decline in operating cash flow resulted from an
increase in receivables, offset partially by higher net income and increased
accounts payable and accrued liabilities. The increase in receivables was
primarily due to certain delayed customer payments, which were collected
subsequent to year-end, and the timing of wholesaler purchases within the fourth
quarter of fiscal 2002. Subsequent to year end, through May 31, 2002, we have
collected approximately $46.0 million of the March 31, 2002 accounts receivable
balance outstanding. The increase in accounts payable reflected increased trade
payables, which resulted from the timing of various material purchases, while
the increase in accrued liabilities was attributable to a higher current tax
liability.

     Capital expenditures of $8.5 million in fiscal 2002 were funded by net cash
flows from operating activities. Our investment in capital assets was primarily
for purchasing machinery and equipment to upgrade and expand our pharmaceutical
manufacturing and distribution capabilities. We believe we have adequate
resources to fund the estimated cost of $3.1 million to complete
construction-in-progress at March 31, 2002.

     Long-term debt decreased to $5.1 million at March 31, 2002 compared to $5.8
million at March 31, 2001. The decrease resulted from principal payments made
during fiscal 2002. In December 2001, we refinanced a $2.5 million building
mortgage that was due in June 2002. The building mortgage bears interest at
7.57% and is due in December 2006.

     During December 2001, we increased our revolving credit agreement with
LaSalle National Bank to $60.0 million. The revised agreement provides for the
continuation of our $40.0 million revolving line of credit along with a
supplemental credit line of $20.0 million for financing acquisitions. The
revolving credit lines are unsecured. At March 31, 2002, we had no borrowings
outstanding under either credit facility and $3.6 million in open letters of
credit issued under the revolving credit line.

     The following table summarizes our contractual obligations at March 31,
2002 (in thousands):

<Table>
<Caption>
                                                                                        2007 AND
CONTRACTUAL OBLIGATIONS                   TOTAL     2003     2004     2005     2006    THEREAFTER
-----------------------                  -------   ------   ------   ------   ------   ----------
<S>                                      <C>       <C>      <C>      <C>      <C>      <C>
Long-term debt.........................  $ 5,099   $  712   $2,258   $  438   $  233    $ 1,458
Operating leases.......................   21,793    2,726    2,785    2,487    2,171     11,624
                                         -------   ------   ------   ------   ------    -------
     Total contractual cash
       obligation......................  $26,892   $3,438   $5,043   $2,925   $2,404    $13,082
                                         =======   ======   ======   ======   ======    =======
</Table>

     We believe our cash and cash equivalents balance, cash flows from
operations and funds available under our credit facilities will be adequate to
fund operating activities for the presently foreseeable future, including the
payment of short-term and long-term debt obligations, capital improvements,
research and

                                       27
<PAGE>
development expenditures, product development activities and expansion of
marketing capabilities for the branded pharmaceutical business. However, we
continue to examine opportunities to expand our business through the acquisition
of or investment in companies, technologies, product rights, research and
development and other investments that are compatible with our existing
business. We intend to use our available cash to help in funding any
acquisitions or investments. Cash has been invested in short-term, highly liquid
instruments. We may also use funds available under our credit facilities, or
financing sources that subsequently become available, including the future
issuances of additional debt or equity securities, to fund these acquisitions or
investments. If we were to fund one or more such acquisitions or investments,
our capital resources, financial condition and results of operations could be
materially impacted in future periods.

INFLATION

     Although at reduced levels in recent years, inflation continues to apply
upward pressure on the cost of goods and services used by us. However, we
believe that the net effect of inflation on our operations has been minimal
during the past three years. In addition, changes in the mix of products sold
and the effect of competition has made a comparison of changes in selling prices
less meaningful relative to changes in the overall rate of inflation over the
past three years.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets. SFAS 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interest method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that we
recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, that upon
adoption of SFAS 142, we reclassify the carrying amounts of certain intangible
assets into or out of goodwill based on certain criteria in SFAS 141.

     SFAS 142 addresses accounting for intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) at acquisition. The statement also addresses accounting
for goodwill and other intangible assets after they have been initially
recognized in the financial statements. Intangible assets that have indefinite
useful lives and goodwill will no longer be amortized, but instead must be
tested at least annually for impairment using fair values. Intangible assets
that have finite useful lives will continue to be amortized over their estimated
useful lives. The provisions of SFAS 142 are effective for fiscal years
beginning after December 15, 2001.

     Our previous business combinations were accounted for using the purchase
method. As of March 31, 2002, the net carrying amount of goodwill and other
intangible assets was $0.6 million and $40.7 million, respectively. In
accordance with the adoption of SFAS 142, amortization of goodwill ceased
effective April 1, 2002. Amortization of goodwill during the year ended March
31, 2002 was $55,000.

     At this time, we are reassessing the useful lives of previously recognized
intangible assets, determining which intangible assets, if any, have indefinite
lives and evaluating the extent of impairment, if any, of goodwill and
indefinite-lived intangible assets that may need to be recorded. Amortization of
other intangible assets was $2.3 million during the year ended March 31, 2002.
We do not expect that the adoption of SFAS 142 will have a material effect on
our financial condition or results of operations.

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This statement is effective for fiscal
years beginning after June 15, 2002. We do not believe the adoption of this
statement will have a material impact on our results of operations or financial
position.

                                       28
<PAGE>

     In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. It supersedes
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and certain provisions of APB Opinion No. 30,
Reporting the Effects of Disposal of a Segment of a Business and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for the disposal of
a segment of a business. SFAS 144 establishes a single accounting model, based
on the framework established in SFAS 121, for long-lived assets to be disposed
of by sale and resolves other implementation issues related to SFAS 121. This
statement is effective for fiscal years beginning after December 15, 2001. Based
on our current operations, we do not expect the adoption of SFAS 144 to have a
material impact on our results of operations or financial position.

     In November 2001, the Emerging Issues Task Force issued EITF 01-09,
"Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products." EITF 01-09 codified and reconciled the task force's
consensuses on prior issues and identified other issues related to various
aspects of the accounting for consideration given by a vendor to a customer or a
reseller of the vendor's products. EITF 01-09 requires certain items we
previously had reported as selling expenses to be reclassified as reductions of
revenues in the income statement. EITF 01-09 is effective for reporting periods
beginning after December 15, 2001 and we adopted it for the fourth quarter of
our fiscal year ended March 31, 2002. In connection with the adoption and to
conform to current period presentation, we reclassified certain prior period
items which had been included in selling and administrative expenses to reduce
net revenues. However, the reclassification did not affect reported net income
or net sales growth rates.

ITEM 7A. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

             Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                                       29
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors
of K-V Pharmaceutical Company



We have audited the consolidated balance sheets of K-V Pharmaceutical Company as
of March 31, 2002 and 2001 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of K-V Pharmaceutical
Company at March 31, 2002 and 2001, and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ BDO SEIDMAN, LLP

Chicago, Illinois
May 24, 2002


                                       30
<PAGE>

                  K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                    MARCH 31,
                                                              ----------------------
                                                                2001         2002
                                                              ---------    ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                   SHARE DATA)
<S>                                                           <C>          <C>
                                       ASSETS
Current Assets:
Cash and cash equivalents...................................  $  4,128     $ 12,109
Receivables less allowance for doubtful accounts of $448 and
  $403 in 2001 and 2002, respectively.......................    26,259       54,218
Inventories, net............................................    32,211       35,097
Prepaid and other assets....................................     3,804        2,102
Deferred tax asset, net.....................................     1,644        5,227
                                                              --------     --------
     Total Current Assets...................................    68,046      108,753
Property and equipment, less accumulated depreciation.......    36,847       41,224
Intangibles and other assets, net of amortization...........    46,524       45,215
                                                              --------     --------
     Total Assets...........................................  $151,417     $195,192
                                                              ========     ========
                                    LIABILITIES
Current Liabilities:
Accounts payable............................................  $  6,349     $ 10,312
Accrued liabilities.........................................    10,067       16,332
Current maturities of long-term debt........................       712          712
                                                              --------     --------
     Total Current Liabilities..............................    17,128       27,356
Long-term debt..............................................     5,080        4,387
Other long-term liabilities.................................     2,534        2,717
Deferred tax liability, net.................................       733        1,940
                                                              --------     --------
     Total Liabilities......................................  $ 25,475     $ 36,400
                                                              --------     --------
Commitments and contingencies

SHAREHOLDERS' EQUITY
7% cumulative convertible Preferred Stock, $0.01 par value,
  $25.00 stated and liquidation value; 840,000 shares
  authorized; issued and outstanding -- 240,000 and 40,000
  shares in 2001 and 2002, respectively (convertible into
  Class A shares at a ratio of 5.625 to one)................         2           --
Class A and Class B Common Stock, $.01 par value;
  150,000,000 and 75,000,000 shares authorized,
  respectively;
  Class A -- issued 18,896,945 and 20,158,334 in 2001 and
     2002, respectively.....................................       189          201
  Class B -- issued 10,663,574 and 10,711,514 in 2001 and
     2002, respectively (convertible into Class A shares on
     a one-for-one basis)...................................       107          108
Additional paid-in capital..................................    45,792       47,231
Retained earnings...........................................    79,907      111,301
Less: Treasury Stock, 53,318 shares of Class A and 53,428
  Shares of Class B Common Stock in 2001 and 40,493 shares
  of Class A and 53,428 shares of Class B Common Stock, in
  2002, at cost.............................................       (55)         (49)
                                                              --------     --------
     Total Shareholders' Equity.............................   125,942      158,792
                                                              --------     --------
     Total Liabilities and Shareholders' Equity.............  $151,417     $195,192
                                                              ========     ========
</Table>

          See Accompanying Notes to Consolidated Financial Statements
                                       31
<PAGE>

                  K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                                      YEAR ENDED MARCH 31,
                                                             --------------------------------------
                                                                2000          2001          2002
                                                             ----------    ----------    ----------
                                                              (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                          <C>           <C>           <C>
Net revenues...............................................   $142,734      $177,767      $204,105
Cost of sales..............................................     63,446        70,663        80,403
                                                              --------      --------      --------
Gross profit...............................................     79,288       107,104       123,702
                                                              --------      --------      --------
Operating expenses:
  Research and development.................................      8,043         9,282        10,712
  Selling and administrative...............................     34,746        57,480        61,325
  Amortization of intangible assets........................      2,307         2,370         2,371
                                                              --------      --------      --------
     Total operating expenses..............................     45,096        69,132        74,408
                                                              --------      --------      --------
Operating income...........................................     34,192        37,972        49,294
                                                              --------      --------      --------
Other income (expense):
  Arbitration award, net of expenses.......................      6,059            --            --
  Interest and other income................................        780           164           411
  Interest expense.........................................     (1,932)       (1,072)         (350)
                                                              --------      --------      --------
     Total other income (expense), net.....................      4,907          (908)           61
                                                              --------      --------      --------
Income before income taxes.................................     39,099        37,064        49,355
Provision for income taxes.................................     14,791        13,439        17,891
                                                              --------      --------      --------
Net income.................................................   $ 24,308      $ 23,625      $ 31,464
                                                              ========      ========      ========
Net income per common share -- basic.......................   $   0.85      $   0.80      $   1.03
                                                              ========      ========      ========
Net income per common share -- diluted.....................   $   0.80      $   0.74      $   0.98
                                                              ========      ========      ========
</Table>

          See Accompanying Notes to Consolidated Financial Statements
                                       32
<PAGE>

                  K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<Table>
<Caption>
                                                        FOR THE YEARS ENDED MARCH 31, 2000, 2001 AND 2002
                                 ------------------------------------------------------------------------------------------------
                                             CLASS A   CLASS B   ADDITIONAL                          ACCUMULATED        TOTAL
                                 PREFERRED   COMMON    COMMON     PAID IN     TREASURY   RETAINED   COMPREHENSIVE   SHAREHOLDERS'
                                   STOCK      STOCK     STOCK     CAPITAL      STOCK     EARNINGS   INCOME (LOSS)      EQUITY
                                 ---------   -------   -------   ----------   --------   --------   -------------   -------------
                                                                (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                              <C>         <C>       <C>       <C>          <C>        <C>        <C>             <C>
BALANCE AT MARCH 31, 1999......     $ 2       $119      $ 64      $34,532       $(55)    $ 32,911       $(25)         $ 67,548
Net income.....................      --         --        --           --         --       24,308         --            24,308
  Other comprehensive income,
    net of tax:
  Reclassification adjustment
    for gains on
    available-for-sale
    securities included in
    income.....................      --         --        --           --         --           --         25                25
                                    ---       ----      ----      -------       ----     --------       ----          --------
  Total comprehensive income...                                                                           --            24,333
Dividends paid on preferred
  stock........................      --         --        --           --         --         (420)        --              (420)
Product acquisition............      --          3        --        4,497         --           --         --             4,500
Conversion of 33,997 Class B
  shares to Class A shares.....      --         --        --           --         --           --         --                --
Conversion of 1,000 shares of
  Preferred Stock to Class A
  shares.......................      --         --        --           --         --           --         --                --
Stock options exercised, 42,422
  shares of Class A less 599
  shares repurchased...........      --          1        --          232         --           --         --               233
  247,242 shares of Class B....      --         --         2        1,603         --           --         --             1,605
                                    ---       ----      ----      -------       ----     --------       ----          --------
BALANCE AT MARCH 31, 2000......       2        123        66       40,864        (55)      56,799         --            97,799
Net income.....................      --         --        --           --         --       23,625         --            23,625
Dividends paid on preferred
  stock........................      --         --        --           --         --         (420)        --              (420)
Product development............      --         --        --          200         --           --         --               200
Conversion of 422,088 Class B
  shares to Class A shares.....      --          4        (4)          --         --           --         --                --
Stock options exercised, 46,004
  shares of Class A............      --         --        --          366         --           --         --               366
  994,081 shares of Class B....      --         --        10        4,362         --           --         --             4,372
Three-for-two stock split......      --         62        35           --         --          (97)        --                --
                                    ---       ----      ----      -------       ----     --------       ----          --------
BALANCE AT MARCH 31, 2001......       2        189       107       45,792        (55)      79,907         --           125,942
Net income.....................      --         --        --           --         --       31,464         --            31,464
Dividends paid on preferred
  stock........................      --         --        --           --         --          (70)        --               (70)
Conversion of 200,000 shares of
  Preferred Stock to 1,125,000
  Class A shares...............      (2)        11        --           (9)        --           --         --                --
Sale of 12,825 Class A shares
  to employee profit sharing
  plan.........................      --         --        --          332          6           --         --               338
Issuance of 5,061 Class A
  shares under product
  development agreement........      --         --        --          125         --           --         --               125
Conversion of 32,575 Class B
  shares to Class A shares.....      --         --        --           --         --           --         --                --
Stock options exercised:
  108,018 shares of Class A,
    less 8,847 shares
    repurchased................      --          1        --          530         --           --         --               531
  80,685 shares of Class B,
    less 170 shares
    repurchased................      --         --         1          461         --           --         --               462
                                    ---       ----      ----      -------       ----     --------       ----          --------
BALANCE AT MARCH 31, 2002......     $--       $201      $108      $47,231       $(49)    $111,301       $ --          $158,792
                                    ===       ====      ====      =======       ====     ========       ====          ========
</Table>

          See Accompanying Notes to Consolidated Financial Statements
                                       33
<PAGE>

                  K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                   YEAR ENDED MARCH 31,
                                                              -------------------------------
                                                                2000       2001        2002
                                                              --------    -------    --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>         <C>        <C>
OPERATING ACTIVITIES
Net income..................................................  $ 24,308    $23,625    $ 31,464
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation, amortization and other non-cash charges.....     4,480      5,953       6,769
  Changes in deferred taxes.................................      (205)     2,294      (2,376)
  Changes in deferred compensation..........................       257        174         183
Changes in operating assets and liabilities:
  Increase in receivables, net..............................    (4,693)    (2,578)    (27,959)
  Decrease in arbitration award receivable..................    13,253         --          --
  Increase in inventories...................................    (6,461)    (2,097)     (2,886)
  Decrease (increase) in prepaid and other assets...........    (2,032)    (4,929)        474
  Increase (decrease) in accounts payable and accrued
     liabilities............................................    (3,969)    (5,372)     10,228
                                                              --------    -------    --------
Net cash provided by operating activities...................    24,938     17,070      15,897
                                                              --------    -------    --------
INVESTING ACTIVITIES
Purchase of property and equipment, net.....................   (15,380)    (8,057)     (8,484)
Sale of marketable securities...............................     7,548         --          --
Product acquisition.........................................    (3,000)        --          --
                                                              --------    -------    --------
Net cash used in investing activities.......................   (10,832)    (8,057)     (8,484)
                                                              --------    -------    --------
FINANCING ACTIVITIES
Principal payments on long-term debt........................   (16,698)   (17,646)       (693)
Proceeds from credit facility...............................     2,000      5,000          --
Dividends paid on preferred stock...........................      (420)      (420)        (70)
Sale of common stock to employee profit sharing plan........        --         --         338
Exercise of common stock options............................     1,838      4,738         993
                                                              --------    -------    --------
Net cash provided by (used in) financing activities.........   (13,280)    (8,328)        568
                                                              --------    -------    --------
Increase in cash and cash equivalents.......................       826        685       7,981
Cash and cash equivalents:
  Beginning of year.........................................     2,617      3,443       4,128
                                                              --------    -------    --------
  End of year...............................................  $  3,443    $ 4,128    $ 12,109
                                                              ========    =======    ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Term loans refinanced.......................................  $     --    $    --    $  2,450
Issuance of common stock under product development
  agreement.................................................        --         --         125
Portion of product acquisition financed through issuance of:
  Short-term debt...........................................       933         --          --
  Common stock..............................................     4,500         --          --
</Table>

          See Accompanying Notes to Consolidated Financial Statements
                                        34
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. DESCRIPTION OF BUSINESS

     K-V Pharmaceutical Company ("KV" or the "Company") is a fully integrated
pharmaceutical company that develops, manufactures, markets and sells
technologically distinguished branded and generic prescription pharmaceutical
products. The Company was incorporated in 1971 and is a leader in the
development of advanced drug delivery and formulation technologies that are
designed to enhance therapeutic benefits of existing drug forms. KV 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

  Principles of Consolidation

     The consolidated financial statements include the accounts of KV and its
wholly-owned subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.

  Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 the allowance for
doubtful accounts receivable, inventory reserves, sales allowances, the useful
lives of intangible assets, and the cash flows used in evaluating long-lived
assets for impairment. 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 highly liquid investments with original
maturities of three months or less at the date of purchase. At March 31, 2001
and 2002, cash equivalents totaled $3,682 and $10,350, respectively.

  Inventories

     Inventories are stated at the lower of cost or market, with the cost
determined on the first-in, first-out (FIFO) basis.

  Property and Equipment

     Property and equipment are stated at cost. Depreciation 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.

                                       35
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Intangibles and Other Assets

     Product rights associated with the Micro-K(R) and PreCare(R) product
acquisitions are stated at cost, less accumulated amortization, and are
amortized on a straight-line basis over 20 years. Goodwill resulting from the
acquisition of the Company's Particle Dynamics, Inc. ("PDI") subsidiary is
amortized on a straight-line basis over 40 years. All other intangible assets
and deferred charges are being amortized on a straight-line basis over periods
varying from 5 to 17 years.

  Long-Lived Assets

     The Company periodically evaluates whether events or changes in
circumstances have occurred that may indicate that the remaining net book value
of a long-lived asset may not be recoverable. Recoverability is determined by
comparing the carrying amount of an 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 asset, an impairment loss is recognized based on
the excess of the carrying amount over the estimated fair value of the asset.
Any impairment amount is charged to operations.

  Revenue Recognition

     Revenue is recognized at the time product is shipped to customers. Net
revenues consist of gross sales to customers less provisions for expected
customer returns, rebates, discounts, chargebacks, and other sales allowances.
Sales provisions totaled $47,415, $85,881 and $98,592 for the years ended March
31, 2000, 2001 and 2002, respectively. The reserve balances related to the sales
provisions totaled $26,631 and $18,958 at March 31, 2001 and 2002, respectively,
and are included in "Receivables, less allowance for doubtful accounts" in the
accompanying consolidated balance sheets.

     Sales provisions for estimated chargebacks, discounts, rebates, returns,
pricing adjustments and other sales allowances are established by the Company
concurrently with the recognition of revenue. The sales provisions are
established based upon consideration of a variety of factors, including but not
limited to, actual return and historical experience by product type, the number
and timing of competitive products approved for sale, the expected market for
the product, estimated customer inventory levels by product, price declines and
current and projected economic conditions and levels of competition. Actual
product returns, chargebacks and other sales allowances incurred are, however,
dependent upon future events. 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.

     The Company also enters into long-term agreements under which it assigns
marketing rights for the products it has developed to pharmaceutical marketers.
Royalties are earned based on the sale of products. Other non-refundable
payments specified in the agreements such as milestone payments and research and
development reimbursements, are recognized as income when the results or
objectives stipulated in the agreements have been achieved.

  Concentration of Credit Risk

     The Company extends credit on an uncollateralized basis primarily to
wholesale drug distributors and retail pharmacy chains throughout the United
States. The Company's three largest customers accounted for approximately 24%,
19% and 15%, and 29%, 25% and 12% of gross receivables at March 31, 2001 and
2002, respectively. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for potential uncollectible accounts.
Historically, actual losses from uncollectible accounts have been insignificant.

                                       36
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     For the year ended March 31, 2000, the Company's two largest customers
accounted for 18% and 12% of gross sales. For the years ended March 31, 2001 and
2002, the Company's three largest customers accounted for 23%, 20% and 14%, and
20%, 19% and 13%, respectively, of gross sales.

  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 costs funded by third parties,
are expensed in the period incurred. Payments received from third parties for
research and development are offset against expenses when the parties are
billed.

  Earnings Per Share

     Basic earnings per share is calculated by dividing net income available to
common shareholders for the period by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based on the
treasury stock method and is computed by dividing net income by the weighted
average common shares and common share equivalents outstanding during the
periods presented assuming the conversion of preferred shares and the exercise
of all in-the-money stock options. Common share equivalents have been excluded
from the computation of diluted earnings per share where their inclusion would
be anti-dilutive.

  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 amounts of existing assets and liabilities and their 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.

  Stock-Based Compensation

     The Company grants stock options for a fixed number of shares to employees
with an exercise price greater than or equal to the fair value of the shares at
the date of grant. As permissible under Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company
elected to continue to account for stock option grants to employees in
accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees and related interpretations. APB 25 requires that
compensation cost related to fixed stock option plans be recognized only to the
extent that the fair value of the shares at the grant date exceeds the exercise
price. Accordingly, no compensation expense is recognized for stock option
awards granted to employees at or above fair value. In accordance with SFAS 123,
the Company provides disclosure of pro forma net income and earnings per share
as if the fair value based method of accounting under SFAS 123 had been applied
(see Note 12).

  Fair Value of Financial Instruments

     The fair values of the Company's cash and cash equivalents, receivables,
accounts payable and accrued liabilities approximate their carrying values due
to the relatively short maturity of these items. The
                                       37
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carrying amount of all long-term financial instruments approximates their fair
value because their terms are similar to those which can be obtained for similar
financial instruments in the current marketplace.

  New Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets. SFAS 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interest method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, that upon
adoption of SFAS 142, the Company reclassify the carrying amounts of certain
intangible assets into or out of goodwill based on certain criteria in SFAS 141.

     SFAS 142 addresses accounting for intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) at acquisition. The statement also addresses accounting
for goodwill and other intangible assets after they have been initially
recognized in the financial statements. Intangible assets that have indefinite
useful lives and goodwill will no longer be amortized, but instead must be
tested at least annually for impairment using fair values. Intangible assets
that have finite useful lives will continue to be amortized over their estimated
useful lives. The provisions of SFAS 142 are effective for fiscal years
beginning after December 15, 2001.

     The Company's previous business combinations were accounted for using the
purchase method. As of March 31, 2002, the net carrying amount of goodwill and
other intangible assets was $556 and $40,736, respectively. In accordance with
the adoption of SFAS 142, amortization of goodwill will cease effective April 1,
2002. Amortization of goodwill during the year ended March 31, 2002 was $55. At
this time, the Company is reassessing the useful lives of previously recognized
intangible assets, determining which intangible assets, if any, have indefinite
lives and evaluating the extent of impairment, if any, of goodwill and
indefinite-lived intangible assets that may need to be recorded. Amortization of
other intangible assets was $2,298 during the year ended March 31, 2002.

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This statement is effective for fiscal
years beginning after June 15, 2002. Management does not believe the adoption of
this statement will have a material impact on its results of operations or
financial position.

     In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. It supersedes
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and certain provisions of APB Opinion No. 30,
Reporting the Effects of Disposal of a Segment of a Business and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for the disposal of
a segment of a business. SFAS 144 establishes a single accounting model, based
on the framework established in SFAS 121, for long-lived assets to be disposed
of by sale and resolves other implementation issues related to SFAS 121. This
statement is effective for fiscal years beginning after December 15, 2001. Based
on the Company's current operations, management does not expect the adoption of
SFAS 144 to have a material impact on its results of operations or financial
position.

  Reclassification

     Certain reclassifications to prior years' financial information have been
made to conform to the fiscal 2002 presentation. These reclassifications
included amounts associated with tradeshow allowances and
                                       38
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

administrative cost rebates paid to resellers which were previously classified
as selling and administrative expense that have been reclassified as a reduction
of net revenues.

3. ACQUISITIONS

     On August 2, 1999, the Company acquired the world-wide rights and trademark
for the prescription prenatal product, PreCare(R), from UCB Pharma for $8,433.
The purchase price was funded by a $3,000 cash payment, a $933 note and $4,500
in Class A common stock. The product right intangible asset related to the
acquisition is being amortized on a straight-line basis over 20 years. The pro
forma results related to the PreCare(R) product are not material to the
consolidated financial statements for comparative purposes.

4. INVENTORIES

     Inventories as of March 31, consist of:

<Table>
<Caption>
                                                               2001       2002
                                                              -------    -------
<S>                                                           <C>        <C>
Finished goods..............................................  $15,119    $18,600
Work-in-process.............................................    3,604      4,702
Raw materials...............................................   14,076     12,903
                                                              -------    -------
                                                               32,799     36,205
Reserves for obsolescence...................................     (588)    (1,108)
                                                              -------    -------
                                                              $32,211    $35,097
                                                              =======    =======
</Table>

5. COMPREHENSIVE INCOME

     Changes in accumulated comprehensive income, net for the year ended March
31, 2000 are as follows:

<Table>
<Caption>
                                                    BEFORE-TAX    TAX BENEFIT    NET-OF-TAX
                                                      AMOUNT       (EXPENSE)       AMOUNT
                                                    ----------    -----------    ----------
<S>                                                 <C>           <C>            <C>
Unrealized losses on securities arising during
  period..........................................     $(61)         $ 23           $(38)
Less: reclassification adjustments for losses on
  the sale of securities included in net income...      102           (39)            63
                                                       ----          ----           ----
Net unrealized gains..............................     $ 41          $(16)          $ 25
                                                       ====          ====           ====
</Table>

     The Company had no other comprehensive income for the years ended March 31,
2001 and 2002.

                                        39
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY AND EQUIPMENT

     Property and equipment as of March 31, consist of:

<Table>
<Caption>
                                                                2001        2002
                                                              --------    --------
<S>                                                           <C>         <C>
Land and improvements.......................................  $  2,083    $  2,083
Building and building improvements..........................    16,009      16,611
Machinery and equipment.....................................    26,768      31,497
Office furniture and equipment..............................     7,766       8,766
Leasehold improvements......................................     3,189       3,195
Construction-in-progress (estimated costs to complete at
  March 31, 2002 was $3,144) ...............................     3,264       5,353
                                                              --------    --------
                                                                59,079      67,505
Less accumulated depreciation and amortization..............   (22,232)    (26,281)
                                                              --------    --------
Net property and equipment..................................  $ 36,847    $ 41,224
                                                              ========    ========
</Table>

     Purchases of property and equipment were $15,380, $8,057 and $8,484 for
fiscal 2000, 2001 and 2002, respectively. Depreciation and amortization of
property and equipment was $2,173, $3,383 and $4,107 for fiscal 2000, 2001 and
2002, respectively.

7. INTANGIBLE AND OTHER ASSETS

     Intangibles and other assets as of March 31, consist of:

<Table>
<Caption>
                                                               2001       2002
                                                              -------    -------
<S>                                                           <C>        <C>
Product rights..............................................  $44,573    $44,573
Trademarks and patents......................................    2,223      3,046
Goodwill....................................................    2,139      2,139
Cash surrender value of life insurance......................    2,138      1,845
Deposits....................................................    1,248      2,015
Other.......................................................      291         --
Financing charges...........................................       63        119
                                                              -------    -------
                                                               52,675     53,737
Less accumulated amortization...............................   (6,151)    (8,522)
                                                              -------    -------
Net intangibles and other assets............................  $46,524    $45,215
                                                              =======    =======
</Table>

     Amortization of product rights and all other deferred charges was $2,252,
$2,315 and $2,316 for fiscal 2000, 2001 and 2002, respectively. Amortization of
goodwill was $55 for fiscal 2000, 2001 and 2002.

8. ACCRUED LIABILITIES

     Accrued liabilities as of March 31, consist of:

<Table>
<Caption>
                                                               2001       2002
                                                              -------    -------
<S>                                                           <C>        <C>
Salaries, wages, incentives and benefits....................  $ 4,581    $ 5,665
Income taxes................................................    2,240      6,929
Promotions..................................................    1,110      2,846
Other.......................................................    2,136        892
                                                              -------    -------
                                                              $10,067    $16,332
                                                              =======    =======
</Table>

                                       40
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. LONG-TERM DEBT

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

<Table>
<Caption>
                                                               2001      2002
                                                              ------    ------
<S>                                                           <C>       <C>
Industrial revenue bonds....................................  $1,180    $  855
Building mortgages..........................................   4,612     4,244
                                                              ------    ------
                                                               5,792     5,099
Less current portion........................................    (712)     (712)
                                                              ------    ------
                                                              $5,080    $4,387
                                                              ======    ======
</Table>

     As of March 31, 2002, the Company has a revolving credit agreement with
LaSalle National Bank (LaSalle) that provides for a revolving line of credit for
borrowing up to $60,000. During December 2001, the Company revised the previous
revolving credit agreement with LaSalle to provide for the continuation of the
Company's $40,000 revolving line of credit along with a supplemental credit line
of $20,000 for financing acquisitions. These credit facilities expire in October
2004 and December 2002, respectively. The revolving credit lines are unsecured
and interest is charged at the lower of the prime rate or the one-month LIBOR
rate plus 150 basis points. At March 31, 2002, the Company had $3,609 in open
letters of credit issued under the credit facilities. The credit agreement
includes covenants that impose minimum levels of earnings before interest,
taxes, depreciation and amortization, a maximum funded debt ratio, and a limit
on capital expenditures and dividend payments. As of March 31, 2002, the Company
was in compliance with all of its covenants.

     The industrial revenue bonds, which bear interest at 7.35% per annum,
mature serially through 2005 and are collateralized by certain property and
equipment, as well as through a letter of credit, which may only be accessed in
case of default on the bonds. The bonds do not allow the holder to require the
Company to redeem the bonds.

     In December 2001, the Company refinanced $2,500 of a building mortgage that
was due in June 2002. At March 31, 2002, the building mortgages bear interest at
7.57% and 7.95% and require monthly principal payments of $19 and $13 plus
interest through November 2006 and February 2004, respectively. The remaining
principal balances plus any unpaid interest are due on December 20, 2006 and
March 11, 2004, respectively.

     The aggregate maturities of long-term debt as of March 31, 2002 are as
follows:

<Table>
<Caption>

<S>                                                           <C>
2003........................................................  $  712
2004........................................................   2,258
2005........................................................     438
2006........................................................     233
2007........................................................   1,458
                                                              ------
                                                              $5,099
                                                              ======
</Table>

     The Company paid interest of $1,954, $1,329 and $417 during the years ended
March 31, 2000, 2001 and 2002, respectively.

10. COMMITMENTS AND CONTINGENCIES

  Leases

     The Company leases manufacturing, office and warehouse facilities,
equipment and automobiles under operating leases expiring through 2012. Total
rent expense for the years ended March 31, 2000, 2001 and 2002 was $2,185,
$4,319 and $4,441, respectively.

                                       41
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>

<S>                                                           <C>
2003........................................................  $2,726
2004........................................................   2,785
2005........................................................   2,487
2006........................................................   2,171
2007........................................................   2,142
Later years.................................................   9,482
</Table>

  Contingencies

     The Company currently carries product liability coverage of $10 million per
occurrence and $10 million in the aggregate on a "claims made" basis. There is
no assurance that its present insurance will cover any potential claims that may
be asserted in the future.

     The Company is subject to legal proceedings and claims that arise 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, individually or in the aggregate, will have a
material adverse effect on its financial position or operations.

  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 one officer contains
provisions for partial salary continuation under certain conditions, contingent
upon noncompete restrictions and providing consulting services to the Company as
specified in the agreement. The Company expensed $257, $174 and $183, under this
agreement in March 31, 2000, 2001 and 2002, respectively.

  Litigation

     KV, along with ETHEX Corporation, a wholly-owned subsidiary of the Company,
are defendants in a lawsuit styled, Healthpoint, Ltd. V. ETHEX Corporation. On
September 28, 2001, the jury returned verdicts, in the form of answers to
special interrogatories, against ETHEX on certain false advertising, unfair
competition and misappropriation claims and awarded damages aggregating $16,500.
The court will enter a judgment after consideration of the post-trial motions.
The court's judgment may then be appealed. The Company and its counsel believe
that the jury's recommended award is excessive and is not sufficiently supported
by the facts or the law. The court may or may not accept the jury's verdicts.
The Company intends to vigorously appeal any adverse judgment that the court may
enter. The Company and its legal counsel are not presently able to predict the
outcome of the matter and cannot reasonably estimate the Company's ultimate
liability, if any. Accordingly, the Company has not recorded any contingent
liability in its consolidated financial statements related to this matter.

                                       42
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME TAXES

     The fiscal 2000, 2001, and 2002 provisions were based on estimated Federal
and state taxable income using the applicable statutory rates. The current and
deferred Federal and state income tax provisions for fiscal years 2000, 2001 and
2002 are as follows:

<Table>
<Caption>
                                                         2000       2001       2002
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
PROVISION
Current
  Federal.............................................  $13,471    $10,072    $18,603
  State...............................................    1,525      1,073      1,664
                                                        -------    -------    -------
                                                         14,996     11,145     20,267
                                                        -------    -------    -------
Deferred
  Federal.............................................     (184)     2,061     (2,199)
  State...............................................      (21)       233       (177)
                                                        -------    -------    -------
                                                           (205)     2,294     (2,376)
                                                        -------    -------    -------
                                                        $14,791    $13,439    $17,891
                                                        =======    =======    =======
</Table>

     The reasons for the differences between the provision for income taxes and
the expected Federal income taxes at the statutory rate are as follows:

<Table>
<Caption>
                                                         2000       2001       2002
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Computed income tax expense...........................  $13,684    $12,972    $17,274
State income taxes, less Federal income tax benefit...    1,090        849        967
Business credits......................................       --       (142)      (260)
Other.................................................       17       (240)       (90)
                                                        -------    -------    -------
                                                        $14,791    $13,439    $17,891
                                                        =======    =======    =======
</Table>

     As of March 31, 2001 and 2002, the tax effect of temporary differences
between the tax basis of assets and liabilities and their financial reporting
amounts are as follows:

<Table>
<Caption>
                                                      2001                     2002
                                              ---------------------    ---------------------
                                              CURRENT   NON-CURRENT    CURRENT   NON-CURRENT
                                              -------   -----------    -------   -----------
<S>                                           <C>       <C>            <C>       <C>
Fixed asset basis differences...............  $   --      $(1,131)     $    --     $(2,126)
Reserves for inventory and receivables......   1,175           --        4,376          --
Vacation pay reserve........................     338           --          464          --
Deferred compensation.......................      --          949           --       1,004
Amortization................................      --         (551)          --        (818)
Other.......................................     131           --          387          --
                                              ------      -------      -------     -------
  Net deferred tax asset (liability)........  $1,644      $  (733)     $ 5,227     $(1,940)
                                              ======      =======      =======     =======
</Table>

     The Company paid income taxes of $19,754, $11,971 and $15,578 during the
years ended March 31, 2000, 2001 and 2002, respectively.

12. EMPLOYEE BENEFITS

  Stock Option Plan and Agreements

     During fiscal 2002, the Board of Directors adopted the Company's 2001
Incentive Stock Option Plan (the 2001 Plan), which allows for the issuance of up
to 3,750,000 shares of common stock. Prior to the approval of the 2001 Plan, the
Company operated under the 1991 Incentive Stock Option Plan, as
                                       43
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amended, which allowed for the issuance of up to 4,500,000 shares of common
stock. Under the Company's stock option plans, 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 10 years. The exercisability of the grants varies according to the
individual options granted. In addition to the Stock Option Plan, the Company
issues stock options periodically related to employment agreements with its
executives and to non-employee directors. At March 31, 2002, options to purchase
334,350 shares of stock were outstanding pursuant to employment agreements and
grants to non-employee directors.

     The following summary shows the transactions for the fiscal years 2000,
2001 and 2002 under option arrangements:

<Table>
<Caption>
                                             OPTIONS OUTSTANDING      OPTIONS EXERCISABLE
                                            ----------------------   ----------------------
                                                          AVERAGE                  AVERAGE
                                              NO. OF     PRICE PER     NO. OF     PRICE PER
                                              SHARES       SHARE       SHARES      SHARES
                                            ----------   ---------   ----------   ---------
<S>                                         <C>          <C>         <C>          <C>
Balance, March 31, 1999...................   2,782,763    $ 6.45      1,530,614    $ 5.72
  Options granted.........................     869,587     11.11             --        --
  Options becoming exercisable............          --        --        706,159      8.37
  Options exercised.......................    (433,597)     4.25       (433,597)     4.25
  Options canceled........................    (131,108)     9.74        (23,912)     9.50
                                            ----------               ----------
Balance March 31, 2000....................   3,087,645      7.90      1,779,264      7.10
  Options granted.........................     592,125     15.62             --        --
  Options becoming exercisable............          --        --        433,351     11.13
  Options exercised.......................  (1,344,348)     7.15     (1,344,348)     7.15
  Options canceled........................    (182,223)    10.47        (54,644)     9.01
                                            ----------               ----------
Balance March 31, 2001....................   2,153,199     10.27        813,623      9.04
  Options granted.........................     362,000     20.44             --        --
  Options becoming exercisable............          --        --        385,356     12.79
  Options exercised.......................    (188,703)     5.73       (188,703)     5.73
  Options canceled........................    (194,110)    12.73        (53,105)    10.63
                                            ----------               ----------
Balance March 31, 2002....................   2,132,386    $12.18        957,171    $11.11
                                            ==========               ==========
</Table>

     The weighted-average fair value of options granted at market price was
$3.11, $4.18 and $5.45 per share in 2000, 2001 and 2002, respectively. The
weighted-average fair value of options granted with an exercise price exceeding
market price on the date of grant was $0.73, $1.83 and $0.45 per share in 2000,
2001 and 2002, respectively.

     The following table summarizes information about stock options outstanding
at March 31, 2002:

<Table>
<Caption>
                                OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                 -------------------------------------------------   ------------------------------
   RANGE OF        NUMBER                                              NUMBER
   EXERCISE      OUTSTANDING   WEIGHTED AVERAGE   WEIGHTED AVERAGE   EXERCISABLE   WEIGHTED AVERAGE
    PRICES       AT 3/31/02     LIFE REMAINING     EXERCISE PRICE    AT 3/31/02     EXERCISE PRICE
---------------  -----------   ----------------   ----------------   -----------   ----------------
<S>              <C>           <C>                <C>                <C>           <C>
$ 1.23 - $ 5.00    195,914         3 Years             $ 3.34          109,254          $ 3.20
$ 5.01 - $ 9.00    266,774         5 Years             $ 5.63          138,403          $ 5.58
$ 9.01 - $14.00    989,380         6 Years             $11.04          455,583          $11.18
$14.01 - $20.00    460,538         7 Years             $16.89          226,521          $16.65
$20.01 - $29.01    219,780         9 Years             $23.28           27,410          $22.94
</Table>

     SFAS No. 123 requires the Company to provide pro forma information
regarding net income and earnings per share as if compensation cost for the
Company's stock option plan had been determined in

                                       44
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accordance with the fair value of each stock option at the grant date using the
Black-Scholes option-pricing model.

     The weighted average fair value of the options has been estimated on the
date of grant using the following weighted average assumptions for grants in
fiscal 2000, 2001 and 2002, respectively: no dividend yield; expected volatility
of 66%, 56% and 56%; risk-free interest rate of 6.47%, 6.50% and 6.00% per
annum; and expected option terms ranging from 3 to 10 years for all three years.
Weighted averages are used because of varying assumed exercise dates.

     Under the accounting provisions of SFAS No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:

<Table>
<Caption>
                                                         2000       2001       2002
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Net income:
  As reported.........................................  $24,308    $23,625    $31,464
  Pro forma...........................................   23,591     22,718     30,649
Net income per common share -- basic:
  As reported.........................................  $  0.85    $  0.80    $  1.03
  Pro forma...........................................     0.82       0.77       1.00
Net income per common share -- diluted:
  As reported.........................................  $  0.80    $  0.74       0.98
  Pro forma...........................................     0.78       0.71       0.95
</Table>

  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 $175, $300 and $350 for fiscal 2000, 2001 and 2002,
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 $586,
$907 and $1,028 were made to the 401(k) investment funds in fiscal 2000, 2001
and 2002, respectively.

     Contributions are also made to multi-employer defined benefit plans
administered by labor unions for certain union employees. Amounts charged to
pension expense and contributed to these plans were $119, $161 and $165 in
fiscal 2000, 2001 and 2002, respectively.

  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 $100,000 of each employee's covered medical claims. Included in
accrued liabilities in the consolidated balance sheets as of March 31, 2001 and
2002 were $300 and $400 of accrued health insurance reserves, respectively, for
claims incurred but not reported. For union employees, the Company participates
in a fully funded insurance plan sponsored by the union. Total health and
medical insurance expense for the two plans was $2,714, $4,088, and $5,255 in
fiscal 2000, 2001 and 2002, respectively.

13. RELATED PARTY TRANSACTIONS

     The Company currently leases certain real property from an affiliated
partnership of an officer and director of the Company. Lease payments made for
this property during the years ended March 31, 2000, 2001 and 2002 totaled $246,
$246 and $263, respectively.

                                       45

<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. EQUITY TRANSACTIONS

     On June 29, 2001, 200,000 shares of 7% Cumulative Convertible Preferred
Stock were converted, at a conversion rate of 5.625-to-one, into 1,125,000
shares of Class A common stock. As of March 31, 2001 and 2002, the Company had
240,000 and 40,000 shares, respectively, 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 at its stated value. Each share of preferred stock
is convertible into Class A Common Stock at a conversion price of $4.45 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. Undeclared and unaccrued cumulative
preferred dividends were $2,194, or $9.14 per share and $366, or $9.14 per
share, at March 31, 2001 and 2002, respectively. 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.

     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 9), 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.

     On August 18, 2000, the Company's Board of Directors declared a
three-for-two stock split in the form of a 50% stock dividend of its common
stock to shareholders of record on August 28, 2000, payable on September 7,
2000. Common Stock was credited and retained earnings was charged for the
aggregate par value of the shares issued. The stated par value of each share was
not changed from $.01.

     All per share data in this report has been restated to reflect the
aforementioned three-for-two stock split in the form of a 50% stock dividend.

15. EARNINGS PER SHARE

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

<Table>
<Caption>
                                                         2000       2001       2002
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Numerator:
  Net income..........................................  $24,308    $23,625    $31,464
  Preferred stock dividends...........................     (420)      (420)       (70)
                                                        -------    -------    -------
  Numerator for basic earnings per share -- income
     available to common shareholders.................   23,888     23,205     31,394
  Effect of dilutive securities:
     Preferred stock dividends........................      420        420         70
                                                        -------    -------    -------
  Numerator for diluted earnings per share -- income
     available to common shareholders after assumed
     conversions......................................  $24,308    $23,625    $31,464
                                                        =======    =======    =======
</Table>

                                       46
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                         2000       2001       2002
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Denominator:
  Denominator for basic earnings per
     share -- weighted-average shares.................   27,975     28,981     30,408
                                                        -------    -------    -------
  Effect of dilutive securities:
     Employee stock options...........................    1,203      1,662      1,258
     Convertible preferred stock......................    1,350      1,350        499
                                                        -------    -------    -------
  Dilutive potential common shares....................    2,553      3,012      1,757
                                                        -------    -------    -------
  Denominator for diluted earnings per
     share -- adjusted weighted-average shares and
     assumed conversions..............................   30,528     31,993     32,165
                                                        =======    =======    =======
  Basic earnings per share(1).........................  $  0.85    $  0.80    $  1.03
                                                        =======    =======    =======
  Diluted earnings per share(1)(2)....................  $  0.80    $  0.74    $  0.98
                                                        =======    =======    =======
</Table>

---------------
(1) The two-class method for Class A and Class B common stock is not presented
    because the earnings per share are equivalent to the if converted method
    since dividends were not declared or paid and each class of common stock has
    equal ownership of the Company.

(2) Employee stock options to purchase 107,250, 5,750 and 27,550 shares of Class
    A common stock at March 31, 2000, 2001 and 2002, respectively, are not
    presented because these options are anti-dilutive. The exercise prices of
    these options exceeded the average market prices of the shares under option
    in each respective period.

16. NONRECURRING GAIN

     Under a contract that the Company has with a supplier, issues arose with
respect to the timing of supply of a product and the supplier's failure to
pursue another product. The terms of the contract provided for binding private
arbitration between the parties which resulted in the Company receiving notice
of an award in December 1998 of $13,253. The Arbitration Panel subsequently
directed the parties to have further discussions including possible replacement
products. Payment of the award was deferred pending the outcome of these
discussions. Subsequent attempts to obtain replacement products were
unsuccessful and the Company was paid the arbitration in June 1999. In January
2000, the Company received an additional award of $6,973 covering all open
monetary issues related to the contract. The $6,973 award, net of applicable
income taxes and expenses, represents $.13 per common share on a diluted basis
for the year ended March 31, 2000, and is reflected in the fiscal 2000
consolidated statement of income as other income.

                                       47
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. QUARTERLY FINANCIAL RESULTS (UNAUDITED)

<Table>
<Caption>
                                    1ST        2ND        3RD        4TH
                                  QUARTER    QUARTER    QUARTER    QUARTER      YEAR
                                  -------    -------    -------    -------    --------
<S>                               <C>        <C>        <C>        <C>        <C>
FISCAL 2001
Net sales.......................  $37,942    $43,251    $43,088    $53,486    $177,767
Gross profit....................   21,747     25,349     26,073     33,935     107,104
Pretax income...................    6,964      8,473      8,379     13,248      37,064
Net income......................    4,352      5,423      5,371      8,479      23,625
Earnings per
  share -- basic(a).............     0.15       0.18       0.18       0.29        0.80
Earnings per
  share -- diluted(a)...........     0.14       0.17       0.17       0.26        0.74
FISCAL 2002
Net sales.......................  $45,220    $50,658    $51,553    $56,674    $204,105
Gross profit....................   27,645     29,408     32,247     34,402     123,702
Pretax income...................    8,883     11,027     12,782     16,663      49,355
Net income......................    5,663      7,030      8,148     10,623      31,464
Earnings per share -- basic.....     0.19       0.23       0.26       0.35        1.03
Earnings per share -- diluted...     0.18       0.22       0.25       0.33        0.98
</Table>

---------------
Note:

(a) All earnings per share amounts have been restated to reflect a three-for-two
    stock split in the form of a 50% stock dividend, declared by the Board of
    Directors on August 18, 2000 and distributed September 7, 2000 to
    shareholders of record as of August 28, 2000.

18. SEGMENT REPORTING

     The reportable operating segments of the Company are branded products,
specialty generics, specialty materials and contract services. The operating
segments are distinguished by differences in products, marketing and regulatory
approval. 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 four 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, intangibles and other assets and all income
tax related assets. Accounting policies of the segments are the same as the
Company's consolidated accounting policies.

                                       48
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following represents information for the Company's reportable operating
segments for fiscal 2000, 2001 and 2002

<Table>
<Caption>
                        FISCAL
                         YEAR
                        ENDED     BRANDED    SPECIALTY   SPECIALTY   CONTRACT     ALL
                       MARCH 31   PRODUCTS   GENERICS    MATERIALS   SERVICES    OTHER     ELIMINATIONS   CONSOLIDATED
                       --------   --------   ---------   ---------   --------   --------   ------------   ------------
<S>                    <C>        <C>        <C>         <C>         <C>        <C>        <C>            <C>
Total Revenues.......    2000     $23,469    $ 98,106     $17,182    $ 3,720    $    257     $    --        $142,734
                         2001      25,206     132,154      17,088      3,018         301          --         177,767
                         2002      40,424     141,007      19,557      2,808         309          --         204,105
Income before
  taxes..............    2000       5,307      48,862       3,823        917     (19,810)         --          39,099
                         2001      (6,490)     71,779       4,333      1,131     (33,689)         --          37,064
                         2002       7,222      74,389       3,684      1,085     (37,025)         --          49,355
Intangible assets....    2000       9,237      27,927       6,939     32,605      64,835      (1,158)        140,385
                         2001       9,497      31,241       8,278     39,200      64,359      (1,158)        151,417
                         2002      12,555      58,618       8,774     40,340      76,063      (1,158)        195,192
Property and
  equipment
  additions..........    2000         119         338         208     13,172       1,543          --          15,380
                         2001         226         805          91      6,676         259          --           8,057
                         2002         707         120         391      5,469       1,797          --           8,484
Depreciation and
  amortization.......    2000          50         148         140      1,683       2,459          --           4,480
                         2001          82         180         152      2,816       2,523          --           5,753
                         2002          74          79         156      3,485       2,976          --           6,770
</Table>

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

                                       49
<PAGE>


ITEM  9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE

             Not Applicable.

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

           The information contained under the caption "INFORMATION CONCERNING
           NOMINEES AND DIRECTORS CONTINUING IN OFFICE" in the Company's
           definitive proxy statement to be filed pursuant to Regulation 14(a)
           for its 2002 Annual Meeting of Shareholders, which involves the
           election of directors, is incorporated herein by this reference. Also
           see Item 4(a) of Part I hereof.

ITEM 11.   EXECUTIVE COMPENSATION

           The information contained under the captions "EXECUTIVE COMPENSATION"
           and "INFORMATION AS TO STOCK OPTIONS" in the Company's definitive
           proxy statement to be filed pursuant to Regulation 14(a) for its 2002
           Annual Meeting of Shareholders is incorporated herein by this
           reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The information contained under the caption "SECURITY OWNERSHIP OF
           PRINCIPAL HOLDERS AND MANAGEMENT" in the Company's definitive proxy
           statement to be filed pursuant to Regulation 14(a) for its 2002
           Annual Meeting of Shareholders is incorporated herein by this
           reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           The information contained under the caption "TRANSACTIONS WITH
           ISSUER" in its definitive proxy statement to be filed pursuant to
           Regulation 14(a) for its 2002 Annual Meeting of Shareholders is
           incorporated herein by this reference.


                                       50
<PAGE>
                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a)   1. Financial Statements:                                            Page
           --------------------                                             ----

           The following consolidated financial statements of the Company
           are included in Part II, Item 8:

           Report of Independent Certified Public Accountants                 30

           Consolidated Balance Sheets as of March 31, 2002 and 2001          31

           Consolidated Statements of Income for the Years Ended March 31,    32
           2002, 2001 and 2000

           Consolidated Statements of Shareholders' Equity for the Years      33
           Ended March 31, 2002, 2001 and 2000

           Consolidated Statements of Cash Flows for the Years Ended          34
           March 31, 2002, 2001 and 2000

           Notes to Financial Statements                                      35

        2. Financial Statement Schedules:
           -----------------------------

           Report of Independent Certified Public Accountants regarding       51
           Financial Statement Schedule

           Schedule II - Valuation and Qualifying Accounts                    52

        3. Exhibits:
           --------

           See Exhibit Index on pages 52 through 56 of this Report.
           Management contracts and compensatory plans are designated
           on the Exhibit Index.


  (b)   A report on Form 8-K was filed by the Company on April 1, 2002 for
        a Regulation FD disclosure.




                                       51

<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors
K-V Pharmaceutical Company


The audits referred to in our report dated May 24, 2002 relating to the
consolidated financial statements of K-V Pharmaceutical Company, which are
included in Item 8 of this Form 10-K, included the audit of the accompanying
financial statement schedule. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits. In our
opinion such financial statement schedule presents fairly, in all material
respects, the information set forth therein.

/s/ BDO SEIDMAN, LLP


Chicago, Illinois
May 24, 2002

                                   52
<PAGE>
2.  Financial Statement Schedules:

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS

<Table>
<Caption>
                                       Balance at    Additions charged      Amounts           Balance
                                       beginning        to costs and      charged to           at end
                                        of year           expenses          reserves           of year
                                      -----------    -----------------    -----------        -----------
<S>                                   <C>               <C>               <C>                <C>
Year Ended March 31, 2000:
Allowance for doubtful accounts       $   192,403       $   241,772       $    (3,759)       $   437,934
Inventory obsolescence                    548,288         1,502,323           988,538          1,062,073
                                      -----------       -----------       -----------        -----------
                                      $   740,691       $ 1,744,095       $   984,779        $ 1,500,007
                                      ===========       ===========       ===========        ===========

Year Ended March 31, 2001:
Allowance for doubtful accounts       $   437,934       $    12,652       $     2,627        $   447,959
Inventory obsolescence                  1,062,073           418,284           892,760            587,597
                                      -----------       -----------       -----------        -----------
                                      $ 1,500,007       $ 1,430,936       $   895,387        $ 1,035,556
                                      ===========       ===========       ===========        ===========

Year Ended March 31, 2002:
Allowance for doubtful accounts       $   447,959       $   112,836       $   158,081        $   402,714
Inventory obsolescence                    587,597         2,214,867         1,694,464          1,108,000
                                      -----------       -----------       -----------        -----------
                                      $ 1,035,556       $ 2,327,703       $ 1,852,545        $ 1,510,714
                                      ===========       ===========       ===========        ===========
</Table>


Financial Statements of KV Pharmaceutical Company (separately) are omitted
because KV is primarily an operating company and its subsidiaries included in
the Financial Statements are wholly-owned and are not materially indebted to any
person other than through the ordinary course of business.


                                   53
4

<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.

                                         KV PHARMACEUTICAL COMPANY

Date:    June 7, 2002                    By       /s/  Marc S. Hermelin
                                                  ------------------------------
                                                  Vice Chairman of the Board
                                                  (Principal Executive Officer)


Date:    June 7, 2002                    By       /s/  Gerald R. Mitchell
                                                  ------------------------------
                                                  Vice President, Treasurer and
                                                  Chief Financial Officer
                                                  (Principal Financial and
                                                   Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the dates indicated by the following persons on behalf
of the Company and in their capacities as members of the Board of Directors of
the Company:


Date:    June 7, 2002                    By       /s/  Marc S. Hermelin
                                                  ------------------------------
                                                  Marc S. Hermelin


Date:    June 7, 2002                    By       /s/  Victor M. Hermelin
                                                  ------------------------------
                                                  Victor M. Hermelin


Date:    June 7, 2002                    By       /s/ Garnet E. Peck
                                                  ------------------------------
                                                  Garnet E. Peck, Ph.D.


Date:    June 7, 2002                    By       /s/  Norman D. Schellenger
                                                  ------------------------------
                                                  Norman D. Schellenger


Date:    June 7, 2002                    By       /s/  Alan G. Johnson
                                                  ------------------------------
                                                  Alan G. Johnson


Date:    June 7, 2002                    By       /s/  Kevin S. Carlie
                                                  ------------------------------
                                                  Kevin S. Carlie

                                   54
<PAGE>
<Table>
<Caption>
                                 EXHIBIT INDEX

   Exhibit No.                             Description
<S>                 <C>

      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, 1987, 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, 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, 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, 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.

      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.

      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.
</Table>
                                             55

<PAGE>
<Table>
<Caption>
   Exhibit No.                             Description
<S>                 <C>
      4(b)          Loan Agreement dated as of November 1, 1989, with the
                    Industrial Development Authority of the County of St. Louis,
                    Missouri, regarding private activity refunding and revenue
                    bonds issued by such Authority, including form of Promissory
                    Note executed in connection therewith, which was filed as
                    Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q
                    for the quarter ended December 31, 1989, is incorporated
                    herein by this reference.

      4(c)          Loan Agreement dated June 18, 1997 between the Company and
                    its subsidiaries and LaSalle National Bank ("LaSalle"),
                    which was filed as Exhibit 4(i) to the Company's Annual
                    Report on Form 10-K for the year ended March 31, 1997, is
                    incorporated herein by this reference.

      4(d)          Revolving Note, dated June 18, 1997, by the Company and its
                    subsidiaries in favor of LaSalle, which was filed as Exhibit
                    4(j) to the Company's Annual Report on Form 10-K for the
                    year ended March 31, 1997, is incorporated herein by this
                    reference.

      4(e)          Term Note, dated June 24, 1997, by the Company and its
                    subsidiaries in favor of LaSalle, which was filed as Exhibit
                    4(k) to the Company's Annual Report on Form 10-K for the
                    year ended March 31, 1997, is incorporated herein by this
                    reference.

      4(f)          Reimbursement Agreement dated as of October 16, 1997,
                    between the Company and LaSalle, which was filed as Exhibit
                    4(f) to the Company's Annual Report on Form 10-K for the
                    year ended March 31, 1998, is incorporated herein by this
                    reference.

      4(g)          Deed of Trust and Security Agreement dated as of October 16,
                    1997, between the Company and LaSalle, which was filed as
                    Exhibit 4(g) to the Company's Annual Report on Form 10-K for
                    the year ended March 31, 1998, is incorporated herein by
                    this reference.

      4(h)          First Amendment, dated as of October 28, 1998, to Loan
                    Agreement between the Company and its subsidiaries and
                    LaSalle, which was filed as Exhibit 4(h) to the Company's
                    Annual Report on Form 10-K for the year ended March 31,
                    1999, is incorporated herein by this reference.

      4(i)          Second Amendment, dated as of March 11, 1999, to Loan
                    Agreement between the Company and its subsidiaries and
                    LaSalle, which was filed as Exhibit 4(i) to the Company's
                    Annual Report on Form 10-K for the year ended March 31,
                    1999, is incorporated herein by this reference.
</Table>

                                       56
<PAGE>
<Table>
<Caption>
   Exhibit No.                             Description
<S>                 <C>
      4(j)          Third Amendment, dated June 22, 1999, to Loan Agreement
                    between the Company and its subsidiaries and LaSalle, which
                    was filed as Exhibit 4(j) to the Company's Annual Report on
                    Form 10-K for the year ended March 31, 2000, is incorporated
                    herein by this reference.

      4(k)          Fourth Amendment, dated December 17, 1999, to Loan Agreement
                    between the Company and its subsidiaries and LaSalle, which
                    was filed as Exhibit 4(k) to the Company's Annual Report on
                    Form 10-K for the year ended March 31, 2000, is incorporated
                    by this reference.

      4(l)          Fifth Amendment, dated December 21, 2001, to Loan Agreement
                    between the Company and its subsidiaries and LaSalle, filed
                    herewith.

     10(a)*         Stock Option Agreement between the Company and Marc S.
                    Hermelin, Vice Chairman and Chief Executive Officer, dated
                    February 18, 1986, is incorporated herein by this reference.

     10(b)*         First Amendment to and Restatement of the KV Pharmaceutical
                    1981 Employee Incentive Stock Option Plan, dated March 9,
                    1987 (the "Restated 1981 Option Plan"), which as filed as
                    Exhibit 10(t) to the Company's Annual Report on Form 10-K
                    for the year ended March 31, 1988, is incorporated herein by
                    this reference.

     10(c)*         Second Amendment to the Restated 1981 Option Plan, dated
                    June 12, 1987, which was filed as Exhibit 10(u) to the
                    Company's Annual Report on Form 10-K for the year
                    ended March 31, 1988, is incorporated herein by this
                    reference.

     10(d)*         Revised Form of Stock Option Agreement, effective
                    June 12, 1987, for the Restated 1981 Option Plan,
                    which was filed as Exhibit 10(v) to the Company's Annual
                    Report on Form 10-K for the year ended March 31, 1988, is
                    incorporated herein by this reference.

     10(e)*         Consulting Agreement between the Company and Victor M.
                    Hermelin, Chairman of the Board, dated October 30, 1978, as
                    amended October 30, 1982, and Employment Agreement dated
                    February 20, 1974, referred to therein (which was filed as
                    Exhibit 10(m) to the Company's Annual Report on Form 10-K
                    for the year ended March 31, 1983) and subsequent
                    Amendments dated as of August 12, 1986, which was filed as
                    Exhibit 10(f) to the Company's Annual Report on Form 10-K
                    for the year ended March 31, 1987, and dated as of
                    September 15, 1987 (which was filed as Exhibit 10(s) to the
                    Company's Annual Report on Form 10-K for the year ended
                    March 31, 1988), and dated October 25, 1988 (which was
                    filed as Exhibit 10(n) to the Company's Annual Report on
                    Form 10-K for the year ended March 31, 1989), and dated
                    October 30, 1989 (which was filed as Exhibit 10(n) to the
                    Company's Annual Report on Form 10-K

 </Table>

*     Management contract or compensation plan.


                                       57


<PAGE>
<Table>
<Caption>
   Exhibit No.                             Description
<S>                 <C>
                    for the year ended March 31, 1990), and dated October 30,
                    1990 (which was filed as Exhibit 10(n) to the Company's
                    Annual Report on Form 10-K for the year ended March 31,
                    1991), and dated as of October 30, 1991 (which was filed as
                    Exhibit 10(i) to the Company's Annual Report on Form 10-K
                    for the year ended March 31, 1992), are incorporated herein
                    by this reference.

     10(f)*         Restated and Amended Employment Agreement between the
                    Company and Gerald R. Mitchell, Vice President, Finance,
                    dated as of March 31, 1994, is incorporated herein by this
                    reference.

     10(g)*         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(h)          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.

     10(i)          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(j)          Amendment to Lease Agreement, dated as of September 30,
                    1985, between the Industrial Development Authority of the
                    County of St. Louis, Missouri, as Lessor and KV
                    Pharmaceutical Company as Lessee, regarding lease of
                    facility located at 2303 Schuetz Road, St. Louis County,
                    Missouri, which was filed as Exhibit 10(q) to the Company's
                    Report on Form 10-Q for the quarter ended December 31, 1985,
                    is incorporated herein by this reference.

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

*     Management contract or compensation plan.

                                       58


<PAGE>
<Table>
<Caption>
   Exhibit No.                             Description
<S>                 <C>
     10(m)*         Employment Agreement between the Company and Marc S.
                    Hermelin, Vice-Chairman, dated November 15, 1993, which was
                    filed as Exhibit 10(u) to the Company's Annual Report on
                    Form 10-K for the year ended March 31, 1994, is incorporated
                    herein by this reference.

     10(n)*         Stock Option Agreement dated June 1, 1995, granting stock
                    option to Marc S. Hermelin, which was filed as Exhibit 10(w)
                    to the Company's Quarterly Report on Form 10-Q for the
                    quarter ended June 30, 1996, is incorporated herein by this
                    reference.

     10(o)*         Second Amendment dated as of June 1, 1995, to Employment
                    Agreement between the Company and Marc S. Hermelin, which
                    was filed as Exhibit 10(x) to the Company's Quarterly Report
                    on Form 10-Q for the quarter ended June 30, 1996, is
                    incorporated herein by this reference.

     10(p)*         Stock Option Agreement dated as of January 22, 1996,
                    granting stock options to MAC & Co., which was filed as
                    Exhibit 10(z) to the Company's Annual Report on Form 10-K
                    for the year ended March 31, 1996, is incorporated herein by
                    this reference.

     10(q)*         Third Amendment dated as of November 22, 1995, to Employment
                    Agreement between the Company and Marc S. Hermelin, which
                    was filed as Exhibit 10(aa) to the Company's Annual Report
                    on Form 10-K for the year ended March 31, 1996, is
                    incorporated herein by this reference.

     10(r)*         Stock Option Agreement dated as of November 22, 1995,
                    granting a stock option to Victor M. Hermelin, which was
                    filed as Exhibit 10(bb) to the Company's Annual Report on
                    Form 10-K for the year ended March 31, 1996, is incorporated
                    herein by this reference.

     10(s)*         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(t)*         Agreement between the Company and Marc S. Hermelin, Vice
                    Chairman, 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(u)          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
</Table>

*     Management contract or compensation plan.

                                       59


<PAGE>
<Table>
<Caption>
   Exhibit No.                             Description
<S>                 <C>
                    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(v)*              Stock Option Agreement dated as of January 3, 1997, granting
                    a stock option to Marc S. Hermelin, which was filed as
                    Exhibit 10(bb) to the Company's Annual Report on Form 10-K
                    for the year ended March 31, 1999, is incorporated herein by
                    this reference.

10(w)*              Stock Option Agreement dated as of May 15, 1997, granting a
                    stock option to Marc S. Hermelin, which was filed as Exhibit
                    10(cc) to the Company's Annual Report on Form 10-K for the
                    year ended March 31, 1999, is incorporated herein by this
                    reference.
</Table>

                                       60







<PAGE>
<Table>
<Caption>
   Exhibit No.                             Description
<S>                 <C>
      10(x)         Asset Purchase Agreement by and between K-V Pharmaceutical
                    Company and American Home Products Corporation, acting
                    through its Wyeth-Ayerst Laboratories division, dated as of
                    February 11, 1999, which was filed as Exhibit 2.1 to the
                    Company's Report on Form 8-K filed April 5, 1999, is
                    incorporated herein by this reference.

      10(y)*        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(z)         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(aa)*       Stock Option Agreement dated as of March 31, 1999, granting
                    a stock option to Victor M. Hermelin, which was filed as
                    Exhibit 10(aa) to the Company's Annual Report on Form 10-K
                    for the year ended March 31, 2001, is incorporated by this
                    reference.

      10(bb)*       Stock Option Agreement dated as of April 1, 1999, granting a
                    stock option to Marc S. Hermelin, which was filed as Exhibit
                    10(gg) to the Company's Annual Report on Form 10-K for the
                    year ended March 31, 2000, is incorporated by this
                    reference.

      10(cc)*       Stock Option Agreement dated as of August 16, 1999, granting
                    a stock option to Marc S. Hermelin, which was filed as
                    Exhibit 10 (hh) to the Company's Annual Report on Form 10-K
                    for the year ended March 31, 2000, is incorporated by this
                    reference.

      10(dd)*       Amendment, dated December 2, 1999, to Employment Agreement
                    between the Company and Marc S. Hermelin, Vice-Chairman,
                    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(ee)*       Employment Agreement between the Company and Alan G.
                    Johnson, Senior Vice-President, Strategic Planning and
                    Corporate Growth, dated September 27, 1999, which was filed
                    as Exhibit 10(jj) to the Company's Annual Report on Form
                    10-K for the year ended March 31, 2000, is incorporated by
                    this reference.

      10(ff)*       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(gg)*       Stock Option Agreement dated as of June 1, 2000, granting a
                    stock option to Marc S. Hermelin, which was filed as Exhibit
                    10(gg) to the Company's Annual Report on Form 10-K for the
                    year ended March 31, 2001, is incorporated by this
                    reference.

      10(hh)*       Stock Option Agreement dated as of June 1, 2000, granting a
                    stock option to Marc S. Hermelin, which was filed as Exhibit
                    10(hh) to the Company's Annual Report on Form 10-K for the
                    year ended March 31, 2001, is incorporated by this
                    reference.

      10(ii)        Stock Option Agreement dated as of April 9, 2001, granting a
                    stock option to Kevin S. Carlie, filed herewith.

      10(jj)        Stock Option Agreement dated as of April 9, 2001, granting a
                    stock option to Marc S. Hermelin, filed herewith.

      10(kk)        Stock Option Agreement dated as of April 9, 2001, granting a
                    stock option to Marc S. Hermelin, filed herewith.

      21            List of Subsidiaries, filed herewith.

      23            Consent of BDO Seidman, LLP, filed herewith.

*     Management contract or compensation plan.

</Table>

                                       61