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                                UNITED STATES
                     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, 2003

                        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. [ ]

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

The aggregate market value of the 19,993,164 shares of Class A and 4,900,849
shares of Class B Common Stock held by nonaffiliates of the registrant as of
September 30, 2002, the last business day of the registrant's most recently
completed second fiscal quarter, was $377,870,800 and $92,626,046,
respectively. As of June 4, 2003, the registrant had outstanding 21,750,660
and 10,604,679 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 2003 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 and detailed in this Form 10-K; (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 captions "Narrative Description of Business," "Risk Factors,"
"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.


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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 develop 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; oral 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
         1990, we established a generic/non-branded marketing capability
         through a wholly-owned subsidiary, ETHEX Corporation ("ETHEX"),
         which makes us one of the only drug delivery research and
         development companies that also markets "technologically
         distinguished" generic/non-branded 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.

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

         During July 2002, we completed a public offering of approximately
         3.3 million shares of Class A common stock. Net proceeds to us were
         $72.4 million, after deducting underwriting discounts, commissions
         and offering expenses. The proceeds from the offering are being
         used for general corporate purposes, including product
         acquisitions, research and development activities and working
         capital.

         On March 31, 2003, we completed two acquisitions of an aggregate of
         nine pharmaceutical products for a total cost of approximately
         $41.3 million. The acquisitions include two leading lines of
         hematinic products, Chromagen(R) and Niferex(R), and the related
         line of StrongStart(R) branded prenatal vitamins, a category in
         which we are a market leader under the PreCare(R) brand. Current
         annual revenues of the acquired products are approximately $16.0
         million. Similar to our strategy with other acquired products, we
         plan to make formulation enhancements to the acquired product
         lines.

         In April 2003, we purchased a building for $8.8 million. The
         facility consists of approximately 275,000 square feet of office,
         production, distribution and warehouse space. The purchase of the
         building was financed by a term loan secured by the property. The
         building mortgage bears interest at 5.30% and is due in April 2008.

         During May 2003, we completed the issuance of $200.0 million of
         Contingent Convertible Subordinated Notes (the "Notes") that are
         convertible, under certain circumstances, into shares of our Class
         A common stock at an initial conversion price of $34.51 per share.
         The Notes bear interest at a rate of 2.50% and mature on May 16,
         2033. The net proceeds to us were approximately $194.0 million,
         after deducting underwriting discounts, commissions and offering
         expenses. The proceeds from the offering were used to purchase
         $50.0 million of our


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         Class A common stock, with the remaining proceeds to be used to fund
         future acquisitions of products, technologies and businesses, and for
         general corporate purposes.

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

         We operate principally in three industry segments, consisting of
         branded products marketing, specialty generics marketing and
         specialty raw materials marketing. Revenues are derived primarily
         from directly marketing our own technologically distinguished
         generic/non-branded 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 17 to our consolidated financial statements).

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

         OVERVIEW

         We are a fully integrated specialty pharmaceutical company that
         develops, acquires, manufactures and markets technologically
         distinguished branded and generic/non-branded prescription
         pharmaceutical products. We have a broad range of dosage form
         capabilities including tablets, capsules, creams, liquids and
         ointments. We conduct our branded pharmaceutical operations through
         Ther-Rx Corporation and our generic/non-branded pharmaceutical
         operations through ETHEX Corporation, which focuses principally on
         technologically distinguished generic/non-branded 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/non-branded products. We have developed and
         patented 15 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 early years,
         we used our technologies to develop products for other drug
         marketers. Our technologies have been used in several well known
         products including Actifed(R) 12-hour, Sudafed(R) SA, Centrum
         Jr.(R) and Kaopectate(R) Chewable. Since the 1990's, we have chosen
         to focus our drug development expertise on internally developed
         products for our branded and generic/non-branded pharmaceutical
         businesses. For example, since its inception in 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/non-branded products marketed by our ETHEX business
         incorporate one or more of our drug delivery technologies.

         Our drug delivery technology allows us to differentiate our
         products in the marketplace, both in the branded and
         generic/non-branded pharmaceutical areas. We believe that this
         differentiation provides substantial competitive advantages for our
         products, allowing us to establish a strong record of growth and
         profitability and a leadership position in certain segments of our
         industry. From 1998 to March 31, 2003, we have grown net revenues
         and net income at compounded annual growth rates of 20.2% and
         20.0%, respectively. Ther-Rx, which was established in 1999, has
         grown substantially since its inception and continues to gain
         market share in its women's healthcare family of products. Of more
         than 100 products sold by our ETHEX subsidiary, approximately 58%
         were


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         identified as the leading product and approximately 90% were
         identified as the first or second leading products in their
         respective generic categories by IMS America, an independent
         healthcare market research firm.

         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. Since its inception, Ther-Rx has introduced 16
         products, of which 11 were acquired and five were developed
         internally using our proprietary technologies. Ther-Rx generated
         $43.7 million of net revenues during fiscal 2003, which represented
         17.8% of our total net revenues.

         We established our women's healthcare franchise through the August
         1999 acquisition of PreCare(R), a prescription prenatal vitamin,
         from UCB Pharma, Inc. Since the acquisition, Ther-Rx has
         reformulated the original product using proprietary technologies,
         and subsequently has launched 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.

         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 addressed 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 B6. This product is designed for use in
         conjunction with a physician-supervised program to reduce
         pregnancy-related nausea and vomiting, which is experienced by 50%
         to 90% of women. 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 an 18% 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
         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.

         On March 31, 2003, we completed two acquisitions of an aggregate of
         nine pharmaceutical products for a total cost of approximately
         $41.3 million. The acquisitions include two leading lines of
         hematinic products, Chromagen(R) and Niferex(R), and the related
         line of StrongStart(R) branded prenatal vitamins, a category in
         which Ther-Rx is already a market leader under the PreCare(R)
         banner. Current annual revenues of the acquired products are
         approximately $16.0 million. Similar to our strategy with other
         acquired products, we plan to make formulation enhancements to the
         acquired product lines.

         Ther-Rx has approximately 160 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


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         products. Ther-Rx also has a corporate sales and marketing management
         team dedicated to planning and managing Ther-Rx's sales and marketing
         efforts.

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

         We established ETHEX, currently our largest business segment, in
         1990 to utilize our portfolio of drug delivery systems to develop
         and market hard-to-copy generic/non-branded pharmaceuticals. We
         believe many of our ETHEX products enjoy higher gross margins due
         to our approach of selecting products that can take advantage of
         our proprietary drug delivery systems and our specialty
         manufacturing capabilities. These advantages act as barriers to
         entry which limit competition and reduce the rate of price erosion
         typically experienced in the generic market. ETHEX's net revenues
         were $179.7 million for fiscal 2003, which represented 73.4% of our
         total net revenues.

         We have incorporated our proprietary drug delivery technology in
         many of our generic/non branded 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 product capabilities, we continue
         to expand our ETHEX product portfolio. Over the past two years, we
         have introduced more than 25 new generic/non-branded products and
         have a number of products currently in development to be marketed
         by ETHEX. Since January 1, 2002, we have received seven new
         Abbreviated New Drug Application, or ANDA, approvals and have
         several currently pending.

         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 and continuing through
         fiscal 2007.

         ETHEX's current product line consists of more than 100 products, of
         which approximately 58% were identified as the leading product and
         approximately 90% were identified as the first or second leading
         products in their respective generic categories by IMS America, an
         independent healthcare market research firm.

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

         CARDIOVASCULAR. ETHEX currently markets over 30 products in its
         cardiovascular line, including products to treat angina, arrhythmia
         and hypertension, as well as for potassium supplementation. In
         addition to marketing the generic versions of IMDUR(R), Norpace
         CR(R), Cardura(R) and Rythmol(R), we received an April 2002 ANDA
         approval for the generic equivalent to K-Dur(R) which was launched
         in fiscal 2003. The cardiovascular line accounted for 45.9% of
         ETHEX's net revenues in fiscal 2003.

         WOMEN'S HEALTH CARE. ETHEX currently markets 20 products in its
         women's healthcare 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 healthcare line accounted for 12.1% of ETHEX's net
         revenues in fiscal 2003.

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         PAIN MANAGEMENT. ETHEX currently markets 19 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 14.2% of
         ETHEX's net revenues in fiscal 2003.

         RESPIRATORY. ETHEX currently markets over 30 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 14.4% of ETHEX's net revenues in fiscal 2003.

         OTHER THERAPEUTICS. In addition to our core therapeutic lines,
         ETHEX markets over 30 products in the gastrointestinal,
         dermatological, anti-inflammatory, digestive enzyme and general
         nutritional categories. These categories accounted for 13.4% of
         ETHEX's net revenues in fiscal 2003.

         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
         products 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. Particle Dynamics is also a
         significant supplier of value-added raw material for our Ther-Rx
         and ETHEX businesses. Net revenues for Particle Dynamics were $17.4
         million in fiscal 2003, which represented 7.1% of our total net
         revenues. Particle Dynamics currently offers three distinct lines
         of specialty raw material products:

         o    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. DESCOTE(R) products
              accounted for 36.5% of Particle Dynamics' sales in fiscal
              2003.

         o    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. DESTAB(TM) products accounted for 61.9% of Particle
              Dynamics' sales in fiscal 2003.

         o    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 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/non-branded products to market. Our strategies incorporate
         the following key elements:

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         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: 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. We
         also plan to incorporate technology enhancements into the
         Chromagen(R), Niferex(R) and StrongStart(R) product lines acquired
         on March 31, 2003.

         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:

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

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

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

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

         FOCUS SALES EFFORTS ON HIGH VALUE NICHE MARKETS. We focus our
         Ther-Rx sales efforts on niche markets where we believe we can
         target a relatively narrow physician 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 160 sales representatives who principally call on
         gynecologists and obstetricians. We plan to continue to build our
         sales force as necessary to accommodate current and future
         expansions of our product lines.

         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, generic
         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 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/non-branded products can help contain costs
         and improve patient compliance.

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         ADVANCE EXISTING AND DEVELOP NEW DRUG DELIVERY TECHNOLOGIES. We
         believe our drug delivery platform of 15 distinguished technologies
         has unique breadth and depth. These technologies have enabled us to
         create innovative products, including Gynazole-1(R), 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/non branded 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:

         o    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.

         o    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.

         o    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 liquefies
              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 gastrointestinal tract disorders.

         o    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 liquefies 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.

         o    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 liquefies and bioadheres to vaginal or
              rectal tissues, which is of


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              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:

         o    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.

         o    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.

         o    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:

         o    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.

         o    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.

         o    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 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:

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         o    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.

         o    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.

         o    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
         U.S. Patent and Trademark Office, or PTO.

         SALES AND MARKETING

         Ther-Rx has a national sales and marketing infrastructure which
         includes approximately 160 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
         large sales force. We also have a national sales management team,
         as well as a sales team dedicated to managed care and trade
         accounts.

         We attempt to increase sales of our branded pharmaceutical products
         through physician sales calls and promotional efforts, including
         sampling, advertising and direct mail. For acquired branded
         products, we generally increase the level of physician sales calls
         and promotion relative to the previous owner. For example, with the
         PreCare(R) prenatal sales efforts, we increased the level of
         physician sales calls and sampling to the highest prescribers of
         prenatal vitamins. We also have enhanced our PreCare(R) brand
         franchise by launching 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 sales force.

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


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         generic/non-branded products can fulfill the increasing need of
         these markets to contain costs and improve patient compliance.
         Accordingly, we intend to continue to devote significant marketing
         resources to the penetration of 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 2003, our three largest customers accounted for 23%,
         18% and 14% of gross revenues. These customers were McKesson Drug
         Company, Amerisource Corporation and Cardinal Health, respectively.
         In fiscal 2002 and 2001, these customers accounted for gross
         revenues of 20%, 13% and 19% and 23%, 14% and 20%, respectively.

         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/non-branded versions of
         previously approved brand name pharmaceutical products. In fiscal
         2003, 2002 and 2001, total research and development expenses were
         $19.1 million, $10.7 million, and $9.3 million, respectively.

         Ther-Rx currently has a number of products in its research and
         development pipeline at various stages of development. We believe
         we have the technological expertise required to develop unique
         products to meet currently unmet needs in the area of women's
         health, as well as other therapeutic areas.

         ETHEX currently has more than 30 products in its research and
         development pipeline at various stages of development and
         exploration. Our development process typically 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
         the following seven ANDA approvals from the FDA:

<TABLE>
<CAPTION>
                                ETHEX PRODUCT                                   BRAND EQUIVALENT
              --------------------------------------------------        -------------------------------
              <S>                                                       <C>
              Propafenone HCI Tablets                                   Rythmol(R)
              Buspirone HCI Tablets                                     BuSpar(R)
              Hydrocodone Bitartrate & Acetaminophen Elixir CIII        Lortab(R) Elixir
              Potassium Chloride 20mEq Extended Release Tablets         K-Dur 20(R)
              Prednisolone Syrup USP                                    Prelone(R)
              Dextroamphetamine Sulfate Tablets, 5mg                    Dexedrine(R), Dextrostat(R)
              Dextroamphetamine Sulfate Tablets, 10mg                   Dextrostat(R)
</TABLE>

         In addition to our internal product development and 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/non-branded 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.

                                     12

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         Particle Dynamics currently has a number of 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 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 16 U.S.
         patent applications pending. In addition, we have 36 foreign issued
         patents and a total of 84 patent applications pending primarily in
         Canada, Europe, Australia, Japan and South Korea (see "We depend on
         our patents and other proprietary rights" under RISK FACTORS for
         additional information).

         We currently own more than 50 U.S. and foreign trademark
         registrations and have also applied for trademark protection for
         the names of our proprietary controlled-release, tastemasking,
         site-specific and quick dissolve technologies. We intend to
         continue to trademark new technology and product names as they are
         developed.

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

         MANUFACTURING AND FACILITIES

         We believe that our administrative, research, manufacturing and
         distribution facilities are an important factor in achieving our
         long-term growth objectives. All facilities at March 31, 2003,
         aggregating approximately 833,000 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 2003 through 2012, subject in
         most cases to renewal at our option. On April 28, 2003, we
         purchased a building consisting of approximately 275,000 square
         feet of office, production, distribution and warehouse space. We
         believe our 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 our
         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 2003, we
         encountered no serious shortage of any particular raw materials and
         have no indication that significant shortages will occur in the
         foreseeable future.


                                     13

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         COMPETITION

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


                                     14

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         "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 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 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 these products. However, if a determination is made by
         the FDA that a


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         particular drug requires an approved NDA or ANDA, we may be required
         to cease distribution of the product until such approval is obtained.

         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 such as those distributed
         by the Ther-Rx sales force. The PDMA sets forth substantial civil
         and criminal penalties for violations of these and other
         provisions.

         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 into, our licensees may accept or assume
         responsibility for such foreign regulatory approvals. The time and
         cost required to obtain these international market approvals may be
         greater or 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, 2003, we employed a total of 916 employees. We are
         party to a collective bargaining agreement covering 155 employees
         that will expire December 31, 2004. We believe that our relations
         with our employees are good.

         ENVIRONMENT

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

         AVAILABLE INFORMATION

         We make available, free of charge through our Internet website
         (http://www.kvpharmaceutical.com), our Annual Report on Form 10-K,
         Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and
         amendments to these reports filed or furnished pursuant to Section
         13(a) or 15(d) of the Securities Exchange Act of 1934 as soon


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         as reasonably practicable after we electronically file these reports
         with, or furnish them to, the Securities and Exchange Commission,
         or SEC.

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


                                RISK FACTORS

         We operate in a rapidly changing environment that involves a number
         of risks, some of which are beyond our control. The following
         discussion highlights some of these risks and others are discussed
         elsewhere in this report. Additional risks presently unknown to us
         or that we currently consider immaterial or unlikely to occur could
         also impair our operations. These and other risks could materially
         and adversely affect our business, financial condition, operating
         results or cash flows.

                        RISKS RELATED TO OUR BUSINESS

         WE NEED TO INTERNALLY DEVELOP NEW PRODUCTS TO ACHIEVE OUR STRATEGIC
         OBJECTIVES.

         We need to continue to develop and commercialize new brand name
         products and generic products utilizing our proprietary drug
         delivery systems to maintain the growth of Ther-Rx, ETHEX and
         Particle Dynamics. To do this we will need to identify, develop and
         commercialize technologically enhanced branded products and
         identify, develop and commercialize drugs that are off-patent and
         that can be produced and sold by us as generic/non-branded products
         using our drug delivery technologies. If we are unable to identify,
         develop and commercialize new products, we may need to obtain
         licenses to additional rights to branded or generic products,
         assuming they would be available for licensing, which could
         decrease our profitability. We cannot assure you that we will be
         successful in pursuing this strategy.

         WE MAY NOT BE ABLE TO COMMERCIALIZE PRODUCTS UNDER DEVELOPMENT.

         Certain products we are developing will require significant
         additional development and investment, including preclinical and
         clinical testing, where required, prior to their commercialization.
         We expect that many of these products will not be commercially
         available for several years, if at all. We cannot assure you that
         such products or future products will be successfully developed,
         prove to be safe and effective in clinical trials (if required),
         meet applicable regulatory standards, or be capable of being
         manufactured in commercial quantities at reasonable cost.

         OUR ACQUISITION STRATEGY MAY NOT BE SUCCESSFUL.

         We intend to continue to acquire pharmaceutical products, novel
         drug delivery technologies and/or companies that fit into our
         research, manufacturing, distribution or sales and marketing
         operations or that could provide us with additional products,
         technologies or sales and marketing capabilities. We may not be
         able to successfully identify, evaluate and acquire any such
         products, technologies or companies or, if acquired, we may not be
         able to successfully integrate such acquisitions into our business.
         We compete with many specialty pharmaceutical companies for
         products and product line acquisitions. These competitors may have
         substantially greater financial and managerial resources than we
         have.

         WE DEPEND ON OUR PATENTS AND OTHER PROPRIETARY RIGHTS.

         Our success depends, in large part, on our ability to protect our
         current and future technologies and products, to defend our
         intellectual property rights and to avoid infringing on the
         proprietary rights of others. We have been issued numerous patents
         in the United States and in certain foreign countries which cover
         certain of our


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         technologies, and have filed, and expect to continue to file,
         patent applications seeking to protect newly developed
         technologies and products. The pharmaceutical field 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 validity and
         enforceability cannot be predicted. 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 or other legal reasons. 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 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 assurances 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. 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). In addition, publication of discoveries in scientific or
         patent literature often lags behind actual discoveries. As a
         result, we cannot be certain that we or our 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.
         Furthermore, once patented in foreign countries, the inventions may
         be subjected to mandatory working requirements and/or subject to
         compulsory licensing regulations.

         We also rely on trade secrets, unpatented proprietary know-how and
         continuing technological innovation that we seek to protect, in
         part by confidentiality agreements with licensees, suppliers,
         employees and consultants. These agreements may be breached by the
         other parties to these agreements. We may not 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.
         Furthermore, our trade secrets and proprietary technology may
         become known or be independently developed by our competitors, or
         patents may not be issued with respect to products or methods
         arising from our research, and we may not be able to maintain the
         confidentiality of information relating to those products or
         methods. Furthermore, certain unpatented technology may be subject
         to intervening rights.

         WE DEPEND ON OUR TRADEMARKS AND RELATED RIGHTS.

         We also rely on our brand names. To protect our trademarks and
         goodwill associated therewith, domain name, and related rights, we
         generally rely on federal and state trademark and unfair
         competition laws, which are subject


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         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.

         THIRD PARTIES MAY CLAIM THAT WE INFRINGE ON THEIR PROPRIETARY
         RIGHTS, OR SEEK TO CIRCUMVENT OURS.

         We may be required to defend against charges of infringement of
         patents, trademarks or other proprietary rights of third parties.
         This 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. If a
         dispute is 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, using,
         selling and/or importing in to the United States certain of our
         products. Litigation also may be necessary to enforce our patents
         against others or to protect our know-how or trade secrets. That
         litigation could result in substantial expense or put our
         proprietary rights at risk of loss, and we cannot assure you that
         any litigation will be resolved in our favor. There currently are
         two patent infringement law suits pending against us. Although we
         do not believe they will have a material adverse effect on our
         future financial condition or results of operations, we cannot
         assure you of that.

         WE MAY BE UNABLE TO MANAGE OUR GROWTH.

         Over the past eight years, our businesses and product offerings
         have grown substantially. This growth and expansion has placed, and
         is expected to continue to place, a significant strain on our
         management, operational and financial resources. To manage our
         growth, we must continue to (1) expand our operational, customer
         support and financial control systems and (2) hire, train and
         retain qualified personnel. We cannot assure you that we will be
         able to adequately manage our growth. If we are unable to manage
         our growth effectively, our business, results of operations and
         financial condition could be materially adversely affected.

         WE MAY NOT OBTAIN REGULATORY APPROVAL FOR OUR NEW PRODUCTS ON A
         TIMELY BASIS, OR AT ALL.

         Many of our new products will require FDA approval. FDA approval
         typically involves lengthy, detailed and costly laboratory and
         clinical testing procedures, as well as the FDA's review and
         approval of the information submitted. We cannot assure you that
         the products we develop will be determined to be safe and effective
         in these testing procedures, or that they will be approved by the
         FDA. The FDA also has the authority to revoke for cause drug
         approvals previously granted.

         WE MAY BE ADVERSELY AFFECTED BY THE CONTINUING CONSOLIDATION OF OUR
         DISTRIBUTION NETWORK AND THE CONCENTRATION OF OUR CUSTOMER BASE.

         Our principal customers are wholesale drug distributors, major
         retail drug store chains, independent pharmacies and mail order
         firms. These customers comprise a significant part of the
         distribution network for pharmaceutical products in the United
         States. This distribution network is continuing to undergo
         significant consolidation marked by mergers and acquisitions among
         wholesale distributors and the growth of large retail drug store
         chains. As a result, a small number of large wholesale distributors
         control a significant share of the market, and the


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         number of independent drug stores and small drug store chains has
         decreased. We expect that consolidation of drug wholesalers and
         retailers will increase pricing and other competitive pressures on
         drug manufacturers. For the fiscal year ended March 31, 2003, our
         three largest customers accounted for 23%, 18% and 14% of our
         gross sales. The loss of any of these customers could materially
         and adversely affect our results of operations or financial
         condition.

         THE REGULATORY STATUS OF CERTAIN OF OUR NON-BRANDED PRODUCTS MAY
         MAKE THEM SUBJECT TO INCREASED COMPETITION.

         Many of our products are manufactured and marketed without FDA
         approval. For example, our prenatal products, which contain folic
         acid, are sold as prescription multiple vitamin supplements. These
         types of prenatal vitamins are typically regulated by the FDA as
         prescription drugs, but are not covered by an NDA or ANDA. As a
         result, competitors may more easily and rapidly introduce products
         competitive with our prenatal and other products that have a
         similar regulatory status.

         CHANGES TO FDA REGULATIONS AND GUIDELINES, AS WELL AS COURT
         DECISIONS AND POSSIBLE ENACTMENT OF FURTHER CHANGES IN THE
         UNDERLYING STATUTORY PROVISIONS MAY IMPAIR OUR ABILITY TO QUALIFY
         FOR OR UTILIZE FULLY THE 180-DAY GENERIC MARKETING EXCLUSIVITY
         PERIOD FOR PATENT CHALLENGES, SUBSTANTIALLY DIMINISHING THE VALUE
         OF A FAVORABLE RULING AND THE INCENTIVES FOR CHALLENGING LISTED
         PATENTS.

         One of the key motivations for challenging patents is the reward of
         a 180-day period of market exclusivity. Under the Waxman-Hatch Act,
         the developer of a generic version of a product which is the first
         to have its ANDA accepted for filing by the FDA, and whose filing
         includes a certification that the patent is invalid, unenforceable
         and/or not infringed (a so-called "Paragraph IV certification"),
         may be eligible to receive a 180-day period of generic market
         exclusivity. This period of market exclusivity provides the patent
         challenger with the opportunity to earn a risk-adjusted return on
         legal and development costs associated with bringing a product to
         market.

         In August 1999, the FDA issued a notice of proposed rulemaking in
         which it proposed new regulations for implementing the 180-day
         generic market exclusivity provisions. Additionally, the FDA
         announced an interim modification to its generic drug exclusivity
         policies in a March 2000 Industry Guidance and in a July 13, 2000
         interim rule. On October 24, 2002, the FDA published an additional
         proposal to adopt regulations that would further alter the patent
         listing and certification procedures on which the opportunities for
         180-day generic exclusivity are based. On November 1, 2002, the FDA
         withdrew the August 1999 proposed rule, announcing that it would,
         instead, apply the 180-day exclusivity provisions based on the
         applicable statutory language as interpreted from time-to-time by
         the Courts in private litigation involving patent infringement
         claims or in litigation involving direct challenges to FDA's
         policies and interpretations of the law. On June 18, 2003, the FDA
         issued final regulations based on the October 24, 2002 proposal. We
         believe that these new regulations are likely to be challenged in
         Court, and cannot predict whether they will be upheld after such a
         challenge.

         Additionally, legislation has been introduced in Congress that
         would make similar and/or additional changes in the provisions of
         the Waxman-Hatch Amendments governing the listing of patents, the
         requirements for making certifications to patents and the
         circumstances in which a company may be awarded a 180-day marketing
         exclusivity period following a successful challenge to a listed
         patent. The language and scope of possible legislation on these
         issues is still being hotly debated and it is impossible to predict
         whether, when or in what form any statutory changes may be enacted
         as a result. The range of proposals being debated include proposals
         that would severely limit or completely eliminate 180-day generic
         exclusivity.

         Some of these proposals, if enacted, could substantially change the
         incentives and the manner in which patents on drug products are
         enforced and challenged. Because our business involves both
         enforcement of our own patents and challenges to the patents of
         others, we are not in a position to predict whether any such
         proposals, if enacted, would ultimately have a positive or negative
         impact on our business. One or more of our product development or
         marketing plans could be adversely affected either by additional
         changes in the language or


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         interpretation of the Waxman-Hatch provisions or by an extended
         period of uncertainty over whether and in what form such changes
         may be made.

         WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS, FOR WHICH WE MAY BE
         INADEQUATELY INSURED.

         Manufacturing, selling and testing pharmaceutical products involve
         a risk of product liability. Even unsuccessful product liability
         claims could require us to spend money on litigation, divert
         management's time, damage our reputation and impair the
         marketability of our products. A successful product liability claim
         outside of or in excess of our insurance coverage could require us
         to pay substantial sums and adversely affect our results of
         operations and financial condition.

         We previously distributed several low volume pharmaceutical
         products that contained phenylpropanolamine, or PPA, and that were
         discontinued in 2000 and 2001. We are presently named as one of
         several defendants in two product liability lawsuits in federal
         court in Nevada and Mississippi involving PPA. Both cases 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 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 effect on us cannot be determined.

         We are being defended and indemnified in the Nevada PPA lawsuits by
         our 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 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, our product liability
         coverage for PPA claims expired for claims made after June 15,
         2002. Although we renewed our product liability coverage for a
         policy term of June 15, 2002 through June 15, 2003, that policy
         excludes future PPA claims in accordance with the standard industry
         exclusion. Consequently, as of June 15, 2002, we have provided for
         legal defense costs and indemnity payments involving PPA claims on
         a going forward basis, including the Mississippi lawsuit that was
         filed during the June 15, 2002 through June 15, 2003 policy period.
         From time to time in the future, we may be subject to further
         litigation resulting from products containing PPA that we formerly
         distributed. We intend to vigorously defend against any claims that
         may be raised in the current and future litigations.

         BECAUSE WE ARE INVOLVED IN CERTAIN LEGAL PROCEEDINGS WE MAY BE
         REQUIRED TO PAY DAMAGES THAT MAY IMPAIR OUR PROFITABILITY AND
         REDUCE OUR LIQUIDITY.

         ETHEX is a defendant in a lawsuit styled Healthpoint, Ltd. v. ETHEX
         Corporation, pending in federal court in San Antonio, Texas. In
         general, the plaintiffs allege that ETHEX's comparative promotion
         of its Ethezyme(TM) 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. In September 2001, the jury
         returned verdicts against ETHEX on certain false advertising,
         unfair competition, and misappropriation claims. The jury awarded
         compensatory and punitive damages totaling $16.5 million. On
         October 1, 2002, the U.S. District Court for the Western District
         of Texas denied ETHEX's motion to set aside the jury's verdict. On
         December 17, 2002, the court entered a judgment awarding attorneys'
         fees to Healthpoint in an amount to be subsequently determined.

         We believe that the jury award is excessive and is not sufficiently
         supported by the facts or the law. We intend to vigorously appeal
         once a final judgment has been entered by the court. We and our
         counsel believe that there are meritorious arguments to be raised
         during the appeal process, however, we are not presently able to
         predict the


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         outcome of the pending District Court's motions or an appeal.
         As a result of the court's earlier decisions, our results
         of operations for fiscal 2003 included a reserve for potential
         damages of $16.5 million, which is reflected in accrued liabilities
         on our consolidated balance sheet as of March 31, 2003. To date
         Healthpoint has requested reimbursement for approximately $1.8
         million in attorneys' fees in addition to the judgment discussed
         above. We are contesting Healthpoint's entitlement to and their
         requested amount of attorneys' fees. As of this date, the court had
         not entered any order with respect to the amount of attorneys' fees
         to be awarded. Our counsel has advised us that the amount could
         range from zero to $1.8 million, the amount requested by
         Healthpoint. Based on our current analysis we believe that the
         reserve as recorded will be adequate to cover any judgment,
         including attorneys' fees, which may result at the end of the
         appeal process. We are continually evaluating the need for
         additional reserves as the case progresses through the appeal
         process.

         WE DEPEND ON LICENSES FROM OTHERS, AND ANY LOSS OF THESE LICENSES
         COULD HARM OUR BUSINESS, MARKET SHARE AND PROFITABILITY.

         We have acquired the rights to manufacture, use and/or market
         certain products. We also expect to continue to obtain licenses for
         other products and technologies in the future. Our license
         agreements generally require us to develop the markets for the
         licensed products. If we do not develop these markets, the
         licensors may be entitled to terminate these license agreements.

         We cannot be certain that we will fulfill all of our obligations
         under any particular license agreement for any variety of reasons,
         including insufficient resources to adequately develop and market a
         product, lack of market development despite our efforts and lack of
         product acceptance. Our failure to fulfill our obligations could
         result in the loss of our rights under a license agreement.

         Certain products we have the right to license are at certain stages
         of clinical tests and FDA approval. Failure of any licensed product
         to receive regulatory approval could result in the loss of our
         rights under its license agreement.

         WE MAY HAVE FUTURE CAPITAL NEEDS AND FUTURE ISSUANCES OF EQUITY
         SECURITIES WILL RESULT IN DILUTION.

         We anticipate that funds generated internally, together with funds
         available under our credit facility, and the proceeds received from
         our Notes offering completed in May 2003, will be sufficient to
         implement our business plan for the foreseeable future, subject to
         additional needs as may arise if acquisition opportunities become
         available. We also may need additional capital if unexpected events
         occur or opportunities arise. Additional capital might be raised
         through the public or private sale of debt or equity securities. If
         we sell equity securities, holders of our common stock could
         experience dilution. Furthermore, those securities could have
         rights, preferences and privileges more favorable than those of the
         Class A common stock. We cannot assure you that additional funding
         will be available, or available on terms favorable to us. If the
         funding is not available, we may not be able to fund our expansion,
         take advantage of acquisition opportunities or respond to
         competitive pressures.

         RISKS RELATED TO OUR INDUSTRY

         OUR BUSINESS MAY BE ADVERSELY AFFECTED BY CHANGES IN THIRD PARTY
         REIMBURSEMENT PRACTICES, THIRD PARTY REJECTION OF OUR PRODUCTS AND
         RELATED PRICING PRESSURES.

         The market for our products may be limited by actions of third
         party payers, such as government and private health insurers and
         managed care organizations. For example, many managed health care
         organizations are now controlling the pharmaceuticals that appear
         on their lists of reimbursable medications. The resulting
         competition among pharmaceutical companies to place their products
         on these formulary lists has created a trend of downward pricing
         pressure in the industry. In addition, many managed care
         organizations are pursuing various ways to reduce pharmaceutical
         costs and are considering formulary contracts primarily with those
         pharmaceutical


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         companies that can offer a full line of products for a given
         therapeutic category or disease state. Our products might not be
         included in the formulary lists of managed care organizations.
         Also, downward pricing pressure in the industry generally may
         negatively impact our results of operations.

         Our ability to market generic/non-branded pharmaceutical products
         successfully depends, in part, on the acceptance of the products by
         independent third parties, including pharmacies, government
         formularies and other retailers, as well as patients. We
         manufacture a number of prescription drugs which are used by
         patients who have severe health conditions. Although the brand-name
         products generally have been marketed safely for many years prior
         to our introduction of a generic/non-branded alternative, there is
         a possibility that one of these products could produce a side
         effect which could result in an adverse effect on our ability to
         achieve acceptance by managed care providers, pharmacies and other
         retailers, customers and patients. If these independent third
         parties do not accept our products, it could have a material
         adverse effect on our revenues and profitability.

         Furthermore, a number of legislative and regulatory proposals aimed
         at changing the health care system have been proposed. We cannot
         predict whether any of these proposals will be adopted or the
         effect they may have on our business. The fact that these proposals
         are pending, the nature of these proposals, and the adoption of any
         of these proposals are likely to increase industry-wide pricing
         pressures.

         OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION.

         Our business is subject to extensive regulation by numerous
         governmental authorities in the United States and other countries,
         particularly the FDA. Failure to comply with applicable FDA or
         other regulatory requirements may result in criminal prosecution,
         civil penalties, injunctions, recall or seizure of products and
         total or partial suspension of production, as well as other
         regulatory actions against our products and us.

         We market certain drug products in the United States without FDA
         approval under certain "grandfather" clauses and statutory and
         regulatory exceptions to the pre-market approval requirement for
         "new drugs" under the Federal Food, Drug and Cosmetic Act, or the
         FDCA. A determination as to whether a particular product does or
         does not require FDA pre-market review and approval can involve
         consideration of numerous complex and imprecise factors. If a
         determination is made by the FDA that any product marketed without
         approval requires such approval, the FDA may institute enforcement
         actions, including product seizure, or an action seeking an
         injunction against further marketing and may or may not allow
         sufficient time to obtain the necessary approvals before it seeks
         to curtail further marketing. For example, in October 2002, FDA
         sent warning letters to manufacturers and distributors of
         unapproved prescription drug products containing the expectorant
         guaifenesin as a single entity in a solid oral dosage form. Citing
         the recent approval of one such product, the FDA warning letters
         asserted that the marketing of all such products without NDA or
         ANDA approval should stop. The FDA subsequently agreed to allow
         continued manufacture through May 2003 and sale through October
         2003 of the products, and we are complying with those deadlines
         unless and until we obtain NDA or ANDA approval for our versions of
         the affected guaifenesin products. We are not in a position to
         predict whether or when the FDA might choose to raise similar
         objections to the marketing without NDA or ANDA approval of another
         category or categories of drug products represented in our product
         lines. In the event such objections are raised, we could be
         required or could decide to cease distribution of additional
         products until pre-market approval is obtained. In addition, we may
         not be able to obtain any particular approval that may be required
         or such approvals may not be obtained on a timely basis.

         In addition to compliance with current Good Manufacturing Practice,
         or cGMP, requirements, drug manufacturers must register each
         manufacturing facility with the FDA. Manufacturers also must be
         registered with the Drug Enforcement Administration, or DEA, and
         similar state and local regulatory authorities if they handle
         controlled substances, and with the Environmental Protection
         Agency, or EPA, and similar state and local regulatory authorities
         if they generate toxic or dangerous wastes. We are currently in
         material compliance with cGMP and are registered with the
         appropriate agencies. Non-compliance with applicable cGMP
         requirements or the rules and regulations of these agencies can
         result in fines, recall or seizure of products, total or partial
         suspension of


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         production and/or distribution, refusal of government agencies to
         grant pre-market approval or other product applications and
         criminal prosecution. Despite our ongoing efforts, cGMP
         requirements and other regulatory requirements, and related
         enforcement priorities and policies may evolve over time and we
         may not be able to remain continuously in material compliance with
         all of these requirements.

         From time to time, governmental agencies have conducted
         investigations of other pharmaceutical companies relating to the
         distribution and sale of drug products to government purchasers or
         subject to government or third party reimbursement. We believe that
         we have marketed our products in compliance with applicable laws
         and regulations. However, standards sought to be applied in the
         course of governmental investigations may not be consistent with
         standards previously applied to our industry generally or
         previously understood by us to be applicable to our activities.

         OUR INDUSTRY IS HIGHLY COMPETITIVE.

         Numerous pharmaceutical companies are involved or are becoming
         involved in the development and commercialization of products
         incorporating advanced drug delivery systems. Our business is
         highly competitive, and we believe that competition will continue
         to increase in the future. Many pharmaceutical companies have
         invested, and are continuing to invest, significant resources in
         the development of proprietary drug delivery systems. In addition,
         several companies have been formed to develop specific advanced
         drug delivery systems. Many of these pharmaceutical and other
         companies who may develop drug delivery systems have greater
         financial, research and development and other resources than we do,
         as well as more experience in commercializing pharmaceutical and
         drug delivery products. Those companies may develop products using
         their drug delivery systems more rapidly than we do or develop drug
         delivery systems that are more effective than ours and thus may
         represent significant potential competitors.

         Our branded pharmaceutical business is subject to competition from
         larger companies with greater financial resources that can support
         larger sales forces. The ability of a sales force to compete is
         affected by the number of physician calls it can make, which is
         directly related to its size, the brand name recognition it has in
         the marketplace and its advertising and promotional efforts. We are
         not as well established in our branded product sales initiative as
         larger pharmaceutical producers and could be adversely affected by
         competition from companies with a larger, more established sales
         force and higher advertising and promotional expenditures.

         Our generic/non-branded pharmaceutical business is also subject to
         competitive pressures from a number of companies, some of which
         have greater financial resources and broader product lines. To the
         extent that we succeed in being first to market with a
         generic/non-branded version of a significant product, our sales and
         profitability can be substantially increased in the period
         following the introduction of such product and prior to additional
         competitors' introduction of an equivalent product. Competition is
         generally on price, which can have an adverse effect on
         profitability as falling prices erode margins. In addition, the
         continuing consolidation of the customer base (wholesale
         distributors and retail drug chains) and the impact of managed care
         organizations will increase competition as suppliers compete for
         fewer customers. Consolidation of competitors will increase
         competitive pressures as larger suppliers are able to offer a
         broader product line. Further, companies continually seek new ways
         to defeat generic competition, such as filing applications for new
         patents to cover drugs whose original patent protection is about to
         expire, developing and marketing other dosage forms including
         patented controlled-release products or developing and marketing as
         over-the-counter products those branded products which are about to
         lose exclusivity and face generic competition.

         In addition to litigation over patent rights, pharmaceutical
         companies are often the subject of objections by competing
         manufacturers over the qualities of their branded or generic
         products and/or their promotional activities. For example,
         marketers of branded products have challenged the marketing of
         certain of our non-branded products that do not require FDA
         approval and are not rated for therapeutic equivalence. Currently,
         ETHEX is a defendant in ongoing litigation with Healthpoint,
         regarding allegations of unfair competition and misleading
         marketing. A jury verdict against us is currently pending, which
         the court refused to set aside. As a


                                     24

<PAGE>
<PAGE>

         result, we made an appropriate provision for liability in our
         financial statements. We intend to vigorously appeal the judgment
         entered by the court. Competitors' objections may be pursued in
         complaints before governmental agencies or courts. These
         objections can be very expensive to pursue or to defend, and the
         outcome of agency or court review of the issues raised is
         impossible to predict. In these proceedings, companies can be
         subjected to restrictions on their activities or to liability for
         alleged damages despite their belief that their products and
         procedures are in full compliance with appropriate standards. In
         addition, companies that pursue what they believe are legitimate
         complaints about competing manufacturers and/or their products may
         nevertheless be unable to obtain any relief.

         OUR INDUSTRY EXPERIENCES RAPID TECHNOLOGICAL CHANGE.

         The drug delivery industry is a rapidly evolving field. A number of
         companies, including major pharmaceutical companies, are developing
         and marketing advanced delivery systems for the controlled delivery
         of drugs. Products currently on the market or under development by
         competitors may deliver the same drugs, or other drugs to treat the
         same indications, as many of the products we market or are
         developing. The first pharmaceutical branded or generic/non-branded
         product to reach the market in a therapeutic area often obtains and
         maintains significant market share relative to later entrants to
         the market. Our products also compete with drugs marketed not only
         in similar delivery systems but also in traditional dosage forms.
         New drugs, new therapeutic approaches or future developments in
         alternative drug delivery technologies may provide advantages over
         the drug delivery systems and products that we are marketing, have
         developed or are developing.

         Changes in drug delivery technology may require substantial
         investments by companies to maintain their competitive position and
         may provide opportunities for new competitors to enter the
         industry. Developments by others could render our drug delivery
         products or other technologies uncompetitive or obsolete. If others
         develop drugs which are cheaper or more effective or which are
         first to market, sales or prices of our products could decline.

         THE HOLDERS OF THE NOTES MAY REQUIRE US TO REPURCHASE THE NOTES
         UPON THE OCCURRENCE OF A CHANGE IN CONTROL.

         On May 16, 2008, 2013, 2018, 2023 and 2028 and upon the occurrence
         of a change in control, holders of the Notes may require us to
         offer to repurchase their Notes for cash. The source of funds for
         any repurchase required as a result of any such events will be our
         available cash or cash generated from operating activities or other
         sources, including borrowings, sales of assets, sales of equity or
         funds provided by a new controlling entity. The use of available
         cash to fund the repurchase of the Notes may impair our ability to
         obtain additional financing in the future.

         OUR REPORTED EARNINGS PER SHARE MAY BE MORE VOLATILE BECAUSE OF THE
         CONVERSION CONTINGENCY PROVISION OF THE NOTES ISSUED IN MAY 2003.

         Holders of the Notes issued in May 2003 may convert the Notes into
         our Class A common stock during any quarter commencing after June
         30, 2003, if the closing sale price of our Class A common stock for
         at least 20 trading days in the period of 30 consecutive trading
         days ending on the last trading day of the quarter preceding the
         quarter in which the conversion occurs is more than 120% of the
         conversion price per share of our Class A common stock on that 30th
         trading day. Until this contingency is met, the shares underlying
         the Notes are not included in the calculation of basic or fully
         diluted earnings per share. Should this contingency be met,
         reported earnings per share would be expected to decrease as a
         result of the inclusion of the underlying shares in the earnings
         per share calculation. An increase in volatility in our stock price
         could cause this condition to be met in one quarter and not in a
         subsequent quarter, increasing the volatility of reported fully
         diluted earnings per share.


                                     25

<PAGE>
<PAGE>

                  RISKS RELATED TO OUR CLASS A COMMON STOCK

         MANAGEMENT STOCKHOLDERS CONTROL OUR COMPANY.

         At March 31, 2003, our directors and executive officers
         beneficially own approximately 15% of our Class A common stock and
         approximately 51% of our Class B common stock. As a result, these
         persons control approximately 47% of the combined voting power
         represented by our outstanding securities. These persons will
         retain effective voting control of our company and are expected to
         continue to have the ability to effectively determine the outcome
         of any matter being voted on by our stockholders, including the
         election of directors and any merger, sale of assets or other
         change in control of our company.

         THE MARKET PRICE OF OUR STOCK HAS BEEN AND MAY CONTINUE TO BE
         VOLATILE.

         The market prices of securities of companies engaged in
         pharmaceutical development and marketing activities historically
         have been highly volatile. In addition, any or all of the following
         may have a significant impact on the market price of our Class A
         common stock: announcements by us or our competitors of
         technological innovations or new commercial products; delays in the
         development or approval of products; developments or disputes
         concerning patent or other proprietary rights; publicity regarding
         actual or potential medical results relating to products marketed
         by us or products under development; regulatory developments in
         both the United States and foreign countries; publicity regarding
         actual or potential acquisitions; public concern as to the safety
         of drug technologies or products; financial results which are
         different from securities analysts' forecasts; and economic and
         other external factors, as well as period-to-period fluctuations in
         our financial results.

         FUTURE SALES OF COMMON STOCK COULD ADVERSELY AFFECT OUR CLASS A
         COMMON STOCK.

         As of March 31, 2003, an aggregate of 1,827,082 shares of our Class
         A common stock and 508,273 shares of our Class B common stock were
         issuable upon exercise of outstanding stock options under our stock
         option plans, and an additional 1,945,175 shares of our Class A
         common stock and 1,261,000 shares of Class B common stock were
         reserved for the issuance of additional options and shares under
         these plans. In addition, as of March 31, 2003, 225,000 shares of
         our Class A common stock were reserved for issuance upon conversion
         of our outstanding 7% cumulative convertible preferred stock.

         Future sales of our common stock and instruments convertible or
         exchangeable into our common stock and transactions involving
         equity derivatives relating to our common stock, or the perception
         that such sales or transactions could occur, could adversely affect
         the market price of our common stock. This could, in turn, have an
         adverse effect on the trading price of the Notes resulting from,
         among other things, a delay in the ability of holders to convert
         their Notes into our Class A common stock.

         OUR CHARTER PROVISIONS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER
         EFFECTS.

         Our Amended Certificate of Incorporation authorizes the issuance of
         common stock in two classes, Class A common stock and Class B
         common stock. Each share of Class A common stock entitles the
         holder to one-twentieth of one vote on all matters to be voted upon
         by stockholders, while each share of Class B common stock entitles
         the holder to one full vote on each matter considered by the
         stockholders. In addition, our directors have the authority to
         issue additional shares of preferred stock and to determine the
         price, rights, preferences, privileges and restrictions of those
         shares without any further vote or action by the stockholders. The
         rights of the holders of common stock will be subject to, and may
         be adversely affected by, the rights of the holders of any
         preferred stock that may be issued in the future. The existence of
         two classes of common stock with different voting rights and the
         ability of our directors to issue additional shares of preferred
         stock could make it more difficult for a third party to acquire a
         majority of our voting stock. Other provisions of our Certificate
         of Incorporation and Bylaws, such as a classified board of
         directors, also may have the effect of discouraging, delaying or
         preventing a merger,


                                     26

<PAGE>
<PAGE>

         tender offer or proxy contest, which could have an adverse effect
         on the market price of our Class A common stock.

         In addition, certain provisions of Delaware law applicable to our
         company could also delay or make more difficult a merger, tender
         offer or proxy contest involving our company, including Section 203
         of the Delaware General Corporation Law, which prohibits a Delaware
         corporation from engaging in any business combination with any
         interested stockholder for a period of three years unless certain
         conditions are met. Our senior management is entitled to certain
         payments upon a change in control. All of our stock option plans
         provide for the acceleration of vesting in the event of a change in
         control in our company.

ITEM 2.  PROPERTIES
         ----------

         Our corporate headquarters is located at 2503 South Hanley Road in
         St. Louis County, Missouri, and contains approximately 40,000
         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. The building is leased from an affiliated
         partnership of an officer and director of the Company.

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


<TABLE>
<CAPTION>
                   SQUARE                                            LEASE            RENEWAL
                   FOOTAGE     USAGE                                 EXPIRES          OPTIONS
                  --------------------------------------------------------------------------------

                  <S>          <C>                                   <C>              <C>
                     31,630    PDI Office/Mfg./Whse.                 11/30/07         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(1)
                    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(1)
                     40,000    KV Warehouse                          11/30/03         None
                    128,960    ETHEX/Ther-Rx/PDI Office/Whse.        05/31/11         5 Years(1)

         <FN>
         ----------------------------------------
         (1) Two five-year options.
</TABLE>

         In April 2003, we purchased a building that consists of
         approximately 275,000 square feet of additional office, production,
         distribution and warehouse space. 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 San Antonio, Texas. 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 comparative
         promotion of its Ethezyme(TM) 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. In September 2001, the jury
         returned verdicts against ETHEX on certain false advertising,
         unfair


                                     27

<PAGE>
<PAGE>

         competition, and misappropriation claims. The jury awarded
         compensatory and punitive damages totaling $16.5 million. On
         October 1, 2002, the U.S. District Court for the Western District
         of Texas denied ETHEX's motion to set aside the jury's verdict. On
         December 17, 2002, the court entered a judgment awarding
         attorneys' fees to Healthpoint in an amount to be subsequently
         determined.

         We believe that the jury award is excessive and is not sufficiently
         supported by the facts or the law. We intend to vigorously appeal
         once the court has entered a final judgment. We and our counsel
         believe that there are meritorious arguments to be raised during
         the appeal process; however, we are not presently able to predict
         the outcome of the pending District Court's motions or an appeal.
         As a result of the court's earlier decisions, our results of
         operations for fiscal 2003 included a reserve for potential damages
         of $16.5 million, which is reflected in accrued liabilities on our
         consolidated balance sheet as of March 31, 2003. To date
         Healthpoint has requested reimbursement for approximately $1.8
         million in attorneys' fees in addition to the judgment discussed
         above. We are contesting Healthpoint's entitlement to and their
         requested amount of attorneys' fees. As of this date, the court had
         not entered any order with respect to the amount of attorneys' fees
         to be awarded. Our counsel has advised us that the amount could
         range from zero to $1.8 million, the amount requested by
         Healthpoint. Based on our current analysis we believe that the
         reserve as recorded will be adequate to cover any judgment,
         including attorneys' fees, which may result at the end of the
         appeal process. We are continually evaluating the need for
         additional reserves as the case progresses through the appeal
         process.

         We previously distributed several low volume pharmaceutical
         products that contained phenylpropanolamine, or PPA, and that were
         discontinued in 2000 and 2001. We are presently named as one of
         several defendants in two product liability lawsuits in federal
         court in Nevada and Mississippi involving PPA. The Nevada case is
         Deuel, David, et al. v. KV Pharmaceutical Company, Inc. The suit
         was filed on June 11, 2001. Discovery has been initiated in this
         case, and we currently have completed the basic fact discovery and
         depositions, however no discovery cut-off date has been assigned
         and there is presently no trial date. The Mississippi case is
         Virginia Madison, et al. v. Bayer Corporation, et al. We are one of
         several defendants named in the lawsuit. The suit was filed on
         December 23, 2002, but was not served on us until February 2003.
         The case was originally filed in the Circuit Court of Hinds County,
         Mississippi, and was removed to the United States District Court
         for the Southern District of Mississippi by co-defendant Bayer
         Corporation. The Plaintiffs have filed a motion to remand the case
         to the Circuit Court of Hinds County, Mississippi, which has caused
         the Court to enter a stay of all proceedings pending a resolution
         of the motion. So far, the Court has not ruled on the motion. Both
         the Nevada and Mississippi cases have been transferred to a
         Judicial Panel on Multi District Litigation for PPA claims sitting
         in 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 distributed
         pharmaceuticals containing PPA that have since been discontinued
         and/or reformulated to exclude PPA. We believe that we have
         substantial defenses to these claims, though the ultimate outcome
         of these cases and the potential effect on us cannot be determined.

         We are being defended and indemnified in the Nevada PPA lawsuits by
         our 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 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, our product liability
         coverage for PPA claims expired for claims made after June 15,
         2002. Although we renewed our product liability coverage for a
         policy term of June 15, 2002 through June 15, 2003, that policy
         excludes future PPA claims in accordance with the standard industry
         exclusion. Consequently, as of June 15, 2002, we have provided for
         legal defense costs and indemnity payments involving PPA claims on
         a going forward basis, including the Mississippi lawsuit that was
         filed during the June 15, 2002 through June 15, 2003 policy period.
         Moreover, we may not be able to obtain product liability insurance
         in the future for PPA claims with adequate coverage limits at
         commercially reasonable prices for subsequent periods. From time to
         time in the future, we may be subject to further litigation
         resulting from products containing PPA that we formerly
         distributed. We intend to vigorously defend any claims that may be
         raised in the current and future litigations.

                                     28

<PAGE>
<PAGE>

         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 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 matters were submitted to a vote of security holders during the
         fourth quarter of the Company's fiscal year ended March 31, 2003.


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          89      Director, Chairman of the Board.(1)

Marc S. Hermelin            61      Director, Vice-Chairman of the Board and Chief Executive Officer.

Alan G. Johnson             68      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.

Gerald R. Mitchell          64      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.

<FN>
-------------------------------
(1) Victor M. Hermelin is the father of Marc S. Hermelin.


                                   PART II

ITEM 5.  MARKET FOR THE REGISTRANT'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 4, 2003 was 655 and 444, 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).

                                     29

<PAGE>
<PAGE>


    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 2003 and 2002 were as follows:

<TABLE>
<CAPTION>
                                                    CLASS A COMMON STOCK
                                                    --------------------
                                            FISCAL 2003                                       FISCAL 2002
                                            -----------                                       -----------
         QUARTER                      HIGH               LOW                          HIGH                LOW
         -------                      ----               ---                          ----                ---
         <S>                         <C>               <C>                           <C>                <C>
         First...................... $31.95            $25.12                        $27.75             $16.50
         Second.....................  24.00             16.78                         30.95              24.00
         Third......................  23.66             15.00                         29.50              23.79
         Fourth.....................  24.00             16.42                         29.43              23.90

<CAPTION>
                                                    CLASS B COMMON STOCK
                                                    --------------------
                                            FISCAL 2003                                       FISCAL 2002
                                            -----------                                       -----------
         QUARTER                      HIGH               LOW                          HIGH                LOW
         -------                      ----               ---                          ----                ---
         <S>                         <C>               <C>                           <C>                <C>
         First...................... $33.00            $26.25                        $33.50             $16.25
         Second.....................  24.25             16.80                         33.00              26.30
         Third......................  23.90             15.31                         32.46              26.80
         Fourth.....................  24.39             16.78                         33.03              27.00
</TABLE>

         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 $366,000, or $9.14 per
         share, at March 31, 2003 and 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 were
         paid in fiscal 2003 and 2002 on 40,000 shares of Cumulative
         Convertible Preferred Stock. On May 12, 2003, we also paid a
         dividend of approximately $366,000, or $9.14 per share, to
         Cumulative Convertible Preferred Stock holders of record on March
         31, 2003 for the previously undeclared and unaccrued cumulative
         preferred dividends. 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.

                                     30

<PAGE>
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------

<TABLE>
<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                            2003          2002           2001           2000            1999
                                            ----          ----           ----           ----            ----
BALANCE SHEET DATA:                                   ($ in thousands, except per share data)

<S>                                       <C>            <C>            <C>             <C>           <C>
Total assets                              $352,668       $195,192       $151,417        $140,385      $127,990
Long-term debt                              10,106          4,387          5,080          16,779        31,491
Shareholders' equity                       260,616        158,792        125,942          97,799        67,548

<CAPTION>
INCOME STATEMENT DATA:

<S>                                       <C>            <C>            <C>             <C>           <C>
Revenues                                  $244,996       $204,105       $177,767        $142,734      $112,853
    % Increase                                20.0%          14.8%          24.5%           26.5%         15.5%
Operating income(b)                       $ 42,929(b)    $ 49,294       $ 37,972        $ 34,192      $ 24,116
Net income(a)(b)                            28,110(b)      31,464         23,625          24,308(a)     23,340(a)
Net income
  per common
  share-diluted(c)                        $   0.82       $   0.98       $   0.74        $   0.80(a)   $   0.78(a)
Preferred Stock Dividends                 $     70       $     70       $    420        $    420      $    422

<FN>
----------------
(a)      Net income in fiscal 2000 and 1999 includes gains associated with
         $7.0 million and $13.3 million in arbitration awards, respectively.
         The awards net of applicable income taxes and expenses were $3.9
         million and $8.0 million in fiscal 2000 and 1999, respectively.

(b)      Operating income in fiscal 2003 includes a reserve of $16.5 million
         for potential damages associated with a lawsuit (see Note 10). The
         impact of the litigation reserve, net of applicable income taxes,
         was to reduce net income by $10.4 million and diluted earnings per
         share by $.30 in fiscal 2003.

(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.
</TABLE>

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" and
         "Risk Factors." 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


                                     31

<PAGE>
<PAGE>

         development or acquisition and marketing of technologically
         distinguished prescription products, whether branded or
         generic/non-branded 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/non-branded drugs that use
         our proprietary technologies. Net revenues from ETHEX have
         increased from $13.5 million in fiscal 1994 to $179.7 million in
         fiscal 2003.

         We launched our Ther-Rx business in 1999 to market branded
         pharmaceutical products. We acquired and introduced our first two
         of 16 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) in the fourth quarter of
         fiscal 2002, 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 $43.7 million in fiscal 2003.

         CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Our consolidated financial statements are presented on the basis of
         accounting principles that are generally accepted in the United
         States. Our significant accounting policies are described in Note 2
         to our consolidated financial statements. Certain of our accounting
         policies are particularly important to the portrayal of our
         financial position and results of operations and require the
         application of significant judgment by our management. As a result,
         these policies are subject to an inherent degree of uncertainty. In
         applying these policies, our management makes estimates and
         judgments that affect the reported amounts of assets, liabilities,
         revenues and expenses and related disclosures. We base our
         estimates and judgments on our historical experience, the terms of
         existing contracts, our observance of trends in the industry,
         information that we obtain from our customers and outside sources,
         and on various other assumptions that we believe to be reasonable
         and appropriate under the circumstances, the results of which form
         the basis for making judgments about the carrying values of assets
         and liabilities that are not readily apparent from other sources.
         Although we believe that our estimates and assumptions are
         reasonable, actual results may differ significantly from these
         estimates. Changes in estimates and assumptions based upon actual
         results may have a material impact on our results of operations
         and/or financial condition. Our critical accounting policies are
         described below.

         REVENUE RECOGNITION AND SALES ALLOWANCES. We recognize revenue on
         product sales upon shipment when title and risk of loss have
         transferred to the customer and when estimated sales provisions for
         product returns, sales rebates, payment discounts, chargebacks, and
         other promotional programs are reasonably determinable. Accruals
         for these provisions are presented in the consolidated financial
         statements as reductions to revenues and accounts receivable.

         Provisions for estimated product returns, sales rebates, payment
         discounts, and other promotional programs require a limited degree
         of subjectivity, yet combined represent a significant portion of
         the provisions. These provisions are estimated based on historical
         payment experience, historical relationship to revenues, estimated
         customer inventory levels and contract terms. Such provisions are
         reasonably determinable due to the limited number of assumptions
         and consistency of historical experience.

         The provision for chargebacks is the most significant and complex
         estimate used in the recognition of revenue. We establish contract
         prices for indirect customers who are supplied by our wholesale
         customers. A chargeback represents the difference between our
         invoice price to the wholesaler and the indirect customer's
         contract price, which is lower. We credit the wholesaler for
         purchases by indirect customers at the lower price. Accordingly, we
         record these chargebacks at the time we recognize revenue in
         connection with our sales to wholesalers. Provisions for estimating
         chargebacks are calculated primarily using historical chargeback
         experience, actual contract pricing


                                     32

<PAGE>
<PAGE>

         and estimated wholesaler inventory levels. We continually monitor
         our assumptions giving consideration to estimated wholesaler
         inventory levels and current pricing trends and make adjustments
         to these provisions when we believe that the actual chargeback
         credits will differ from the estimated provisions.

         ALLOWANCE FOR INVENTORIES. Inventories consist of finished goods
         held for distribution, raw materials and work in process. 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 to be stated at the lower of cost or market, we
         consider such factors as the amount of inventory on hand and in the
         distribution channel, estimated time required to sell existing
         inventory, remaining shelf life and current and expected market
         conditions, including levels of competition. We establish reserves,
         when necessary, for slow-moving and obsolete inventories based upon
         our historical experience and management's assessment of current
         product demand. If we determine that inventory is overvalued based
         upon the above factors, then the necessary provisions to reduce
         inventories to their net realizable value are made.

         INTANGIBLE ASSETS AND GOODWILL. Our intangible assets consist of
         product rights, license agreements and trademarks resulting from
         product acquisitions and legal fees and similar costs relating to
         the development of patents and trademarks. Intangible assets that
         are acquired are stated at cost, less accumulated amortization, and
         are amortized on a straight-line basis over estimated useful lives
         of 20 years. Upon approval, costs associated with the development
         of patents and trademarks are amortized on a straight-line basis
         over estimated useful lives ranging from five to 17 years. We
         determine amortization periods for intangible assets that are
         acquired based on our assessment of various factors impacting
         estimated useful lives and cash flows of the acquired products.
         Such factors include the product's position in its life cycle, the
         existence or absence of like products in the market, various other
         competitive and regulatory issues, and contractual terms.
         Significant changes to any of these factors may result in a
         reduction in the intangible asset's useful life and an acceleration
         of related amortization expense.

         We assess the impairment of intangible assets whenever events or
         changes in circumstances indicate that the carrying value may not
         be recoverable. Some factors we consider important which could
         trigger an impairment review include the following, (1) significant
         underperformance relative to expected historical or projected
         future operating results; (2) significant changes in the manner of
         our use of the acquired assets or the strategy for our overall
         business; and (3) significant negative industry or economic trends.

         When we determine that the carrying value of intangible assets may
         not be recoverable based upon the existence of one or more of the
         above indicators of impairment, we first perform an assessment of
         the asset's recoverability. Recoverability is determined by
         comparing the carrying amount of an intangible asset against an
         estimate of the undiscounted future cash flows expected to result
         from its use and eventual disposition. If the sum of the expected
         future undiscounted cash flows is less than the carrying amount of
         the intangible asset, an impairment loss is recognized based on the
         excess of the carrying amount over the estimated fair value of the
         intangible asset.

         Goodwill relates to the 1972 acquisition of our specialty materials
         segment and is recorded net of accumulated amortization through
         March 31, 2002. As of April 1, 2002, we adopted Statement of
         Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
         Intangible Assets, which eliminated the amortization of goodwill,
         resulting in an increase in pretax income of approximately $55,000
         for the fiscal year ended March 31, 2003. Adoption of this standard
         did not have a material effect on the Company's consolidated
         financial statements. Upon adoption of SFAS No. 142, we performed
         the initial impairment test of our goodwill and determined that no
         impairment of the recorded goodwill existed. In accordance with
         SFAS No. 142, we will test goodwill for impairment at least
         annually and more frequently if an event occurs which indicates the
         goodwill may be impaired.

                                     33

<PAGE>
<PAGE>

         RESULTS OF OPERATIONS

         FISCAL 2003 COMPARED TO FISCAL 2002

         NET REVENUES BY SEGMENT

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>        <C>
                Branded products                                    $ 43,677      $ 40,424        $  3,253      8.0%
                  as % of net revenues                                  17.8%         19.8%
                Specialty generics                                   179,724       141,007          38,717     27.5%
                  as % of net revenues                                  73.4%         69.1%
                Specialty materials                                   17,395        19,557          (2,162)   (11.1)%
                  as % of net revenues                                   7.1%          9.6%
                Other                                                  4,200         3,117           1,083     34.7%
                                                                    --------      --------        --------
                    Total net revenues                              $244,996      $204,105        $ 40,891     20.0%
</TABLE>

         The increase in branded product sales was due to continued growth
         of our women's healthcare family of products. Sales from this
         product group increased $5.6 million, or 20.1%, in fiscal 2003.
         Gynazole-1(R), our vaginal antifungal product, continued its market
         penetration as its market share increased to 18% at the end of
         fiscal 2003, compared to 13% at the end of the prior fiscal year.
         Due to its continued growth in market share, sales of Gynazole-1(R)
         increased $4.4 million, or 53.4% during the year. Also included in
         the women's healthcare family of products is the PreCare(R) product
         line which contributed $1.2 million of incremental sales in fiscal
         2003. This increase was primarily attributable to increased sales
         volume associated with PrimaCare(R), a prescription
         prenatal/postnatal multivitamin and mineral supplement with
         essential fatty acids, which has continued to show growth in market
         share since its introduction in the fourth quarter of fiscal 2002.
         Further, the PreCare(R) family of products is currently the leading
         branded line of prescription prenatal nutritional supplements in
         the United States. Increased sales from the women's healthcare
         family of products was partially offset by a $2.3 million, or
         18.4%, decline in sales from the branded products cardiovascular
         product line. The decrease in cardiovascular sales was due to the
         impact of customer buying during the fourth quarter of the prior
         fiscal year in anticipation of a year-end price increase coupled
         with increased substitution of our generic equivalent products.

         The increase in sales for specialty generics resulted primarily
         from higher sales volume in the cardiovascular, pain management and
         cough/cold product lines, coupled with continued expansion of our
         other product lines, including gastrointestinal and anti-anxiety.
         Increased sales from these product lines was partially offset by a
         reduction in sales in our prenatal vitamin product line. The
         cardiovascular product line, which comprised 45.9% of specialty
         generic sales in fiscal 2003, contributed $11.2 million of
         increased sales from existing products and $5.3 million of
         incremental sales volume from the April 2002 ANDA approval and
         subsequent launch of Potassium Chloride 20 mg. tablets (generic
         equivalent to K-Dur(R)). Sales volume for the pain management
         product line increased $11.6 million due to market share gains
         coupled with the impact of a full year of sales of two products
         introduced in the prior year. The remaining $12.9 million of
         increased sales volume resulted primarily from new product
         introductions in the cough/cold, gastrointestinal and anti-anxiety
         product lines coupled with a full year of sales on products
         introduced in the prior year. We introduced 16 and 14 new specialty
         generic/non-branded products in fiscal 2003 and 2002, respectively.
         The $0.9 million decline in sales volume for the prenatal product
         line was primarily attributable to a reduction in the corresponding
         brand equivalent market. This market decline was due, in part, to
         the introduction of Primacare(R) by our branded products segment in
         the fourth quarter of fiscal 2002. The increased sales volume
         experienced by specialty generics during fiscal 2003


                                     34

<PAGE>
<PAGE>

         was partially offset by $1.4 million of product price erosion that
         resulted primarily from normal and expected pricing pressures in
         the pain management and cough/cold product lines.

         The decrease in specialty material product sales was primarily due
         to an unexpected softness in the nutritional supplement market for
         which the specialty materials segment is a supplier.

         GROSS PROFIT BY SEGMENT

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>        <C>
                Branded products                                    $ 38,460      $ 34,643        $  3,817      11.0%
                  as % of net revenues                                  88.1%         85.7%
                Specialty generics                                   106,854        80,733          26,121      32.4%
                  as % of net revenues                                  59.5%         57.3%
                Specialty materials                                    5,720         6,931          (1,211)    (17.5)%
                  as % of net revenues                                  32.9%         35.4%
                Other                                                   (565)        1,395          (1,960)   (140.5)%
                                                                    --------      --------        --------
                    Total gross profit                              $150,469      $123,702        $ 26,767      21.6%
                      as % of total net revenues                        61.4%         60.6%
</TABLE>

         The increase in gross profit was attributable to the sales growth
         experienced by the branded products and specialty generics
         segments, offset partially by a sales decline in the specialty
         materials segment. The higher gross profit percentage was favorably
         impacted by price increases of branded products that took effect at
         the beginning of fiscal 2003 and higher margins realized on new
         specialty generic products introduced during the current and prior
         fiscal years. The gross profit percentage increases experienced by
         the branded products and specialty generics segments were partially
         offset by a decline in the gross profit percentage at the specialty
         raw materials segment. This decline resulted from unfavorable cost
         variances associated with lower production.

         RESEARCH AND DEVELOPMENT

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>          <C>
                Research and development                            $19,135       $ 10,712        $  8,423     78.6%
                  as % of net revenues                                  7.8%           5.2%
</TABLE>

         The increase in research and development expense was primarily due
         to higher costs associated with the expansion of clinical testing
         connected to our internal product development efforts and higher
         personnel expenses related to the growth of our research and
         development staff. In fiscal 2004, we expect research and
         development costs to increase by approximately 30% over fiscal 2003
         levels.


                                     35

<PAGE>
<PAGE>

         SELLING AND ADMINISTRATIVE

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>         <C>
                Selling and administrative                          $ 69,584      $ 61,343        $  8,241     13.4%
                  as % of net revenues                                  28.4%         30.1%
</TABLE>

         The increase in selling and administrative expense resulted
         primarily from an increase in specialty generic/non-branded
         marketing and promotional expenses, an increase in personnel costs
         associated with corporate administration and branded products
         marketing and higher insurance costs. These increases were
         partially offset by a reduction in legal expenses which resulted
         from insurance reimbursements of defense costs in the Healthpoint
         litigation.

         AMORTIZATION OF INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>         <C>
                Amortization of intangible assets                   $ 2,321       $  2,353        $   (32)    (1.4)%
</TABLE>

         The decrease in amortization of intangible assets was due primarily
         to the implementation of SFAS No. 142, Goodwill and Other
         Intangible Assets, which discontinued the amortization of goodwill
         effective April 1, 2002 (see Notes 2 and 6 in the accompanying
         Notes to Consolidated Financial Statements).

         LITIGATION

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>         <C>
                Litigation                                          $16,500       $    -          $ 16,500    n/a %
</TABLE>

         In September 2002, the Company recorded a litigation reserve of
         $16.5 million for potential damages associated with the adverse
         decision made by a federal court in Texas to uphold a previously
         rendered jury verdict in a lawsuit against ETHEX Corporation, a
         wholly-owned subsidiary of the Company (see Note 10 in the
         accompanying Notes to Consolidated Financial Statements).


                                     36

<PAGE>
<PAGE>

         OPERATING INCOME
<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>        <C>
                Operating income                                    $ 42,929      $ 49,294        $(6,365)   (12.9)%
</TABLE>

         The decrease in operating income resulted from the $16.5 million
         litigation reserve established by us for potential damages
         associated with a lawsuit. Excluding the effect of the litigation
         reserve, operating income for fiscal 2003 increased $10.1 million,
         or 20.6%, to $59.4 million.

         INTEREST AND OTHER INCOME

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>         <C>
                Interest and other income                           $    977      $    411        $    566    137.7%
</TABLE>

         The increase in interest and other income was primarily due to the
         investment of $72.4 million of proceeds from the July 2002
         secondary public offering in short-term, highly liquid investments.

         PROVISION FOR INCOME TAXES

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>        <C>
                Provision for income taxes                          $ 15,471      $ 17,891        $(2,420)   (13.5)%
                  effective tax rate                                    35.5%         36.2%
</TABLE>

         The decline in the effective tax rate was primarily due to an
         increase in research and development tax credits.

                                     37

<PAGE>
<PAGE>

         NET INCOME

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2003          2002              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>        <C>
                Net income                                          $ 28,110      $ 31,464        $(3,354)   (10.7)%
                Diluted earnings per share                              0.82          0.98          (0.16)   (16.3)%
</TABLE>

         The decrease in net income resulted from the $16.5 million
         litigation reserve established by us for potential damages
         associated with a lawsuit. The impact of the litigation reserve,
         net of applicable taxes, reduced net income by $10.4 million. The
         more significant percentage decline in earnings per diluted share
         for fiscal 2003 resulted from an increase in weighted average
         shares outstanding due to the issuance of approximately 3.3 million
         shares of Class A common stock in the secondary public offering
         that was completed in July 2002. Excluding the effect of the
         litigation reserve, net income for fiscal 2003 would have increased
         $7.1 million, or 22.5%, to $38.6 million, or $1.12 per diluted
         share.

         FISCAL 2002 COMPARED TO FISCAL 2001

         NET REVENUES BY SEGMENT

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2002          2001              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>         <C>
                Branded products                                    $ 40,424      $ 25,206        $ 15,218     60.4%
                  as % of net revenues                                  19.8%         14.2%
                Specialty generics                                   141,007       132,154           8,853      6.7%
                  as % of net revenues                                  69.1%         74.3%
                Specialty materials                                   19,557        17,088           2,469     14.4%
                  as % of net revenues                                   9.6%          9.6%
                Other                                                  3,117         3,319            (202)    (6.1)%
                                                                    --------      --------        --------
                    Total net revenues                              $204,105      $177,767        $ 26,338     14.8%
</TABLE>

         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.

         The increase in specialty generic sales was primarily due to a
         $17.8 million increase in the sales volume of existing products
         coupled with $10.8 million of incremental sales from new products.
         The cardiovascular product


                                     38

<PAGE>
<PAGE>

         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.

         The increase in specialty raw material product sales was primarily
         due to sales of new products and increased sales of existing
         products.

         GROSS PROFIT

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2002          2001              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>          <C>
                Gross profit                                        $123,702      $107,104        $ 16,598     15.5%
                  as % of net revenues                                  60.6%         60.3%
</TABLE>

         The increase in gross profit was primarily attributable to the
         increased level of product sales. 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.

         RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2002          2001              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>          <C>
                Research and development                            $ 10,712      $  9,282        $  1,430     15.4%
                  as % of net revenues                                   5.2%          5.2%
</TABLE>

         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.


                                     39

<PAGE>
<PAGE>

         SELLING AND ADMINISTRATIVE
<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2002          2001              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>           <C>
                Selling and administrative                          $ 61,343      $ 57,509        $  3,834      6.7%
                  as % of net revenues                                  30.1%         32.4%
</TABLE>

         The increase in selling and administrative expense was due
         primarily to an increase in personnel costs associated with
         corporate administration and branded marketing.

         INTEREST EXPENSE

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                    ------------------------------------------------
                                                                                                        CHANGE
                                                                                                  ------------------
                            ($ IN THOUSANDS):                         2002          2001              $         %
                                                                    --------      --------        --------   -------
<S>                                                                 <C>           <C>             <C>        <C>
                Interest expense                                    $    350      $  1,072        $  (722)   (67.4)%
</TABLE>

         The decrease in interest expense was due to a corresponding
         reduction in debt.

         LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------

         Cash and cash equivalents and working capital were $96.3 million
         and $137.9 million, respectively, at March 31, 2003, compared to
         $12.1 million and $81.4 million, respectively, at March 31, 2002.
         Internally generated funds from product sales growth continued to
         be the primary source of operating capital used to fund our
         businesses. The net cash flow from operating activities was $43.3
         million in fiscal 2003 compared to $15.9 million in fiscal 2002.
         The 172.5% increase in net cash flow from operating activities
         resulted primarily from an increase in cash earnings coupled with
         the receipt of certain delayed customer payments which were due at
         the end of fiscal 2002 and collected during the first quarter of
         fiscal 2003. These increases were offset in part by an increase in
         inventories due to increased production of specialty generic
         products in fiscal 2003, in anticipation of continued sales growth
         and an increase in current liabilities due to an increase in
         accounts payable related to purchases to support our production
         increases and the timing of income tax payments.

         Net cash flow used in investing activities was $32.1 million for
         fiscal 2003 compared to $8.5 million for the prior year. Capital
         expenditures of $16.1 million 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, and for other building renovations. Other investing
         activities for the year included a $3.0 million payment related to
         the purchase of certain licensing rights combined with an equity
         investment in a women's healthcare company. Also, on March 31,
         2003, we completed the purchase of product rights and trademarks to
         the Chromagen(R) and StrongStart(R) product lines from a subsidiary
         of Altana Pharma AG (Altana) and the Niferex(R) product line from
         Schwarz Pharma. The acquisition of the Chromagen(R) and
         StrongStart(R) product lines was financed with a $13.0 million cash
         payment made on March 31, 2003 and two non-interest bearing $7.0
         million promissory notes issued to Altana, which are due on the
         first and second anniversaries of the agreement. A cash payment of
         $14.3 million was made in April 2003 for the Niferex(R) product
         line.

                                     40

<PAGE>
<PAGE>

         Total debt increased to $17.6 million at March 31, 2003 compared to
         $5.1 million at March 31, 2002. The increase resulted from the
         issuance of two non-interest bearing $7.0 million promissory notes
         to Altana as partial funding for the Chromagen(R) and
         StrongStart(R) product line acquisitions on March 31, 2003. The two
         notes are due on the first and second anniversaries of the
         agreement. The promissory notes, which are non-interest bearing,
         were discounted using imputed interest rates of 3.36% and 4.08%,
         respectively, both of which approximate the Company's borrowing
         rate for similar debt instruments at the time of the borrowing. The
         present value of the notes was determined to be $13.2 million,
         resulting in a discount of $0.8 million.

         In December 2002, the Company refinanced a $1.7 million building
         mortgage that was due in March 2004. The refinanced building
         mortgage bears interest at 6.27% and is due in December 2007.

         As of March 31, 2003, we have a credit agreement with a bank that
         provides for a revolving line of credit for borrowing up to $60
         million. The credit agreement provides for a $40 million unsecured
         revolving line of credit along with an unsecured supplemental
         credit line of $20 million for financing acquisitions. The $40
         million unsecured revolving line of credit expires in October 2004.
         The unsecured supplemental credit line of $20 million, which was
         renewed in December 2002, expires in December 2003. At March 31,
         2003, we had no borrowings outstanding under either credit facility
         and $11.9 million in open letters of credit issued under the
         revolving credit line.

         During July 2002, we completed a public offering of approximately
         3.3 million shares of Class A common stock. Net proceeds to us were
         $72.4 million, after deducting underwriting discounts, commissions
         and offering expenses. The proceeds from the offering are being
         used for general corporate purposes, including product
         acquisitions, research and development activities and working
         capital. At March 31, 2003, the net proceeds were temporarily
         invested in short-term, highly liquid instruments.

         On April 28, 2003, we purchased a building for $8.8 million. The
         facility consists of approximately 275,000 square feet of office,
         production, distribution and warehouse space. The purchase of the
         building was financed by a term loan secured by the property. The
         building mortgage bears interest at 5.30% and requires monthly
         principal payments of $49,000 plus interest through March 2008. The
         remaining principal balance plus any unpaid interest is due in
         April 2008.

         During May 2003, we completed the issuance of $200.0 million of
         Contingent Convertible Subordinated Notes (the Notes) that are
         convertible, under certain circumstances, into shares of our Class
         A common stock at an initial conversion price of $34.51 per share.
         The Notes bear interest at a rate of 2.50% and mature on May 16,
         2033. We may redeem some or all of the Notes at any time on or
         after May 21, 2006, at a redemption price, payable in cash, of 100%
         of the principal amount of the Notes, plus accrued and unpaid
         interest (including contingent interest, if any) to the date of
         redemption. Holders may require us to repurchase all or a portion
         of their Notes on May 16, 2008, 2013, 2018, 2023 and 2028, and upon
         a change in control, as defined in the indenture governing the
         Notes, at 100% of the principal amount of the Notes, plus accrued
         and unpaid interest (including contingent interest, if any) to the
         date of repurchase, payable in cash. The Notes are subordinate to
         all of our existing and future senior obligations. The net proceeds
         to us were approximately $194.0 million, after deducting
         underwriting discounts, commissions and offering expenses. The
         proceeds from the offering were used to purchase $50.0 million of
         our Class A common stock, with the remaining proceeds to be used to
         fund future acquisitions of products, technologies or businesses,
         and for general corporate purposes.

         As a result of the significant increase in debt related to the
         $200.0 million Notes issuance, the $60 million revolving line of
         credit we have with a bank was changed. The credit agreement, which
         previously included 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, was expanded to include a minimum fixed charge
         ratio and a maximum senior leverage ratio.

                                     41

<PAGE>
<PAGE>

         The following table summarizes our contractual obligations (in
         thousands):

<TABLE>
<CAPTION>
                                                                                                                       2008 AND
                                                        TOTAL           2004         2005       2006         2007     THEREAFTER
                                                        -----           ----         ----       ----         ----     ----------
<S>                                                    <C>            <C>          <C>         <C>         <C>           <C>
   OBLIGATIONS AT MARCH 31, 2003
   -----------------------------
   Long-term debt                                      $ 17,590       $  7,484     $  7,052    $   386     $ 1,593       $  1,075
   Operating leases                                      20,115          3,072        2,761      2,390       2,308          9,584
   Other long-term liabilities                            2,913              -            -          -           -          2,913
                                                     ------------------------------------------------------------------------------
    Total obligations at March 31, 2003                  40,618         10,556        9,813      2,776       3,901         13,572
   EVENTS SUBSEQUENT TO MARCH 31, 2003
   -----------------------------------
   Building mortgage                                      8,800            539          588        588         588          6,497
   Convertible notes                                    200,000              -            -          -           -        200,000
                                                     ------------------------------------------------------------------------------
    Total contractual cash obligations                 $249,418       $ 11,095     $ 10,401    $ 3,364     $ 4,489       $220,069
                                                     ------------------------------------------------------------------------------
</TABLE>

         We believe our cash and cash equivalents balance, cash flows from
         operations, funds available under our credit facilities, proceeds
         received from our secondary public offering of Class A common stock
         completed during July 2002 and proceeds received from our Notes
         offering completed in May 2003 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 development expenditures, product
         development activities and expansion of marketing capabilities for
         the branded pharmaceutical business. In addition, 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 businesses. We intend to use our
         available cash to help in funding any acquisitions or investments.
         As such, cash has been invested in short-term, highly liquid
         instruments. We also may use funds available under our credit
         facility, 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

         Inflation may apply upward pressure on the cost of goods and
         services used by us in the future. However, we believe that the net
         effect of inflation on our operations during the past three years
         has been minimal. 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 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 the results of operations
         or financial position of the Company.

         In August 2001, the FASB issued SFAS No. 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 No. 121, Accounting for
         the Impairment of Long-Lived Assets and for Long-Lived Assets to be
         Disposed of, and certain provisions of APB 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 was
         adopted by the Company effective April 1, 2002. The adoption of
         SFAS 144 did not have a material impact on the Company's results of
         operations or financial position.

                                     42

<PAGE>
<PAGE>

         In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
         Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
         and Technical Corrections. SFAS 145 rescinds, amends or makes
         various technical corrections to certain existing authoritative
         pronouncements. Management does not believe the adoption of this
         statement will have a material impact on the results of operations
         or financial position of the Company.

         In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
         Associated with Exit or Disposal Activities. SFAS 146 addresses the
         recognition, measurement, and reporting of costs associated with
         exit and disposal activities, including costs related to
         terminating a contract that is not a capital lease and termination
         benefits that employees who are involuntarily terminated receive
         under the terms of a one-time benefit arrangement that is not an
         ongoing benefit arrangement or an individual deferred-compensation
         contract. SFAS 146 requires recording costs associated with exit or
         disposal activities at their fair values when a liability has been
         incurred. Under previous guidance, certain exit costs were accrued
         upon management's commitment to an exit plan, which is generally
         before an actual liability has been incurred. This statement is
         effective for exit or disposal activities that are initiated after
         December 31, 2002. The adoption of SFAS 146 did not have a material
         impact on the Company's results of operations or financial
         position.

         In November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
         Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness of Others. FIN 45
         elaborates on disclosures to be made by a guarantor in its
         financial statements about its obligations under certain guarantees
         that it has issued. It also clarifies that a guarantor is required
         to recognize, at the inception of the guarantee, a liability for
         the fair value of the obligation undertaken in issuing the
         guarantee. The initial recognition and measurement provisions of
         FIN 45 are applicable on a prospective basis to guarantees issued
         or modified after December 31, 2002 and the disclosure requirements
         are effective for all financial statements of periods ending after
         December 31, 2002. At March 31 2003, the Company was not a
         guarantor on any debt instruments.

         In December 2002, the FASB issued SFAS No. 148, Accounting for
         Stock-Based Compensation--Transition and Disclosure--an amendment
         of FASB Statement No. 123. SFAS 148 amends SFAS 123, Accounting for
         Stock-Based Compensation, to provide alternative methods of
         transition for a voluntary change to the fair value based method of
         accounting for stock-based employee compensation. In addition, SFAS
         148 amends the disclosure requirements of SFAS 123 to require
         prominent disclosures in both annual and interim financial
         statements about the method of accounting for stock-based employee
         compensation and the effect of the method used on reported results.
         SFAS 148 is effective for the Company's fiscal year ended March 31,
         2003. The Company did not adopt the fair value method of valuing
         stock options, however, the adoption of the disclosure provisions
         of SFAS 148 did not have a material impact on the Company's
         financial condition or results of operations.

         In January 2003, the FASB issued FIN No. 46, Consolidation of
         Variable Interest Entities, an interpretation of ARB No. 51. FIN 46
         provides guidance on: 1) the identification of entities for which
         control is achieved through means other than through voting rights
         and 2) how to determine when and which business enterprise should
         consolidate such entities. In addition, FIN 46 requires that any
         enterprises with a significant variable interest in these types of
         entities make additional disclosures in all financial statements
         initially issued after January 31, 2003. The Company does not
         anticipate the adoption of this Interpretation will have any impact
         on its financial position or results of operations.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
         Financial Instruments with Characteristics of both Liabilities and
         Equity. SFAS 150 establishes standards for how entities classify
         and measure in their statement of financial position certain
         financial instruments with characteristics of both liabilities and
         equity. The provisions of SFAS 150 are effective for financial
         instruments entered into or modified after May 31, 2003, and
         otherwise shall be effective at the beginning of the first fiscal
         interim period beginning after June 15, 2003. The Company does not
         expect adoption of this statement to have a material impact on its
         results of operations or financial position.

                                     43

<PAGE>
<PAGE>

ITEM 7a. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
         ------------------------------------------------------

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         -------------------------------------------


                                     44

<PAGE>
<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 and Subsidiaries as of March 31, 2003 and 2002 and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 2003. 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 and Subsidiaries at March 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years
in the period ended March 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.

                                                        /s/ BDO Seidman, LLP


Chicago, Illinois
May 23, 2003

                                     45

<PAGE>
<PAGE>

<TABLE>
                                 K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                        CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                                             MARCH 31,
                                                                                      -----------------------
                                                                                        2003           2002
                                                                                      --------       --------
                                                                                (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                                                   <C>            <C>
                                            ASSETS
                                            ------
Current Assets:
Cash and cash equivalents..................................................           $ 96,288       $ 12,109
Receivables less allowance for doubtful accounts of $422 and $403
   in 2003 and 2002, respectively..........................................             57,385         54,218
Inventories, net...........................................................             42,343         35,097
Prepaid and other assets...................................................              2,709          2,102
Deferred tax asset.........................................................             14,791          5,227
                                                                                      --------       --------
   Total Current Assets....................................................            213,516        108,753
Property and equipment, less accumulated depreciation......................             51,903         41,224
Intangible assets and goodwill, net........................................             82,577         41,293
Other assets...............................................................              4,672          3,922
                                                                                      --------       --------
   Total Assets............................................................           $352,668       $195,192
                                                                                      ========       ========

                                          LIABILITIES
                                          -----------
Current Liabilities:
Accounts payable...........................................................           $ 15,588       $ 10,312
Accrued liabilities........................................................             52,548         16,332
Current maturities of long-term debt.......................................              7,484            712
                                                                                      --------       --------
   Total Current Liabilities...............................................             75,620         27,356
Long-term debt.............................................................             10,106          4,387
Other long-term liabilities................................................              2,913          2,717
Deferred tax liability.....................................................              3,413          1,940
                                                                                      --------       --------
   Total Liabilities.......................................................             92,052         36,400
                                                                                      --------       --------

COMMITMENTS AND CONTINGENCIES
                                     SHAREHOLDERS' EQUITY
                                     --------------------

7% cumulative convertible Preferred Stock, $.01 par value; $25.00 stated
   and liquidation value; 840,000 shares authorized; issued and
   outstanding -- 40,000 shares in both 2003 and 2002 (convertible
   into Class A shares at a ratio of  5.625 to one)........................                 --             --
Class A and Class B Common Stock, $.01 par value;150,000,000
   and 75,000,000 shares authorized, respectively; Class A -- issued
   23,651,290 and 20,158,334 at March 31, 2003 and 2002, respectively......                236            201
Class B -- issued 10,577,119 and 10,711,514 at March 31, 2003 and 2002,
   respectively (convertible into Class A shares on a one-for-one basis)...                106            108
Additional paid-in capital.................................................            120,961         47,231
Retained earnings..........................................................            139,341        111,301
Less: Treasury Stock, 32 shares of Class A and 53,428 shares
   of Class B Common Stock in 2003 and 40,493 shares of Class A and
   53,428 shares of Class B Common Stock, in 2002, at cost.................                (28)           (49)
                                                                                      --------       --------
Total Shareholders' Equity.................................................            260,616        158,792
                                                                                      --------       --------

Total Liabilities and Shareholders' Equity.................................           $352,668       $195,192
                                                                                      ========       ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     46

<PAGE>
<PAGE>

<TABLE>
                                 K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF INCOME

<CAPTION>
                                                                          YEAR ENDED MARCH 31,
                                                            --------------------------------------------------
                                                              2003                   2002               2001
                                                            --------               --------           --------

                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)


<S>                                                         <C>                    <C>                <C>
Net revenues................................                $244,996               $204,105           $177,767
Cost of sales...............................                  94,527                 80,403             70,663
                                                            --------               --------           --------
Gross profit................................                 150,469                123,702            107,104
                                                            --------               --------           --------


Operating expenses:
    Research and development................                  19,135                 10,712              9,282
    Selling and administrative..............                  69,584                 61,343             57,509
    Amortization of intangible assets.......                   2,321                  2,353              2,341
    Litigation..............................                  16,500                     --                 --
                                                            --------               --------           --------
Total operating expenses....................                 107,540                 74,408             69,132
                                                            --------               --------           --------

Operating income............................                  42,929                 49,294             37,972
                                                            --------               --------           --------

Other income (expense):
    Interest and other income...............                     977                    411                164
    Interest expense........................                    (325)                  (350)            (1,072)
                                                            --------               --------           --------
Total other income (expense), net...........                     652                     61               (908)
                                                            --------               --------           --------

Income before income taxes..................                  43,581                 49,355             37,064
Provision for income taxes..................                  15,471                 17,891             13,439
                                                            --------               --------           --------

Net income..................................                $ 28,110               $ 31,464           $ 23,625
                                                            ========               ========           ========

Net income per common share-basic...........                   $0.84                  $1.03              $0.80
                                                               =====                  =====              =====

Net income per common share-diluted.........                   $0.82                  $0.98              $0.74
                                                               =====                  =====              =====

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     47

<PAGE>
<PAGE>


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


<CAPTION>
                                                                  FOR THE YEARS ENDED MARCH 31, 2003, 2002 AND 2001
                                                  ---------------------------------------------------------------------------------
                                                              CLASS A    CLASS B   ADDITIONAL                             TOTAL
                                                  PREFERRED   COMMON     COMMON      PAID IN    TREASURY   RETAINED   SHAREHOLDERS'
                                                    STOCK      STOCK      STOCK      CAPITAL      STOCK    EARNINGS      EQUITY
                                                    -----      -----      -----      -------      -----    --------      ------
                                                                       (IN THOUSANDS, EXCEPT SHARE DATA)

<S>                                                  <C>        <C>       <C>       <C>           <C>      <C>          <C>
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
Net income....................................        --          --        --            --        --       28,110       28,110
Dividends paid on preferred stock.............        --          --        --                      --          (70)         (70)
Conversion of 175,000 Class B shares to
  Class A shares..............................        --           2        (2)           --        --           --           --
Issuance of 3,285,000 Class A shares..........        --          33        --        72,347        --           --       72,380
Sale of 40,461 Class A shares to employee
  profit sharing plan.........................        --          --        --           884        21           --          905
Stock Options exercised:
  42,478 shares of Class A less 9,502 shares
    repurchased...............................        --          --        --           105        --           --          105
  40,717 shares of Class B less 112 shares
    repurchased...............................        --          --        --           394        --           --          394
                                                     ---------------------------------------------------------------------------
BALANCE AT MARCH 31, 2003.....................       $--        $236      $106      $120,961      $(28)    $139,341     $260,616
                                                     ===========================================================================

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                     48

<PAGE>
<PAGE>

<TABLE>
                                           K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                              CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                                                 YEAR ENDED MARCH 31,
                                                                                    ---------------------------------------------
                                                                                      2003               2002              2001
                                                                                    --------           --------          --------
                                                                                                    (IN THOUSANDS)
<S>                                                                                 <C>                <C>               <C>
Operating Activities:
Net income.............................................................             $ 28,110           $ 31,464          $ 23,625
Adjustments to reconcile net income to net cash provided by operating
   activities:
   Depreciation and amortization.......................................                7,755              6,460             5,724
   Deferred income tax (benefit) provision.............................               (8,091)            (2,376)            2,294
   Deferred compensation...............................................                  196                183               174
   Litigation..........................................................               16,500                  -                 -
Changes in operating assets and liabilities:
   Increase in receivables, net........................................               (3,167)           (27,959)           (2,578)
   Increase in inventories.............................................               (5,623)            (2,886)           (2,097)
   Decrease (increase) in prepaid and other assets.....................                  514                783            (4,700)
   Increase (decrease) in accounts payable and accrued.................
      liabilities......................................................                7,127             10,228            (5,372)
                                                                                    --------           --------          --------
Net cash provided by operating activities..............................               43,321             15,897            17,070
                                                                                    --------           --------          --------

Investing Activities:
   Purchase of property and equipment, net.............................              (16,113)            (8,484)           (8,057)
   Purchase of stock and intangible assets.............................               (3,000)                 -                 -
   Product acquisition.................................................              (13,000)                 -                 -
                                                                                    --------           --------          --------
Net cash used in investing activities..................................              (32,113)            (8,484)           (8,057)
                                                                                    --------           --------          --------

Financing Activities:
   Principal payments on long-term debt................................                 (743)              (693)          (17,646)
   Proceeds from credit facility.......................................                    -                  -             5,000
   Dividends paid on preferred stock...................................                  (70)               (70)             (420)
   Proceeds from issuance of common stock..............................               72,380                  -                 -
   Sale of common stock to employee profit sharing plan................                  905                338                 -
   Exercise of common stock options....................................                  499                993             4,738
                                                                                    --------           --------          --------
Net cash provided by (used in) financing activities....................               72,971                568            (8,328)
                                                                                    --------           --------          --------

Increase in cash and cash equivalents..................................               84,179              7,981               685
Cash and cash equivalents:
   Beginning of year...................................................               12,109              4,128             3,443
                                                                                    --------           --------          --------
   End of year.........................................................             $ 96,288           $ 12,109          $  4,128
                                                                                    ========           ========          ========
Non-cash investing and financing activities:
Term loans refinanced..................................................             $  1,738           $  2,450          $      -
Issuance of common stock under product development
   agreement...........................................................                    -                125                 -
Payments due on product acquisitions...................................               15,983                  -                 -
Portion of product acquisition financed by promissory notes............               13,234                  -                 -

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     49

<PAGE>
<PAGE>

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


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

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


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

              PRINCIPLES OF CONSOLIDATION
              ---------------------------

              The Company's consolidated financial statements are prepared
              in accordance with accounting principles generally accepted in
              the United States of America. 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
              determination of sales allowances, valuation of inventory
              balances, the determination of useful lives for intangible
              assets, and the evaluation of intangible assets and goodwill
              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 only those highly liquid
              investments that are readily convertible to cash and that have
              original maturities of three months or less. At March 31, 2003
              and 2002, cash equivalents totaled $92,635 and $10,350,
              respectively.

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

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

                                     50

<PAGE>
<PAGE>

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

              Property and equipment are stated at cost, less accumulated
              depreciation. Depreciation expense is computed over the
              estimated useful lives of the related assets using the
              straight-line method. The estimated useful lives are
              principally 10 years for land improvements, 10 to 40 years for
              buildings and improvements, 3 to 15 years for machinery and
              equipment, and 3 to 10 years for office furniture and
              equipment. Leasehold improvements are amortized on a
              straight-line basis over the shorter of the respective lease
              terms or the estimated useful life of the assets. The Company
              assesses property and equipment for impairment whenever events
              or changes in circumstances indicate that an asset's carrying
              amount may not be recoverable.

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

              Intangible assets consist of product rights, license
              agreements and trademarks resulting from product acquisitions
              and legal fees and similar costs relating to the development
              of patents and trademarks. Intangible assets that are acquired
              are stated at cost, less accumulated amortization, and are
              amortized on a straight-line basis over estimated useful lives
              of 20 years. Upon approval, costs associated with the
              development of patents and trademarks are amortized on a
              straight-line basis over estimated useful lives ranging from 5
              to 17 years. The Company evaluates its intangible assets for
              impairment whenever events or changes in circumstances
              indicate that an intangible asset's carrying amount may not be
              recoverable. Recoverability is determined by comparing the
              carrying amount of an intangible asset against an estimate of
              the undiscounted future cash flows expected to result from its
              use and eventual disposition. If the sum of the expected
              future undiscounted cash flows is less than the carrying
              amount of the intangible asset, an impairment loss is
              recognized based on the excess of the carrying amount over the
              estimated fair value of the intangible asset.

              Goodwill relates to the 1972 acquisition of the Company's
              specialty materials segment and is recorded net of accumulated
              amortization through March 31, 2002. In accordance with the
              Company's adoption of Statement of Financial Accounting
              Standards (SFAS) No. 142, Goodwill and Other Intangible
              Assets, on April 1, 2002, amortization of goodwill was
              discontinued. Instead, goodwill is now subject to at least an
              annual assessment of impairment on a fair value basis. The
              Company's initial goodwill impairment test as of April 1, 2002
              resulted in no impairment of goodwill. Amortization of
              goodwill for both fiscal 2002 and 2001 was $55. Basic and
              diluted earnings per share for fiscal 2002 and 2001 would have
              been unchanged if goodwill amortization was excluded from net
              income on a pro forma basis.

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

              Non-marketable equity investments for which the Company does
              not have the ability to exercise significant influence over
              operating and financial policies (generally less than 20%
              ownership) are accounted for using the cost method. Such
              investments are included in "Other assets" in the accompanying
              consolidated balance sheets.

              These investments are periodically reviewed for
              other-than-temporary declines in fair value. Other than
              temporary declines in fair value are identified by evaluating
              market conditions, the entity's ability to achieve forecast
              and regulatory submission guidelines, as well as the entity's
              overall financial condition.

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

              Revenue from product sales is recognized when the merchandise
              is shipped to an unrelated third party pursuant to Staff
              Accounting Bulletin No. 101, Revenue Recognition in Financial
              Statements. Accordingly, revenue is recognized when all of the
              following occur: a purchase order is received from a customer;
              title and risk of loss pass to the Company's customer upon
              shipment of the merchandise under the terms of FOB


                                     51

<PAGE>
<PAGE>

              shipping point; prices and estimated sales provisions for product
              returns, sales rebates, payment discounts, chargebacks, and
              other promotional allowances are reasonably determinable; and,
              the customer's payment ability has been reasonably assured.

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


                   o    Payment discounts are reductions to invoiced amounts
                        offered to customers for payment within a specified
                        period and are estimated upon shipment utilizing
                        historical customer payment experience.
                   o    Sales rebates are offered to certain customers to
                        promote customer loyalty and encourage greater product
                        sales. These rebate programs provide that, upon the
                        attainment of pre-established volumes or the attainment
                        of revenue milestones for a specified period, the
                        customer receives credit against purchases. Other
                        promotional programs are incentive programs
                        periodically offered to customers. Due to the nature
                        of these programs, the Company is able to estimate
                        provisions for rebates and other promotional programs
                        based on the specific terms in each agreement at
                        the time of shipment.
                   o    Consistent with common industry practices, the
                        Company has agreed to terms with its customers to
                        allow them to return product that is within a
                        certain period of the expiration date. Upon shipment
                        of product to customers, the Company provides for an
                        estimate of product to be returned. This estimate is
                        determined by applying a historical relationship of
                        customer returns to amounts invoiced.
                   o    Generally the Company provides credits to customers
                        for decreases that are made to selling prices for
                        the value of inventory that is owned by customers at
                        the date of the price reduction. The Company has not
                        contractually agreed to provide price adjustment
                        credits to its customers; instead, the Company
                        issues price adjustment credits at its discretion.
                        Price adjustment credits are estimated at the time
                        the price reduction occurs. The amount is calculated
                        based on an estimate of customer inventory levels.
                   o    KV has arrangements with certain parties
                        establishing prices for the Company's products for
                        which the parties independently select a wholesaler
                        from which to purchase. Such parties are referred to
                        as indirect customers. A chargeback represents the
                        difference between the Company's invoice price to
                        the wholesaler and the indirect customer's contract
                        price, which is lower. Provisions for estimating
                        chargebacks are calculated primarily using
                        historical chargeback experience, actual contract
                        pricing and estimated wholesaler inventory levels.

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

              Accruals for sales provisions are presented in the
              consolidated financial statements as reductions to net
              revenues and accounts receivable. Sales provisions totaled
              $98,929, $98,592 and $85,881 for the years ended March 31,
              2003, 2002 and 2001, respectively. The reserve balances
              related to the sales provisions totaled $29,658 and $18,958 at
              March 31, 2003 and 2002, respectively, and are included in
              "Receivables, less allowance for doubtful accounts" in the
              accompanying consolidated balance sheets.

                                     52

<PAGE>
<PAGE>

              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.

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

              The Company's three largest customers accounted for
              approximately 33%, 20% and 14%, and 29%, 25% and 12% of gross
              receivables at March 31, 2003 and 2002, respectively.

              During fiscal 2003, KV's three largest customers accounted for
              23%, 18% and 14% of gross revenues. In fiscal 2002 and 2001,
              the Company's three largest customers accounted for gross
              revenues of 20%, 19% and 13% and 23%, 20% and 14%,
              respectively.

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

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

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

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

              The Company has licensed the exclusive rights to co-develop
              and market various products with other drug delivery
              companies. These collaborative agreements usually require the
              Company to pay up-front fees and ongoing milestone payments.
              When the Company makes an up-front or milestone payment,
              management evaluates the stage of the related product to
              determine the appropriate accounting treatment. If the product
              is considered to be beyond the early development stage but has
              not yet been approved by regulatory authorities, the Company
              will evaluate the facts and circumstances of each case to
              determine if a portion or all of the payment has future
              economic benefit and should be capitalized. Payments made to
              third parties subsequent to regulatory approval are
              capitalized with that cost generally amortized over the
              patented life of the product.

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

              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


                                     53

<PAGE>
<PAGE>

              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. Had the Company determined
              compensation expense using the fair value method prescribed by
              SFAS 123, the Company's net income and earnings per share
              would have been as follows:

<TABLE>
<CAPTION>
                                                                              2003             2002              2001
                                                                              ----             ----              ----

<S>                                                                         <C>              <C>               <C>
                  Net income, as reported........................           $ 28,110         $ 31,464          $ 23,625

                  Stock based employee
                    compensation expense,
                    net of tax...................................               (815)            (815)             (907)
                                                                            --------         --------          --------
                  Pro forma net income...........................           $ 27,295         $ 30,649          $ 22,718
                                                                            ========         ========          ========

                  Earnings per share:
                     Basic - as reported.........................           $   0.84         $   1.03          $   0.80
                     Basic - pro forma...........................               0.82             1.00              0.77
                     Diluted - as reported.......................               0.82             0.98              0.74
                     Diluted - pro forma.........................               0.79             0.95              0.71
</TABLE>

              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 2003, 2002 and 2001,
              respectively: no dividend yield; expected volatility of 45%,
              56% and 56%; risk-free interest rate of 2.40%, 6.00% and 6.50%
              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.

              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 carrying


                                     54

<PAGE>
<PAGE>

              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 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 the results of operations or financial position of
              the Company.

              In August 2001, the FASB issued SFAS No. 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 No. 121, Accounting for the Impairment of Long-Lived
              Assets and for Long-Lived Assets to be Disposed of, and
              certain provisions of APB 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 was adopted by the Company effective April 1, 2002.
              The adoption of SFAS 144 did not have a material impact on the
              Company's results of operations or financial position.

              In April 2002, the FASB issued SFAS No. 145, Rescission of
              FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
              No. 13, and Technical Corrections. SFAS 145 rescinds, amends
              or makes various technical corrections to certain existing
              authoritative pronouncements. Management does not believe the
              adoption of this statement will have a material impact on the
              results of operations or financial position of the Company.

              In July 2002, the FASB issued SFAS No. 146, Accounting for
              Costs Associated with Exit or Disposal Activities. SFAS 146
              addresses the recognition, measurement, and reporting of costs
              associated with exit and disposal activities, including costs
              related to terminating a contract that is not a capital lease
              and termination benefits that employees who are involuntarily
              terminated receive under the terms of a one-time benefit
              arrangement that is not an ongoing benefit arrangement or an
              individual deferred-compensation contract. SFAS 146 requires
              recording costs associated with exit or disposal activities at
              their fair values when a liability has been incurred. Under
              previous guidance, certain exit costs were accrued upon
              management's commitment to an exit plan, which is generally
              before an actual liability has been incurred. This statement
              is effective for exit or disposal activities that are
              initiated after December 31, 2002. The adoption of SFAS 146
              did not have a material impact on the Company's results of
              operations or financial position.

              In November 2002, the FASB issued FASB Interpretation (FIN)
              No. 45, Guarantor's Accounting and Disclosure Requirements for
              Guarantees, Including Indirect Guarantees of Indebtedness of
              Others. FIN 45 elaborates on disclosures to be made by a
              guarantor in its financial statements about its obligations
              under certain guarantees that it has issued. It also clarifies
              that a guarantor is required to recognize, at the inception of
              the guarantee, a liability for the fair value of the
              obligation undertaken in issuing the guarantee. The initial
              recognition and measurement provisions of FIN 45 are
              applicable on a prospective basis to guarantees issued or
              modified after December 31, 2002 and the disclosure
              requirements are effective for all financial statements of
              periods ending after December 31, 2002. At March 31, 2003, the
              Company was not a guarantor on any debt instruments.

              In December 2002, the FASB issued SFAS No. 148, Accounting for
              Stock-Based Compensation--Transition and Disclosure--an
              amendment of FASB Statement No. 123. SFAS 148 amends SFAS 123,
              Accounting for


                                     55

<PAGE>
<PAGE>

              Stock-Based Compensation, to provide alternative methods of
              transition for a voluntary change to the fair value based
              method of accounting for stock-based employee compensation.
              In addition, SFAS 148 amends the disclosure requirements of
              SFAS 123 to require prominent disclosures in both annual and
              interim financial statements about the method of accounting
              for stock-based employee compensation and the effect of the
              method used on reported results. SFAS 148 is effective for
              the Company's fiscal year ended March 31, 2003. The Company
              did not adopt the fair value method of valuing stock options,
              however, the adoption of the disclosure provisions of SFAS
              148 did not have a material impact on the Company's financial
              condition or results of operations.

              In January 2003, the FASB issued FIN No. 46, Consolidation of
              Variable Interest Entities, an interpretation of ARB No. 51.
              FIN 46 provides guidance on: 1) the identification of entities
              for which control is achieved through means other than through
              voting rights and 2) how to determine when and which business
              enterprise should consolidate such entities. In addition, FIN
              46 requires that any enterprises with a significant variable
              interest in these types of entities make additional
              disclosures in all financial statements initially issued after
              January 31, 2003. The Company does not anticipate the adoption
              of this Interpretation will have any impact on its financial
              position or results of operations.

              In May 2003, the FASB issued SFAS No. 150, Accounting for
              Certain Financial Instruments with Characteristics of both
              Liabilities and Equity. SFAS 150 establishes standards for how
              entities classify and measure in their statement of financial
              position certain financial instruments with characteristics of
              both liabilities and equity. The provisions of SFAS 150 are
              effective for financial instruments entered into or modified
              after May 31, 2003, and otherwise shall be effective at the
              beginning of the first fiscal interim period beginning after
              June 15, 2003. The Company does not expect adoption of this
              statement to have a material impact on its results of
              operations or financial position.

              RECLASSIFICATIONS
              -----------------

              Certain reclassifications to prior years' financial
              information have been made to conform to the fiscal 2003
              presentation.


3.       ACQUISITIONS AND LICENSE AGREEMENTS
         -----------------------------------

         On March 31, 2003, the Company acquired from Schwarz Pharma
         (Schwarz) the product rights and trademarks to the Niferex(R) line
         of hematinic products for $14,300, plus expenses. The acquisition
         was financed with cash on hand. The purchase price was allocated to
         the trademark rights acquired and is being amortized over an
         estimated life of 20 years.

         On March 31, 2003, the Company acquired from a subsidiary of Altana
         Pharma AG (Altana) the world-wide product rights and trademarks to
         the Chromagen(R) and StrongStart(R) product lines for $27,000, plus
         expenses. The Chromagen(R) product line includes three hematinic
         products used in the treatment of anemias and one prenatal vitamin,
         while the StrongStart(R) product line consists of two prenatal
         vitamin products. In accordance with the acquisition agreement, the
         Company entered into a transitional supply agreement. The
         acquisition was financed with a $13,000 cash payment and two
         non-interest bearing $7,000 promissory notes issued to Altana,
         which are due on the first and second anniversaries of the
         agreement. The promissory notes, which are non-interest bearing,
         were discounted using imputed interest rates of 3.36% and 4.08%,
         respectively, both of which approximate the Company's borrowing
         rate for similar debt instruments at the time of the borrowing.
         Using the imputed interest rates, the present value of the notes
         was


                                     56

<PAGE>
<PAGE>

         determined to be $13,234, resulting in a discount of $766. The
         purchase price was allocated to the trademark rights acquired and
         is being amortized over an estimated life of 20 years.

         On April 18, 2002, the Company entered into an agreement with
         FemmePharma, Inc. (FemmePharma) whereby the Company was granted an
         exclusive license to manufacture and sell in North America and
         certain foreign markets intravaginal products containing Danazol
         and certain vaginal anti-infective products under development (the
         License Agreement). The initial product covered by the License
         Agreement is intended for use in the treatment of endometriosis
         under FemmePharma's patented Pardel(TM) technology. In
         consideration for the rights and licenses received, the Company
         paid $1,000 for use of the Pardel(TM) trademark and will pay up to
         an additional $8,500 upon successful achievement of certain
         regulatory milestones. These milestone payments will commence upon
         submission of a New Drug Application (NDA) to the Food and Drug
         Administration for the initial product covered by the License
         Agreement. The amounts paid and the costs to be incurred under this
         agreement will be allocated to license agreements and amortized
         over the estimated lives of the products upon launch. The Company
         is also obligated to pay royalties on product sales covered by the
         License Agreement. These disbursements will be recognized as a cost
         of sales concurrently with the revenue earned on the products to
         which the royalties relate.

         Under a separate agreement, the Company invested $2,000 in
         FemmePharma's convertible preferred stock and agreed to make an
         additional $3,000 convertible preferred stock investment following
         commencement of Phase III studies by the FDA on the initial product
         covered by the License Agreement. The $2,000 investment was
         accounted for using the cost method since the Company does not have
         the ability to exercise significant influence over operating and
         financial policies of FemmePharma. This investment is included in
         "Other assets" in the accompanying consolidated balance sheets.

4.       INVENTORIES
         -----------

         Inventories as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                       2003               2002
                                                                       ----               ----

<S>                                                                  <C>                <C>
                  Finished goods.....................                $ 26,524           $ 18,600
                  Work-in-process....................                   4,290              4,702
                  Raw materials......................                  12,532             12,903
                                                                     --------           --------
                                                                       43,346             36,205
                  Reserves for obsolescence..........                  (1,003)            (1,108)
                                                                     --------           --------
                                                                     $ 42,343           $ 35,097
                                                                     ========           ========
</TABLE>

                                     57

<PAGE>
<PAGE>

5.       PROPERTY AND EQUIPMENT
         ----------------------

         Property and equipment as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                                2003                2002
                                                                                ----                ----

<S>                                                                           <C>                 <C>
                  Land and improvements.................................      $  2,083            $  2,083
                  Building and building improvements....................        17,246              16,611
                  Machinery and equipment...............................        35,548              31,497
                  Office furniture and equipment........................        12,185               8,766
                  Leasehold improvements................................        10,708               3,195
                  Construction-in-progress (estimated costs to
                     complete at March 31, 2003 was $1,433).............         5,848               5,353
                                                                              --------            --------
                                                                                83,618              67,505
                  Less accumulated depreciation and amortization........       (31,715)            (26,281)
                                                                              --------            --------
                     Net property and equipment.........................      $ 51,903            $ 41,224
                                                                              ========            ========
</TABLE>

         Purchases of property and equipment were $16,113, $8,484 and $8,057
         for fiscal 2003, 2002 and 2001, respectively. Depreciation and
         amortization of property and equipment was $5,434, $4,107 and
         $3,383 for fiscal 2003, 2002 and 2001, respectively.

6.       INTANGIBLE ASSETS AND GOODWILL
         ------------------------------

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

<TABLE>
<CAPTION>
                                                                     2003                                        2002
                                                      ---------------------------------           ---------------------------------
                                                        GROSS                                       GROSS
                                                      CARRYING             ACCUMULATED            CARRYING              ACCUMULATED
                                                       AMOUNT              AMORTIZATION            AMOUNT              AMORTIZATION
                                                       ------              ------------            -------             ------------

<S>                                                    <C>                  <C>                    <C>                   <C>
              Product rights - Micro-K(R).......       $36,140               $(7,294)              $36,140               $(5,490)
              Product rights - PreCare(R).......         8,433                (1,546)                8,433                (1,124)
              Trademarks acquired.............          42,476                     -                     -                     -
              License agreements..............           1,000                     -                     -                     -
              Trademarks and patents..........           3,114                  (303)                3,046                  (269)
                                                       -------               -------               -------               -------
                  Total intangible assets.....          91,163                (9,143)               47,619                (6,883)
              Goodwill........................             557                     -                   557                     -
                                                       -------               -------               -------               -------
                                                       $91,720               $(9,143)              $48,176               $(6,883)
                                                       =======               =======               =======               =======
</TABLE>

         Amortization of intangible assets was $2,321, $2,298 and $2,286 for
         fiscal 2003, 2002 and 2001, respectively. Amortization of goodwill
         was $55 for fiscal 2002 and 2001.

         Estimated annual amortization expense is $4,450 for each of the
         five succeeding fiscal years.

                                     58

<PAGE>
<PAGE>

7.       OTHER ASSETS
         ------------

         Other assets as of March 31, consist of:
<TABLE>
<CAPTION>
                                                                               2003               2002
                                                                               ----               ----

<S>                                                                           <C>                <C>
                  Cash surrender value of life insurance...............       $1,634             $1,845
                  Other investments....................................        2,000                  -
                  Deposits.............................................          994              2,015
                  Other................................................           44                 62
                                                                              ------             ------
                                                                              $4,672             $3,922
                                                                              ======             ======
</TABLE>

8.       ACCRUED LIABILITIES
         -------------------

         Accrued liabilities as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                       2003              2002
                                                                       ----              ----

<S>                                                                  <C>               <C>
                  Salaries, wages, incentives and benefits.......    $ 6,202           $ 5,665
                  Income taxes...................................      8,402             6,929
                  Promotion expenses.............................      2,744             2,846
                  Payments due on product acquisitions...........     15,983                 -
                  Assumed liabilities - product acquisitions.....      1,882                 -
                  Litigation reserve.............................     16,500                 -
                  Other..........................................        835               892
                                                                     -------           -------
                                                                     $52,548           $16,332
                                                                     =======           =======
</TABLE>

9.       LONG-TERM DEBT
         --------------

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

<TABLE>
<CAPTION>
                                                                       2003             2002
                                                                       ----             ----

<S>                                                                  <C>               <C>
                  Industrial revenue bonds....................       $   530           $  855
                  Building mortgages..........................         3,826            4,244
                  Notes payable...............................        13,234                -
                                                                     -------           ------
                                                                      17,590            5,099
                  Less current portion........................        (7,484)            (712)
                                                                     -------           ------
                                                                     $10,106           $4,387
                                                                     =======           ======
</TABLE>

         As of March 31, 2003, the Company has a credit agreement with a
         bank that provides for a revolving line of credit for borrowing up
         to $60,000. The credit agreement provides for a $40,000 unsecured
         revolving line of credit along with an unsecured supplemental
         credit line of $20,000 for financing acquisitions. The $40,000
         unsecured revolving line of credit expires in October 2004. The
         unsecured supplemental credit line of $20,000, which was renewed in
         December 2002, expires in December 2003. The revolving credit lines
         charge interest at the lower of the prime rate or the one-month
         LIBOR rate plus 150 basis points. At March 31, 2003, the Company
         had $11,906 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, 2003, the
         Company was in compliance with all of its covenants.

                                     59

<PAGE>
<PAGE>

         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 2002, the Company refinanced $1,738 of a building
         mortgage that was due in March 2004. At March 31, 2003, the
         building mortgages bear interest at 7.57% and 6.27% and require
         monthly principal payments of $19 and $13 plus interest through
         November 2006 and November 2007, respectively. The remaining
         principal balances plus any unpaid interest are due on December 20,
         2006 and December 20, 2007, respectively.

         The notes payable relate to two unsecured promissory notes for
         $7,000 each that were entered into in conjunction with the Altana
         acquisition agreement (see Note 3). The two notes are due on March
         31, 2004 and March 31, 2005. The promissory notes, which are
         non-interest bearing, were discounted using imputed interest rates
         of 3.36% and 4.08%, respectively, both of which approximate the
         Company's borrowing rate for similar debt instruments at the time
         of the borrowing. The present value of the notes was determined to
         be $13,234, resulting in a discount of $766.

         The aggregate maturities of long-term debt as of March 31, 2003 are
         as follows:

                  2004..........................          $ 7,484
                  2005..........................            7,052
                  2006..........................              386
                  2007..........................            1,593
                  2008..........................            1,075
                                                          -------
                                                          $17,590
                                                          =======

         The Company paid interest of $389, $417 and $1,329 during the years
         ended March 31, 2003, 2002 and 2001, 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, 2003, 2002
         and 2001 was $4,785, $4,441 and $4,319, respectively.

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

                  2004..........................          $  3,072
                  2005..........................             2,761
                  2006..........................             2,390
                  2007..........................             2,308
                  2008..........................             1,962
                  Later years...................             7,622


                                     60

<PAGE>
<PAGE>

         CONTINGENCIES

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

         The Company has licensed the exclusive rights to co-develop and
         market various generic equivalent products with other drug delivery
         companies. These collaboration agreements require the Company to
         make up-front and ongoing payments as development milestones are
         attained. If all milestones remaining under these agreements were
         reached, payments by the Company could total up to $17,300.

         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 $196,
         $183 and $174, under this agreement in the years ended March 31,
         2003, 2002 and 2001, respectively.

         LITIGATION

         ETHEX Corporation (ETHEX), a subsidiary of the Company, is a
         defendant in a lawsuit styled Healthpoint, Ltd. v. ETHEX
         Corporation, pending in federal court in San Antonio, Texas. In
         general, the plaintiffs allege that ETHEX's comparative promotion
         of its Ethezyme(TM) 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. In September 2001, the jury
         returned verdicts against ETHEX on certain false advertising,
         unfair competition, and misappropriation claims. The jury awarded
         compensatory and punitive damages totaling $16,500. On October 1,
         2002, the U.S. District Court for the Western District of Texas
         denied ETHEX's motion to set aside the jury's verdict. On December
         17, 2002, the court entered a judgment awarding attorneys' fees to
         Healthpoint in an amount to be subsequently determined.

         We believe that the jury award is excessive and is not sufficiently
         supported by the facts or the law. We intend to vigorously appeal
         once the court has entered a final judgment. We and our counsel
         believe that there are meritorious arguments to be raised during
         the appeal process; however, we are not presently able to predict
         the outcome of the pending District Court's motions or an appeal.
         As a result of the court's earlier decisions, our results of
         operations for fiscal 2003 included a reserve for potential damages
         of $16,500, which is reflected in accrued liabilities on our
         consolidated balance sheet as of March 31, 2003. To date
         Healthpoint has requested reimbursement for approximately $1,800 in
         attorneys' fees in addition to the judgment discussed above. We are
         contesting Healthpoint's entitlement to and their requested amount
         of attorneys' fees. As of this date, the court had not entered any
         order with respect to the amount of attorneys' fees to be awarded.
         Our counsel has advised us that the amount could range from zero to
         $1,800, the amount requested by Healthpoint. Based on our current
         analysis we believe that the reserve as recorded will be adequate
         to cover any judgment, including attorneys' fees, which may result
         at the end of the appeal process. We are continually evaluating the
         need for additional reserves as the case progresses through the
         appeal process.
                                     61

<PAGE>
<PAGE>


         We previously distributed several low volume pharmaceutical
         products that contained phenylpropanolamine, or PPA, and that were
         discontinued in 2000 and 2001. We are presently named as one of
         several defendants in two product liability lawsuits in federal
         court in Nevada and Mississippi involving PPA. The Nevada case is
         Deuel, David, et al. v. KV Pharmaceutical Company, Inc. The suit
         was filed on June 11, 2001. Discovery has been initiated in this
         case, and we currently have completed the basic fact discovery and
         depositions, however no discovery cut-off date has been assigned
         and there is presently no trial date. The Mississippi case is
         Virginia Madison, et al. v. Bayer Corporation, et al. We are one of
         several defendants named in the lawsuit. The suit was filed on
         December 23, 2002, but was not served on us until February 2003.
         The case was originally filed in the Circuit Court of Hinds County,
         Mississippi, and was removed to the United States District Court
         for the Southern District of Mississippi by co-defendant Bayer
         Corporation. The Plaintiffs have filed a motion to remand the case
         to the Circuit Court of Hinds County, Mississippi, which has caused
         the Court to enter a stay of all proceedings pending a resolution
         of the motion. So far, the Court has not ruled on the motion. Both
         the Nevada and Mississippi cases have been transferred to a
         Judicial Panel on Multi District Litigation for PPA claims sitting
         in 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 distributed
         pharmaceuticals containing PPA that have since been discontinued
         and/or reformulated to exclude PPA. We believe that we have
         substantial defenses to these claims, though the ultimate outcome
         of these cases and the potential effect on us cannot be determined.

         We are being defended and indemnified in the Nevada PPA lawsuits by
         our products liability insurer subject to a reservation of rights.
         Our product liability 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,
         our product liability coverage for PPA claims expired for claims
         made after June 15, 2002. Although we renewed our product liability
         coverage for a policy term of June 15, 2002 through June 15, 2003,
         that policy excludes future PPA claims in accordance with the
         standard industry exclusion. Consequently, as of June 15, 2002, we
         have provided for legal defense costs and indemnity payments
         involving PPA claims on a going forward basis, including the
         Mississippi lawsuit that was filed during the June 15, 2002 through
         June 15, 2003 policy period. Moreover, we may not be able to obtain
         product liability insurance in the future for PPA claims with
         adequate coverage limits at commercially reasonable prices for
         subsequent periods. From time to time in the future, we may be
         subject to further litigation resulting from products containing
         PPA that we formerly distributed. 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 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.



                                     62

<PAGE>
<PAGE>

11.      INCOME TAXES
         ------------

         The fiscal 2003, 2002, and 2001 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 2003, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                            2003            2002            2001
                                                                            ----            ----            ----
<S>                                                                        <C>             <C>             <C>
                  PROVISION
                     Current
                        Federal...............................             $21,524         $18,603         $10,072
                        State.................................               2,038           1,664           1,073
                                                                           -------         -------         -------
                                                                            23,562          20,267          11,145
                                                                           -------         -------         -------

                     Deferred
                        Federal...............................              (7,207)         (2,199)          2,061
                        State.................................                (884)           (177)            233
                                                                           -------         -------         -------
                                                                            (8,091)         (2,376)          2,294
                                                                           -------         -------         -------
                                                                           $15,471         $17,891         $13,439
                                                                           =======         =======         =======
</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>
                                                                            2003              2002            2001
                                                                            ----              ----            ----

<S>                                                                        <C>               <C>             <C>
                  Expected income tax expense.................             $15,253           $17,274         $12,972
                  State income taxes, less
                     Federal income tax benefit...............                 750               967             849
                  Business credits............................                (370)             (260)           (142)
                  Other ......................................                (162)              (90)           (240)
                                                                           -------           -------         -------
                                                                           $15,471           $17,891         $13,439
                                                                           =======           =======         =======
</TABLE>

         As of March 31, 2003 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>
                                                                     2003                                        2002
                                                       --------------------------------             ------------------------------
                                                       CURRENT              NON-CURRENT             CURRENT            NON-CURRENT

<S>                                                    <C>                   <C>                    <C>                  <C>
         Fixed asset basis differences........         $     -               $(3,397)               $    -               $(2,126)
         Reserves for inventory and
            receivables.......................           7,776                     -                 4,376                     -
         Vacation pay reserve.................             456                     -                   464                     -
         Deferred compensation................               -                 1,092                     -                 1,004
         Amortization.........................               -                (1,108)                    -                  (818)
         Litigation reserve...................           6,056                     -                     -                     -
         Other................................             503                     -                   387                     -
                                                       -------               -------                ------               -------
            Net deferred tax asset (liability)         $14,791               $(3,413)               $5,227               $(1,940)
                                                       =======               =======                ======               =======
</TABLE>

         The Company paid income taxes of $22,088, $15,578 and $11,971
         during the years ended March 31, 2003, 2002 and 2001, respectively.


                                     63

<PAGE>
<PAGE>

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 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,
         2003, options to purchase 244,150 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
         2003, 2002 and 2001 under option arrangements:

<TABLE>
<CAPTION>
                                                     OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                                                     -------------------                             -------------------
                                                                       AVERAGE                                          AVERAGE
                                                   NO. OF             PRICE PER                  NO. OF                PRICE PER
                                                   SHARES               SHARE                    SHARES                  SHARE
                                                   ------               -----                    ------                  -----
<S>                                              <C>                    <C>                    <C>                      <C>
         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
         Options granted...................         467,025              18.52                          -                    -
         Options becoming exercisable......               -                  -                    377,637                13.81
         Options exercised.................         (90,280)              7.89                    (90,280)                7.89
         Options canceled..................        (173,776)             17.51                    (50,635)               16.45
                                                 ----------                                    ----------
         Balance March 31, 2003............       2,335,355             $13.22                  1,193,893               $11.97
                                                 ==========                                    ==========
</TABLE>

         The weighted-average fair value of options granted at market price
         was $3.27, $5.45 and $4.18 per share in fiscal 2003, 2002 and 2001,
         respectively. The weighted-average fair value of options granted
         with an exercise price exceeding market price on the date of grant
         was $0.21, $0.45 and $1.83 per share in fiscal 2003, 2002 and 2001,
         respectively.

                                     64

<PAGE>
<PAGE>

         The following table summarizes information about stock options
outstanding at March 31, 2003:

<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING                                  OPTIONS EXERCISABLE
                           --------------------------------------------------------         -------------------------------
       RANGE OF              NUMBER          WEIGHTED AVERAGE           WEIGHTED              NUMBER            WEIGHTED
       EXERCISE            OUTSTANDING             LIFE                  AVERAGE            EXERCISABLE          AVERAGE
        PRICES             AT 3/31/03            REMAINING           EXERCISE PRICE         AT 3/31/03       EXERCISE PRICE
        ------             ----------            ---------           --------------         ----------       --------------
<S>                          <C>                  <C>                    <C>                  <C>                <C>
   $ 1.23 - $ 5.00           167,888              2 Years                $ 3.24               110,968            $ 3.08
   $ 5.01 - $ 9.00           252,713              4 Years                $ 5.62               155,072            $ 5.57
   $ 9.01 - $14.00           875,921              6 Years                $11.01               513,616            $11.08
   $14.01 - $21.00           818,363              7 Years                $17.05               377,532            $17.24
   $21.01 - $29.01           220,470              9 Years                $24.09                36,705            $24.05
</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 $445, $350 and $300
         for fiscal 2003, 2002 and 2001, 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 $1,185, $1,028 and $907 were made to the 401(k)
         investment funds in fiscal 2003, 2002 and 2001, 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
         $231, $165 and $161 in fiscal 2003, 2002 and 2001, 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, 2003 and 2002 were $400 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 $6,636, $5,255, and $4,088 in fiscal 2003, 2002 and 2001,
         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, 2003, 2002 and 2001 totaled $269, $263 and $246, respectively.

14.      EQUITY TRANSACTIONS
         -------------------

         During July 2002, the Company completed a public offering of
         approximately 3.3 million shares of Class A common stock. Net
         proceeds to the Company were $72,380 after deducting underwriting
         discounts, commissions and offering expenses.

                                     65

<PAGE>
<PAGE>

         As of March 31, 2003 and 2002, the Company had 40,000 shares of 7%
         Cumulative Convertible Preferred Stock (par value $.01 per share)
         outstanding at a stated value of $25 per share. The preferred stock
         is non-voting with dividends payable quarterly. The preferred stock
         is redeemable 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 $366, or $9.14 per share, at both March
         31, 2003 and 2002. 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.

                                     66

<PAGE>
<PAGE>

15.      EARNINGS PER SHARE
         ------------------

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

<TABLE>
<CAPTION>
                                                                            2003            2002            2001
                                                                            ----            ----            ----
<S>                                                                        <C>             <C>             <C>
                  Numerator:
                     Net income(1).....................................    $28,110         $31,464         $23,625
                     Preferred stock dividends.........................        (70)            (70)           (420)
                                                                           -------         -------         -------

                     Numerator for basic earnings per
                        share - income available to common
                        shareholders...................................     28,040          31,394          23,205

                     Effect of dilutive securities:
                        Preferred stock dividends......................         70              70             420
                                                                           -------         -------         -------

                     Numerator for diluted earnings per
                        share - income available to common
                        shareholders after assumed conversions.........    $28,110         $31,464         $23,625
                                                                           =======         =======         =======

                  Denominator:
                     Denominator for basic earnings per
                        share -- weighted-average shares...............     33,200          30,408          28,981
                                                                            ------          ------          ------

                     Effect of dilutive securities:
                        Employee stock options.........................        949           1,258           1,662
                        Convertible preferred stock....................        225             499           1,350
                                                                           -------         -------         -------

                     Dilutive potential common shares..................      1,174           1,757           3,012
                                                                           -------         -------         -------

                     Denominator for diluted earnings per
                        share -- adjusted weighted-average shares and
                        assumed conversions............................     34,374          32,165          31,993
                                                                           =======         =======         =======

                     Basic earnings per share(2) ......................    $  0.84         $  1.03         $  0.80
                                                                           =======         =======         =======
                     Diluted earnings per share(2)(3) .................    $  0.82         $  0.98         $  0.74
                                                                           =======         =======         =======

<FN>
-------------------------
                  (1) Net income for the year ended March 31, 2003 includes
                      a reserve of $16,500 for potential damages associated
                      with a lawsuit (see Note 10). The impact of the
                      litigation reserve, net of the applicable tax effect,
                      was $10,444.

                  (2) 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.

                  (3) Employee stock options to purchase 170,490, 27,550 and
                      5,750 shares of Class A common stock at March 31,
                      2003, 2002 and 2001, 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.
</TABLE>

                                     67

<PAGE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                 1ST           2ND           3RD           4TH
                                               QUARTER       QUARTER       QUARTER       QUARTER            YEAR
                                               -------       -------       -------       -------            ----
<S>                                            <C>           <C>           <C>           <C>              <C>
FISCAL 2003
-----------
Net sales..................................    $49,227       $60,482       $61,929       $73,358          $244,996
Gross profit...............................     30,149        37,001        38,201        45,118           150,469
Pretax income (loss)(a)....................     10,621        (2,220)       15,555        19,625            43,581
Net income (loss)(a).......................      6,723        (1,405)       10,146        12,646            28,110
Earnings (loss) per share - basic..........       0.22         (0.04)         0.30          0.37              0.84
Earnings (loss) per share - diluted........       0.21         (0.04)         0.29          0.36              0.82

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

<FN>
        NOTE:
        ----

        (a) Pretax income (loss), for the three-months ended September 30,
            2002 and the year ended March 31, 2003 includes a reserve of
            $16,500 for potential damages associated with a lawsuit (see
            Note 10). The impact of the litigation reserve, net of
            applicable income taxes was to reduce net income for the
            three months ended September 30, 2002 and the year ended
            March 31, 2003 by $10,444.
</TABLE>

17.      SEGMENT REPORTING
         -----------------

         The reportable operating segments of the Company are branded
         products, specialty generics and specialty materials. 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 three reportable
         operating segments primarily include receivables, inventory, and
         property and equipment. For the "all other" classification,
         identifiable assets consist of cash and cash equivalents, corporate
         property and equipment, intangible and other assets and all income
         tax related assets. Accounting policies of the segments are the
         same as the Company's consolidated accounting policies.

                                     68

<PAGE>
<PAGE>

         The following represents information for the Company's reportable
         operating segments for fiscal 2003, 2002 and 2001.

<TABLE>
<CAPTION>
                               FISCAL YEAR
                                  ENDED         BRANDED     SPECIALTY     SPECIALTY      ALL
                                MARCH 31       PRODUCTS      GENERICS     MATERIALS     OTHER     ELIMINATIONS    CONSOLIDATED
                                ---------      --------      --------     ---------     -----     ------------    ------------
---------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>          <C>           <C>        <C>           <C>             <C>
   Net revenues                   2003          $43,677      $179,724      $17,395    $  4,200      $     -         $244,996
                                  2002           40,424       141,007       19,557       3,117            -          204,105
                                  2001           25,206       132,154       17,088       3,319            -          177,767
---------------------------------------------------------------------------------------------------------------------------------
   Segment profit (loss) (a)      2003            8,361        97,339        1,692     (63,811)           -           43,581
                                  2002            7,222        74,389        3,684     (35,940)           -           49,355
                                  2001           (6,490)       71,779        4,333     (32,558)           -           37,064
---------------------------------------------------------------------------------------------------------------------------------
   Identifiable assets            2003            7,819        69,303        8,797     267,907       (1,158)         352,668
                                  2002           12,555        58,618        8,774     116,403       (1,158)         195,192
                                  2001            9,497        31,241        8,278     103,559       (1,158)         151,417
---------------------------------------------------------------------------------------------------------------------------------
   Property and                   2003              634           116          143      15,220            -           16,113
     equipment additions          2002              707           120          391       7,266            -            8,484
                                  2001              226           805           91       6,935            -            8,057
---------------------------------------------------------------------------------------------------------------------------------
   Depreciation and               2003              260            55          164       7,276            -            7,755
     Amortization                 2002               74            79          156       6,151            -            6,460
                                  2001               82           180          152       5,310            -            5,724
---------------------------------------------------------------------------------------------------------------------------------

<FN>
     (a) In the "all other" classification, segment profit (loss) for the
         year ended March 31, 2003 includes a litigation reserve of $16,500
         for potential damages associated with a lawsuit (see Note 10).
</TABLE>

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

18.      SUBSEQUENT EVENTS
         -----------------

         PURCHASE OF BUILDING

         On April 28, 2003, the Company completed the purchase of an office
         building for $8,800. The facility consists of approximately 275,000
         square feet of office, production, distribution and warehouse
         space. The purchase of the building was financed by a term loan
         secured by the property. The building mortgage bears interest at
         5.30% and requires monthly principal payments of $49 plus interest
         through March 2008. The remaining principal balance plus any unpaid
         interest is due in April 2008.

         SALE OF $200 MILLION CONTINGENT CONVERTIBLE SUBORDINATED NOTES

         On May 16, 2003, the Company issued $200,000 of 2.50% Contingent
         Convertible Notes due May 16, 2033 (the Notes). Approximately
         $50,000 of the proceeds from the sale of these Notes was used to
         repurchase shares of Class A common stock, with the remainder to
         be used for potential acquisitions and general corporate purposes.
         The Notes bear interest at a rate of 2.50% per annum, which is
         payable on May 16 and November 16 of each year, beginning November
         16, 2003. The Company also will pay contingent interest at a rate
         equal to 0.5% per annum during any six-month period from May 16 to
         November 15 and from November 16 to May 15, with the initial
         six-month period commencing May 16, 2006, if the average trading
         price of the Notes reaches certain thresholds.

                                     69

<PAGE>
<PAGE>

         The Company may redeem some or all of the Notes at any time on or
         after May 21, 2006, at a redemption price, payable in cash, of 100%
         of the principal amount of the Notes, plus accrued and unpaid
         interest, including contingent interest, if any. Holders of the
         Notes may require the Company to repurchase all or a portion of
         their Notes on May 16, 2008, 2013, 2018, 2023 and 2028 and upon a
         change in control, as defined in the indenture governing the Notes,
         at a purchase price, payable in cash, of 100% of the principal
         amount of the Notes, plus accrued and unpaid interest, including
         contingent interest, if any.

         The Notes are convertible, at the holders' option, into shares of
         the Company's Class A common stock prior to the maturity date in the
         following circumstances:

              o   during any quarter commencing after June 30,
                  2003, if the closing sale price of the Company's
                  Class A common stock over a specified number of
                  trading days during the previous quarter is more
                  than 120% of the conversion price of the Notes
                  on the last trading day of the previous quarter.
                  The Notes are initially convertible at a
                  conversion price of $34.51 per share, which is
                  equal to a conversion rate of approximately
                  28.9771 shares per $1,000 principal amount of
                  Notes;

              o   if the Company has called the Notes for redemption;

              o   during the five trading day period immediately
                  following any nine consecutive day trading
                  period in which the trading price of the Notes
                  per $1,000 principal amount for each day of such
                  period was less than 95% of the product of the
                  closing sale price of our Class A common stock
                  on that day multiplied by the number of shares
                  of our Class A common stock issuable upon
                  conversion of $1,000 principal amount of the
                  Notes; or

              o   upon the occurrence of specified corporate transactions.

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

         The Company incurred approximately $6,000 of fees and other
         origination costs related to the issuance of the Notes. These costs
         will be amortized over a five-year period.

         As a result of the significant increase in debt related to the
         $200.0 million Notes issuance, the $60 million revolving line of
         credit the Company has with a bank was changed (see Note 9). The
         credit agreement, which previously included 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, was expanded to include a
         minimum fixed charge ratio and a maximum senior leverage ratio.

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 2003 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.



                                     70

<PAGE>
<PAGE>

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 2003 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 2003
         Annual Meeting of Shareholders is incorporated herein by this
         reference.

         EQUITY COMPENSATION PLAN INFORMATION

         The following information regarding compensation plans of the
         Company is furnished as of March 31, 2003, the end of the Company's
         most recently completed fiscal year.


                                     71

<PAGE>
<PAGE>


<TABLE>
                                         EQUITY COMPENSATION PLAN INFORMATION
                                            REGARDING CLASS A COMMON STOCK
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                             NUMBER OF SECURITIES
                                                                                            REMAINING AVAILABLE FOR
                                 NUMBER OF SECURITIES TO BE                                  FUTURE ISSUANCE UNDER
                                  ISSUED UPON EXERCISE OF     WEIGHTED-AVERAGE EXERCISE    EQUITY COMPENSATION PLANS
                                    OUTSTANDING OPTIONS,        PRICE OF OUTSTANDING        (EXCLUDING SECURITIES
                                    WARRANTS AND RIGHTS      OPTIONS, WARRANTS AND RIGHTS   REFLECTED IN COLUMN (A))
                                    -------------------      ----------------------------   ------------------------


         PLAN CATEGORY                      (A)                          (B)                          (C)

<S>                                      <C>                            <C>                        <C>
Equity compensation plans
  approved by security holders(1)        1,737,332                      $13.28                     1,945,175

Equity compensation plans not
  approved by security holders(2)           89,750                      $15.58                        N/A
                                         ---------
             Total                       1,827,082                      $13.39                     1,945,175
                                         =========                                                 =========

<CAPTION>
                                         EQUITY COMPENSATION PLAN INFORMATION
                                            REGARDING CLASS B COMMON STOCK
----------------------------------------------------------------------------------------------------------------------
                                                                                             NUMBER OF SECURITIES
                                                                                            REMAINING AVAILABLE FOR
                                 NUMBER OF SECURITIES TO BE                                  FUTURE ISSUANCE UNDER
                                  ISSUED UPON EXERCISE OF     WEIGHTED-AVERAGE EXERCISE    EQUITY COMPENSATION PLANS
                                    OUTSTANDING OPTIONS,        PRICE OF OUTSTANDING        (EXCLUDING SECURITIES
                                    WARRANTS AND RIGHTS      OPTIONS, WARRANTS AND RIGHTS   REFLECTED IN COLUMN (A))
                                    -------------------      ----------------------------   ------------------------


         PLAN CATEGORY                      (A)                          (B)                          (C)

<S>                                      <C>                            <C>                        <C>
Equity compensation plans
  approved by security holders(1)         353,873                       $12.51                     1,261,000

Equity compensation plans not
  approved by security holders(2)         154,400                       $13.72                        N/A
                                          -------
             Total                        508,273                       $12.87                     1,261,000
                                          =======                                                  =========
<FN>
(1) Consists of the Company's 2001 Incentive Stock Option Plan.
    See Note 12 of Notes to Consolidated Financial Statements.
(2) Consists of options that the Vice Chairman elected to take in lieu
    of earned incentive cash compensation and options granted to
    non-employee members of the Board of Directors.
</TABLE>


                                     72

<PAGE>
<PAGE>

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 2003 Annual Meeting of Shareholders is
         incorporated herein by this reference.

ITEM 14. CONTROLS AND PROCEDURES
         -----------------------

         The Company maintains disclosure controls and procedures that are
         designed to ensure that information required to be disclosed in our
         Exchange Act reports is recorded, processed, summarized and
         reported within the time periods specified in the SEC's rules and
         forms, and that such information is accumulated and communicated to
         the Company's management, including our principal executive officer
         and principal financial officer, as appropriate, to allow timely
         decisions regarding required disclosure. In designing and
         evaluating the disclosure controls and procedures, management
         recognized that any controls and procedures, no matter how well
         designed and operated, can provide only reasonable assurance of
         achieving the desired control objectives, and management
         necessarily was required to apply its judgment in evaluating the
         cost-benefit relationship of possible controls and procedures.

         Within 90 days prior to the date of this report, we carried out an
         evaluation, under the supervision and with the participation of our
         management, including our principal executive officer and principal
         financial officer, of the effectiveness of the design and operation
         of our disclosure controls and procedures. Based on the foregoing,
         our principal executive officer and principal financial officer
         concluded that our disclosure controls and procedures were
         effective.

         There have been no significant changes in our internal controls or
         in other factors that could significantly affect the internal
         controls subsequent to the date we completed our evaluation.


                                   PART IV

ITEM 15. 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.............    45
         Consolidated Balance Sheets as of March 31, 2003 and 2002......    46
         Consolidated Statements of Income for the Years Ended
           March 31, 2003, 2002 and 2001................................    47

         Consolidated Statements of Shareholders' Equity for the Years
           Ended March 31, 2003, 2002 and 2001..........................    48

         Consolidated Statements of Cash Flows for the Years Ended
           March 31, 2003, 2002 and 2001................................    49

                                     73

<PAGE>
<PAGE>

         Notes to Financial Statements..................................    50

         2. Financial Statement Schedules:

         Report of Independent Certified Public Accountants regarding
         Financial Statement Schedule...................................    75

         Schedule II - Valuation and Qualifying Accounts................    76

         3. Exhibits:

         See Exhibit Index on pages 80 through 86 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 February 4, 2003
         for a Regulation FD Disclosure.


                                     74

<PAGE>
<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Stockholders and Board of Directors
of KV Pharmaceutical Company


The audits referred to in our report dated May 23, 2003 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 23, 2003


                                     75

<PAGE>
<PAGE>


2. Financial Statement Schedules:

<TABLE>
                                                    SCHEDULE II
                                        VALUATION AND QUALIFYING ACCOUNTS

<CAPTION>
                                                                   ADDITIONS
                                                BALANCE AT        CHARGED TO         AMOUNTS           BALANCE
                                                 BEGINNING         COSTS AND       CHARGED TO          AT END
                                                  OF YEAR          EXPENSES         RESERVES           OF YEAR
                                                  -------          --------         --------           -------
                                                                        (in thousands)
<S>                                            <C>              <C>               <C>              <C>
Year Ended March 31, 2001:
Allowance for doubtful accounts............    $         438    $          13     $           3    $          448
Inventory obsolescence.....................            1,062              418               893               587
                                               -------------    -------------     -------------    --------------
                                               $       1,500    $         431     $         896    $        1,035
                                               =============    =============     =============    ==============

Year Ended March 31, 2002:
Allowance for doubtful accounts............    $         448    $         113     $         158    $          403
Inventory obsolescence.....................              587            2,215             1,694             1,108
                                               -------------    -------------     -------------    --------------
                                               $       1,035    $       2,328     $       1,852    $        1,511
                                               =============    =============     =============    ==============

Year Ended March 31, 2003:
Allowance for doubtful accounts............    $         403    $         (81)    $        (100)   $          422
Inventory obsolescence.....................            1,108            2,053             2,158             1,003
                                               -------------    -------------     -------------    --------------
                                               $       1,511    $       1,972     $       2,058    $        1,425
                                               =============    =============     =============    ==============
</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.


                                     76

<PAGE>
<PAGE>

                                SIGNATURES

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

                                     KV PHARMACEUTICAL COMPANY


Date: June 27, 2003               By   /s/  Marc S. Hermelin
                                    -----------------------------------------
                                      Vice Chairman of the Board and
                                      Chief Executive Officer
                                      (Principal Executive Officer)



Date: June 27, 2003               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 27, 2003               By   /s/  Marc S. Hermelin
                                    -----------------------------------------
                                     Marc S. Hermelin


Date: June 27, 2003               By   /s/  Victor M. Hermelin
                                    -----------------------------------------
                                     Victor M. Hermelin


Date: June 27, 2003               By   /s/  Norman D. Schellenger
                                    -----------------------------------------
                                     Norman D. Schellenger


Date: June 27, 2003               By   /s/  Alan G. Johnson
                                    -----------------------------------------
                                     Alan G. Johnson


Date: June 27, 2003               By   /s/  Kevin S. Carlie
                                    -----------------------------------------
                                     Kevin S. Carlie


Date: June 27, 2003               By   /s/  John P. Isakson
                                    -----------------------------------------
                                     John P. Isakson

                                     77

<PAGE>
<PAGE>

                               CERTIFICATIONS

I, Marc S. Hermelin, Vice Chairman and Chief Executive Officer, certify that:

1.    I have reviewed this Annual Report on Form 10-K of KV Pharmaceutical
      Company;

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

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

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

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

      b)   evaluated the effectiveness of the registrant's disclosure
           controls and procedures as of a date within 90 days prior to the
           filing date of this Annual Report (the "Evaluation Date"); and

      c)   presented in this Annual Report our conclusions about the
           effectiveness of the disclosure controls and procedures based on
           our evaluation as of the Evaluation Date;

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

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

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

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

Date: June 27, 2003
                                                /s/   MARC S. HERMELIN
                                               ------------------------
                                                   Marc S. Hermelin
                                      Vice Chairman and Chief Executive Officer
                                            (Principal Executive Officer)

                                     78

<PAGE>
<PAGE>

I, Gerald R. Mitchell, Vice President, Treasurer and Chief Financial Officer,
certify that:

1.    I have reviewed this Annual Report on Form 10-K of KV Pharmaceutical
      Company;

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

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

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

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

      b)   evaluated the effectiveness of the registrant's disclosure
           controls and procedures as of a date within 90 days prior to the
           filing date of this Annual Report (the "Evaluation Date"); and

      c)   presented in this Annual Report our conclusions about the
           effectiveness of the disclosure controls and procedures based on
           our evaluation as of the Evaluation Date;

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

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

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

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

Date: June 27, 2003

                                   /s/ GERALD R. MITCHELL
                                 --------------------------
                                    Gerald R. Mitchell
                   Vice President, Treasurer and Chief Financial Officer
                        (Principal Financial and Accounting Officer)


                                     79

<PAGE>
<PAGE>


                                EXHIBIT INDEX


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

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

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

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

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

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

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

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

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

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

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

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

                                     80

<PAGE>
<PAGE>

     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.

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

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

     4(b)         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.

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     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 herein by this reference.

     4(l)         Fifth Amendment, dated December 21, 2001, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, which was filed as Exhibit 4(l) to the Company's
                  Annual Report on Form 10-K for the year ended March 31,
                  2002, is incorporated herein by this reference.

     4(m)         Sixth Amendment, dated December 20, 2002, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, filed herewith.

     4(n)         Seventh Amendment, dated April 28, 2003, to Loan Agreement
                  between the Company and its subsidiaries and LaSalle,
                  filed herewith.

     4(0)         Indenture dated as of May 16, 2003, by and between the
                  Company and Deutsche Bank Trust Company Americas, filed on
                  May 21, 2003, as Exhibit 4.1 to the Company's Current
                  Report on Form 8-K, is incorporated herein by this
                  reference.

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

     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 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


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<PAGE>
<PAGE>

                  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.

     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.

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<PAGE>
<PAGE>

     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)*       Stock Option Agreement dated as of November 6, 1996,
                  granting a stock option to Alan G. Johnson, filed herewith.

     10(t)*       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(u)*       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(v)        Amendment to Lease dated February 17, 1997, for the
                  facility located at 2503 South Hanley Road, St. Louis,
                  Missouri, between the Company as Lessee and Marc S.
                  Hermelin as Lessor, which was filed as Exhibit 10(aa) to
                  the Company's Annual Report on Form 10-K for the year
                  ended March 31, 1997, is incorporated herein by this
                  reference.

     10(w)*       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(x)*       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.

     10(y)        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(z)*       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(aa)       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(bb)*      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(cc)*      Stock Option Agreement dated as of March 31, 1999, granting
                  a stock option to Norman D. Schellenger, filed herewith.

     10(dd)*      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.

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<PAGE>
<PAGE>
     10(ee)*      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(ff)*      Stock Option Agreement dated as of October 13, 1999, granting
                  a stock option to Alan G. Johnson, filed herewith.

     10(gg)*      Stock Option Agreement dated as of October 13, 1999, granting
                  a stock option to Alan G. Johnson, filed herewith.

     10(hh)*      Stock Option Agreement dated as of October 13, 1999, granting
                  a stock option to Alan G. Johnson, filed herewith.

     10(ii)*      Stock Option Agreement dated as of October 13, 1999, granting
                  a stock option to Alan G. Johnson, filed herewith.

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

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

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

     10(rr)*      Stock Option Agreement dated as of July 26, 2002, granting
                  a stock option to Marc S. Hermelin, filed herewith.

     10(ss)*      Stock Option Agreement dated as of October 21, 2002, granting
                  a stock option to John P. Isakson, filed herewith.

     10(tt)       License Agreement by and between the Company and FemmePharma,
                  Inc., dated as of April 18, 2002, filed herewith.

     10(uu)       Stock Purchase Agreement by and between the Company and
                  FemmePharma, Inc., dated as of April 18, 2002, filed
                  herewith.

     10(vv)       Product Acquisition Agreement by and between the Company
                  and Schwarz Pharma dated as of March 31, 2003, filed
                  herewith.

     10(ww)       Product Acquisition Agreement by and between the Company
                  and Altana Inc. dated as of March 31, 2003, filed herewith.

     10(xx)*      Amendment, dated as of March 31, 2003, to Consulting
                  Agreement between the Company and Victor M. Hermelin,
                  which was filed as Exhibit 10(kk) to the Company's Annual
                  Report on Form 10-K for the year ended March 31, 2000, filed
                  herewith.

     10(yy)*      Amendment, dated as of April 3, 2003, to Employment Agreement
                  between the Company and Victor M. Hermelin, filed herewith.

                                     85

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<PAGE>

     21           List of Subsidiaries, filed herewith.

     23           Consent of BDO Seidman, LLP, filed herewith.

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

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

<FN>
*Management contract or compensation plan.


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