INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                     Page
                                                                     ----


Bradley Pharmaceuticals, Inc. and Subsidiaries

  Report of Independent Certified Public Accountants                 F-2


  Consolidated Balance Sheets at December 31, 2001 and 2000          F-3


  Consolidated Statements of Operations for the
  Years Ended December 31, 2001 and 2000                             F-5


  Consolidated Statement of Shareholders' Equity for the
  Years Ended December 31, 2001 and 2000                             F-6


  Consolidated Statements of Cash Flows for the
  Years Ended December 31, 2001 and 2000                             F-7


  Notes to Consolidated Financial Statements                      F-8 - F-30






                                 F-1

             REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Shareholders
     Bradley Pharmaceuticals, Inc.


We have audited the accompanying consolidated balance sheets of Bradley
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, shareholders' equity and
cash flows for the years then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bradley
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2001 and 2000, and
the consolidated results of their operations, and their consolidated
shareholders' equity and their consolidated cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.




GRANT THORNTON LLP

New York, New York
February 22, 2002










                                F-2


              Bradley Pharmaceuticals, Inc. and Subsidiaries

                      CONSOLIDATED BALANCE SHEETS


                                                             December 31,
                                                    --------------------------
                  ASSETS                                2001          2000
                                                    --------------------------

CURRENT ASSETS
  Cash and cash equivalents                        $ 10,337,214  $    453,200
  Short-term investments                              6,977,988          -
  Accounts receivable-net of allowances               3,258,255     5,475,650
  Inventory                                           1,555,423     1,598,387
  Deferred tax asset                                  1,261,912       344,186
  Prepaid materials                                     424,945       354,283
  Prepaid expenses and other                             64,967        48,678
                                                    ------------  ------------
    Total current assets                             23,880,704     8,274,384

PROPERTY AND EQUIPMENT, NET                             797,992       254,781

INTANGIBLE ASSETS, NET                                7,181,740     8,105,429

DEFERRED TAX ASSET                                    3,149,730       699,101

OTHER ASSETS                                             36,318        91,841
                                                    ------------  ------------
                                                   $ 35,046,484  $ 17,425,536
                                                    ============  ============








The accompanying notes are an integral part of these statements.

                                 F-3








              Bradley Pharmaceuticals, Inc. and Subsidiaries

                      CONSOLIDATED BALANCE SHEETS



     LIABILITIES AND SHAREHOLDERS' EQUITY                December 31,
                                                   --------------------------
                                                       2001         2000
                                                   ------------  ------------
CURRENT LIABILITIES
  Current maturities of long-term debt            $    219,544  $     464,643
  Revolving credit line                                   -           577,639
  Accounts payable                                   1,317,135      1,488,253
  Accrued expenses                                   2,645,498      2,183,725
  Income taxes payable                                 388,285        148,227
                                                   ------------  -------------
    Total current liabilities                        4,570,462      4,862,487

LONG-TERM DEBT, less current maturities                305,739        661,569

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
  Preferred stock, $.01 par value; authorized,
    2,000,000 shares; issued-none                         -              -
  Common stock, $.01 par value, authorized,
    26,400,000 shares; issued 10,701,739
    in 2001, 8,206,627 shares in 2000                  107,018         82,066
  Common stock, Class B, $.01 par value,
    authorized, 900,000 shares; issued
    429,752 in 2001, 431,552 shares in 2000              4,298          4,316
  Additional paid-in capital                        30,400,772     15,537,697
  Accumulated other comprehensive loss                 (39,293)          -
  Retained earnings (accumulated deficit)              934,587     (2,677,379)
  Treasury stock-common stock-at cost
    (747,725 shares in 2001 and 740,481
    in 2000)                                        (1,237,099)    (1,045,220)
                                                   ------------   ------------
                                                    30,170,283     11,901,480
                                                   ------------   ------------
                                                  $ 35,046,484   $ 17,425,536
                                                   ============   ============





The accompanying notes are an integral part of these statements.


                                 F-4




                Bradley Pharmaceuticals, Inc. and Subsidiaries

                    CONSOLIDATED STATEMENTS OF OPERATIONS



                                                  Years ended December 31,
                                               ------------------------------
                                                   2001             2000
                                               --------------    ------------

Net sales                                     $  25,702,966      $ 18,557,429

Cost of sales                                     4,168,045         4,271,967
                                               -------------      ------------
                                                 21,534,921        14,285,462
                                               -------------      ------------

Selling, general and administrative expenses     15,473,059        11,646,611
Depreciation and amortization                     1,169,484           954,568
Interest (income) expense-net                       (73,588)          248,115
Loss on investment                                  700,000              -
Loss due to impairment of asset                        -            3,897,000
                                               -------------      ------------
                                                 17,268,955        16,746,294
                                               -------------      ------------

     Income (loss) before
     income tax expense (benefit)                 4,265,966        (2,460,832)

Income tax expense (benefit)                        654,000          (398,000)
                                               -------------      ------------
     NET INCOME (LOSS)                        $   3,611,966      $ (2,062,832)
                                               =============      ============

Net income (loss) per common share
      Basic                                   $        0.42      $       (0.26)
                                               =============      =============
      Diluted                                 $        0.37      $       (0.26)
                                               =============      =============

Weighted average number
  of common shares
      Basic                                       8,570,000          7,900,000
                                               =============      =============
      Diluted                                     9,660,000          7,900,000
                                               =============      =============






The accompanying notes are an integral part of these statements.

                                  F-5





              Bradley Pharmaceuticals, Inc. and Subsidiaries

              CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY



                                                     Common stock,
                                                    $.01 par value
                                                ----------------------
                                                  Shares      Amount
                                                -----------  ---------

Balance at December 31, 1999                     8,199,683  $  81,997

Stock options exercised                              5,000         50
Shares issued for consulting services                1,944         19
Warrants issued for consulting services
Purchase of treasury stock
Distribution of treasury stock
Net loss
                                                -----------  ---------
Balance at December 31, 2000                     8,206,627  $  82,066

Stock options exercised                            171,770      1,718
Shares issued for consulting services                  475          5
Warrants and options issued for consulting
  services
Warrants exercised                                 801,050      8,011
Private placement                                1,520,017     15,200
Warrants issued for proceeds
Stock conversion                                     1,800         18
Purchase of treasury stock
Distribution of treasury stock
Other comprehensive income/(loss):
  Net income
  Net unrealized losses on
    available-for-sale securities
Total comprehensive income
                                              ------------  ---------
Balance at December 31, 2001                   10,701,739  $  107,018
                                              ============  =========





                                          Class B common stock
                                            $.01 par value
                                         ----------------------
                                            Shares      Amount     Additional
                                                                 paid in capital
                                         ----------- ---------- ----------------

Balance at December 31, 1999               431,552  $    4,316 $  15,518,146

Stock options exercised                                                3,387
Shares issued for consulting services                                  4,194
Warrants issued for consulting services                               15,262
Purchase of treasury stock
Distribution of treasury stock                                        (3,292)
Net loss
                                         ----------- ---------- ----------------
Balance at December 31, 2000               431,552  $    4,316 $  15,537,697

Stock options exercised                                              388,831
Shares issued for consulting services                                  2,974
Warrants and options issued for consulting                           332,185
  services
Warrants exercised                                                 3,133,467
Private placement                                                 10,846,629
Warrants issued for proceeds                                         150,000
Stock conversion                            (1,800)        (18)
Purchase of treasury stock
Distribution of treasury stock                                         8,989
Other comprehensive income/(loss):
  Net income
  Net unrealized losses on
    available-for-sale securities
Total comprehensive income
                                        ----------- ----------- ----------------
Balance at December 31, 2001               429,752       4,298 $  30,400,772
                                        =========== =========== ================


                                           Accumulated         Retained
                                              other            earnings
                                          comprehensive      (accumulated
                                               loss             deficit)
                                               ----             --------

Balance at December 31, 1999            $      -           $    (614,547)

Stock options exercised
Shares issued for consulting services
Warrants issued for consulting services
Purchase of treasury stock
Distribution of treasury stock
Net loss                                                      (2,062,832)
                                           ------------      ------------
Balance at December 31, 2000            $      -            $ (2,677,379)


Stock options exercised
Shares isuued for consulting services
Warrants and options issued for
consulting services
Warrants exercised
Private placement
Warrants issued for proceeds
Stock conversion
Purchase of treasury stock
Distribution of treasury stock
Other comprehensive income/(loss):
  Net income                                                  3,611,966
  Net unrealized losses on
    available-for-sale securities           (39,293)
Total comprehensive income
                                         -----------       ------------
Balance at December 31,2001            $    (39,293)      $     934,587
                                        ============       ============



                                          Treasury stock
                                       ----------------------
                                        Shares      Amount        Total
                                       ---------  -----------   ------------

Balance at December 31, 1999            766,425  $ (1,107,842) $ 13,882,070

Stock options exercised                                               3,437
Shares issued for consulting services                                 4,213
Warrants issued for consulting services                              15,262
Purchase of treasury stock               25,000       (32,438)      (32,438)
Distribution of treasury stock          (50,944)       95,060        91,768
Net loss                                                         (2,062,832)
                                       ---------   -----------   -----------
Balance at December 31, 2000            740,481  $ (1,045,220) $ 11,901,480

Stock options exercised                                             390,549
Shares issued for consulting services                                 2,979
Warrants and options issued for
  consulting services                                               332,185
Warrants exercised                                                3,141,478
Private placement                                                10,861,829
Warrants issued for proceeds                                        150,000
Stock conversion
Purchase of treasury stock               34,448      (244,999)     (244,999)
Distribution of treasury stock          (27,204)       53,120        62,109
Other comprehensive income/(loss):
  Net income                                                      3,611,966
  Net unrealized losses on
    available-for-sale securities                                   (39,293)
                                                                -----------
Total comprehensive income                                        3,572,673
                                       ---------    ----------  -----------
Balance at December 31, 2001            747,725   $(1,237,099) $ 30,170,283
                                       =========   ===========  ===========


     The accompanying notes are an integral part of these statements.




                                  F-6




             Bradley Pharmaceuticals, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS


                                               Years ended December 31,
                                             ----------------------------
                                                2001            2000
                                             -------------  -------------

Cash flows from operating activities
  Net income (loss)                         $   3,611,966  $  (2,062,832)
  Adjustments to reconcile net income
    (loss) to net cash provided by
    (used in) operating activities
      Depreciation and amortization             1,169,484        954,568
      Deferred income taxes                    (1,326,310)    (1,043,287)
      Allowance for doubtful accounts              20,135         50,392
      Inventory provision                        (184,471)       430,057
      Loss due to impairment of asset                -         3,897,000
      Loss on investment                          700,000           -
      Noncash compensation for consulting
        services                                  335,164         19,475
      Tax benefit due to exercise of
        non-qualified options and warrants        403,862           -
      Changes in operating assets and
        liabilities
          Accounts receivable                   2,197,260       (980,893)
          Inventory and prepaid materials         156,773        434,534
          Prepaid expenses and other               39,234         93,144
          Accounts payable                       (171,118)      (243,492)
          Accrued expenses                        461,773        504,594
          Income taxes payable                    240,058        (90,771)
                                              ------------   ------------
Net cash provided by operating activities    $  7,653,810   $  1,962,489
                                              ------------   ------------

Cash flows from investing activities
  Investments in trademarks, patents and
    other intangible assets                        (9,699)          (610)
  Purchase of short-term investments           (7,717,281)          -
  Purchase of property and equipment             (276,131)       (71,420)
                                              ------------   ------------
Net cash used in investing activities          (8,003,111)       (72,030)
                                              ------------   ------------

Cash flows from financing activities
  Payment of notes payable                     (1,104,105)    (1,504,114)
  Proceeds from acquisition note                     -         1,161,130
  Payment of revolving credit line, net          (577,639)    (1,542,682)
  Proceeds from private placement              10,861,829           -
  Proceeds from exercise of stock
    options and warrants                        1,086,120          3,437
  Proceeds from warrant sale                      150,000
  Purchase of treasury stock                     (244,999)       (32,438)
  Distribution of treasury stock                   62,109         91,768
                                              ------------   ------------
Net cash provided by (used in)
  financing activities                         10,233,315     (1,822,899)
                                              ------------   ------------
    NET INCREASE IN CASH AND CASH
      EQUIVALENTS                               9,884,014         67,560

Cash and cash equivalents at beginning
  of year                                         453,200        385,640
                                              ------------   ------------
Cash and cash equivalents at end
  of year                                    $ 10,337,214   $    453,200
                                              ============   ============

Supplemental disclosures of
  cash flow information:
    Cash paid during the year for:
      Interest                               $    111,000   $    248,000
      Income taxes                           $  1,604,000   $    644,000


The Company entered into capital leases of $503,176 in 2001 (See Note G)

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

The accompanying notes are an integral part of these statements.


                                  F-7



              Bradley Pharmaceuticals, Inc. and Subsidiaries

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2001 and 2000



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

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

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

1.  Principles of Consolidation

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

2.  Cash and Cash Equivalents

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

3.  Short-term Investments

The Company accounts for investments under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". The Company's debt and equity securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value with
the unrealized gains and losses reported in stockholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. The cost of securities sold is based upon the specific
identification method.  Held-to-maturity investments in the accompanying balance
sheet represent investments in certificate of deposits maturing from March
2002 until December 2002.  It is the Company's intention to hold these
securities to maturity.

4.  Accounts Receivable and Material Customers

The Company extends credit on an uncollateralized basis primarily to wholesale
drug distributors. Historically, the Company has not experienced significant
credit losses on its accounts. The Company's five largest customers accounted
for an aggregate of approximately 92% and 88% of accounts receivable at
December 31, 2001, and 2000, respectively.  On December 31, 2001, Quality King,
Inc. owed approximately $3,090,000 to the Company or 56% of accounts receivable.
Deferred revenue of $228,815 at December 31, 2001 represents the proportionate
sales value of undelivered promotional goods to such customer.  The following
table presents a summary of sales to significant customers as a percentage of
the Company's total revenues:

              Customer                        2001             2000
              --------                        ----             ----
         Cardinal Health, Inc.                 20%              27%
         AmerisourceBergen Corporation         12%              23%
         Quality King, Inc.                    40%              18%
         McKesson HBOC, Inc.                   11%              11%



Supplemental information on the accounts receivable balances at December 31,
2001 and 2000 are as follows:

                                              2001             2000
                                              ----             ----
Accounts receivable
  Trade                                  $  5,528,139     $  7,796,715
  Other                                       134,350          142,491
                                          ------------     ------------
                                            5,662,489        7,939,206
                                          ------------     ------------
Less allowances:
Chargebacks                                 2,164,695        2,217,404
Allowance for doubtful accounts               239,539          246,152
                                          ------------     ------------
                                            2,404,234        2,463,556
                                          ------------     ------------

Accounts receivable, net of allowances   $  3,258,255     $  5,475,650
                                          ============     ============


5.  Inventory

Inventory, consisting principally of finished goods, is stated at the lower of
cost or market.  Cost is determined by the first-in, first-out method.

6.  Prepaid Materials

The Company capitalizes certain product sample components.  These items are
charged to operations in the period in which the Company receives them.

7.  Property and Equipment

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

8.  Intangible Assets

The costs of non-compete agreements, goodwill, license agreements, and purchased
trademarks and patents are capitalized and amortized on a straight-line basis to
operations over their estimated useful lives.

The estimated amortization periods for other intangible assets are as follows:
10 to 20 years for goodwill, 10 years for license agreements, 17 years (or the
remaining life at the time of purchase, if shorter) for patents, 10 to 25
years for trademarks and 3 years for non-compete agreements.

The Company follows Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of."  Accordingly, whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable, management assesses the
recoverability of the asset. Management compares the cash flows, on an
undiscounted basis, expected to be generated from the related assets to the
carrying amounts to determine whether an impairment has occurred.

During 2000, the Company recorded an impairment loss relating to the
DECONAMINE(r) trademark.  As a result of the Company's strategic review process
of its product lines and related intangible assets, the Company determined that
an event or circumstance occurred.  The Company changed its future sales
forecast for the product during April 2000 after it became apparent that
significant marketing attention during the Fourth Quarter 1999 had minimal
impact on the product's sales. Consequently, the fair value of the
DECONAMINE(r) trademark was calculated on the basis of discounted estimated
future cash flows and resulted in a noncash charge of $3,897,000. This charge,
which has been recorded in the consolidated statement of operations, had no
impact on the Company's cash flow.  No impairment loss for long-lived assets
was recorded for 2001.

9.  Accrued Expenses

Supplemental information on the accrued expenses at December 31, 2001 and 2000
are as follows:


                                            2001               2000
                                            ----               ----
    Employee compensation             $  1,274,830        $    798,649
    Rebate payable                         199,804             266,601
    Rebate liability                       559,128             105,000
    Deferred revenue                       228,815                -
    Other                                  382,921           1,013,475
                                       ------------        ------------
    Accrued expenses                  $  2,645,498        $  2,183,725
                                       ============        ============

The rebate payable represents actual claims for rebate amounts received from
Medicaid and managed care providers and payable by the Company.  In addition,
the rebate liability represents the estimated claims for rebates owed to
Medicaid and managed care providers but not yet received by the Company.

The rebate liability has been reclassified as a separate line within accrued
expenses rather than a reduction in accounts receivable.  In addition, the
rebate payable has also been reclassified as a separate line within accrued
expenses rather than being included within accounts payable.

10.  Revenue Recognition

Revenues from product sales are recognized upon shipment to customers and are
shown net of sales adjustments for discounts, rebates to customers, returns,
and chargebacks, which are provided in the same period that the related sales
are recorded.

The Company recognizes revenue pursuant to Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements" ("SAB 101").  Accordingly,
revenue is recognized when all four of the following criteria are met;
(i) persuasive evidence that arrangement exists; (ii) delivery of the products
and/or services has occurred; (iii) the selling price is both fixed and
determinable and; (iv) collectibility is reasonably probable.

11.  Risks, Uncertainties and Certain Concentrations

The Company's future results of operations involve a number of risks and
uncertainties.  Factors that could affect the Company's future operating
results and cause actual results to vary materially from expectations include,
but are not limited to, dependence on key personnel, government regulation,
manufacturing disruptions, competition, reliance on certain customers and
vendors, absence of redundant facilities, and credit risk.

The Company is potentially subject to concentrations of credit risk, which
consist principally of cash and cash equivalents, short-term investments, and
trade accounts receivable.  The cash and cash equivalent balances at December
31, 2001 and 2000 were principally held by two institutions, and are in excess
of the Federal Deposit Insurance Corporation ("FDIC") insurance limit.  As of
December 31, 2001 and 2000, five wholesale customers accounted for $5,103,092
and $6,957,114 or 92% and 88%, respectively, of the total accounts receivable
balance.

Approximately 7% and 12% of the Company's net sales for the years ended
December 31, 2001 and 2000 were derived from sales of its DECONAMINE(r)
products. The Company cannot predict the date Deconamine(r)SR status will
change from a prescription product to an over-the-counter product as mandated
by the United States Food and Drug Administration, ("FDA").  Based upon
information obtained from the FDA, the Company believes the status as a
prescription product will not change in the foreseeable future.

The CARMOL(r) product line accounted for approximately 45% and 41% of the 2001
and 2000 net sales, respectively.  Changes in the performance of our CARMOL(r)
product line, consequently, will have a material effect on future operations.

For the year ended December 31, 2001, five vendors that manufacture and package
products for the Company accounted for approximately 34%, 13%, 10%, 10% and 8%
each of the Company's cost of goods sold.  For the year ended December 31, 2000,
the same five vendors that manufacture and package products for the Company
accounted for approximately 13%, 13%, 12%, 11% and 11% each of the Company's
cost of goods sold.  No other vendor, packager or manufacturer accounted for
more than 9% of the Company's cost of goods sold for 2001 or 2000.  The Company
currently has no manufacturing facilities of its own and, accordingly, is
dependent upon maintaining its existing relationship with its vendors or
establishing new vendor relationships to avoid a disruption in the supply of
products to supply inventory.  There can be no assurance that the Company
would be able to replace its current vendors without any disruption to
operations.

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

12.  Net Income (Loss) Per Common Share

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

13.  Income Taxes

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

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

14.  Reclassifications

Certain reclassifications have been made to the 2000 financial statements in
order to conform to the current presentation.  In particular, the rebate
liability of $105,000 has been reclassified as a separate line within accrued
expenses rather than a reduction in accounts receivable.  In addition, the
rebate payable of $266,601 has also been reclassified as a separate line within
accrued expenses rather than being included within accounts payable.


15.  Using Estimates in Financial Statements

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

16.  Chargebacks and Rebates

Chargebacks and rebates are based on the difference between the prices at which
the Company sells its products to wholesalers and the sales price ultimately
paid by the end-user (often governmental agencies and managed care buying
groups) pursuant to fixed price contracts.  The Company records an estimate of
the amount either to be charged back to the Company, or rebated to the end user,
at the time of sale to the wholesaler. Management has recorded a reserve for
chargebacks, including returns, of $2,164,695 and $2,217,404 for the years
ended December 31, 2001 and 2000, based upon factors including current
contract prices, historical chargeback  rates and actual chargebacks claimed.
The Company recorded a rebate liability of $559,128 and $105,000 and a rebate
payable of $199,804 and $266,601 for the years ended December 31, 2001 and 2000,
respectively.  The amount of actual chargebacks and rebates claimed could
differ (either higher or lower) in the near term from the amounts accrued
by the Company.

17.  Advertising

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

18.  Shipping

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

19.  Research and Development

Research and development costs related to both present and future products are
expensed currently.  Total expenditures on research development for fiscal 2001
and 2000 were $278,841 and $245,261, respectively.

20.  Stock Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees,"  as modified by FIN 44 and
related interpretations in accounting for its employee stock options.  Under
APB 25, because the exercise price of the employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded.  The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock Based Compensation."

21.  New Accounting Standards

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets.   SFAS 141 is effective for all
business combinations completed after June 30, 2001.  SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142.   Major provisions of these
Statements and their effective dates for the Company are as follows:

*  All business combinations initiated after June 30, 2001 must use the purchase
   method of accounting. The pooling of interest method of accounting is
   prohibited except for transactions initiated before July 1, 2001.
*  Intangible assets acquired in a business combination must be recorded
   separately from goodwill if they arise from contractual or other legal rights
   or are separable from the acquired entity and can be sold, transferred,
   licensed, rented or exchanged, either individually or as part of a related
   contract, asset or liability.
*  Goodwill, as well as intangible assets with indefinite lives, acquired after
   June 30, 2001, will not be amortized.  Effective January 1, 2002, all
   previously recognized goodwill and intangible assets with indefinite lives
   will no longer be subject to amortization.
*  Effective January 1, 2002, goodwill and intangible assets with indefinite
   lives will be tested for impairment annually and whenever there is an
   impairment indicator
*  All acquired goodwill must be assigned to reporting units for purposes of
   impairment testing and segment reporting.

The Company continued to amortize goodwill recognized prior to July 1, 2001,
under its current method until January 1, 2002, at which time annual goodwill
amortization of $119,000 will no longer be recognized.  By June 30, 2002 the
Company will have completed a transitional fair value based impairment test of
goodwill as of January 1, 2002.   Impairment losses, if any, resulting from the
transitional testing will be recognized in the quarter ended March 31, 2002,
as a cumulative effect of a change in accounting principle. The Company is
currently evaluating the impact of this statement.

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). This statement is effective for fiscal years beginning after December
15, 2001.  This supercedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", while retaining many of the requirements of such statement.
The company is currently evaluating the impact of this statement.


NOTE B - SHORT-TERM INVESTMENTS

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

The Company invests primarily in money market funds, short-term commercial
paper, certificate of deposits, treasury bills, treasury notes, bond funds,
equities and fixed-income securities.  By policy, the Company invests primarily
in high-grade investments.

The following is a summary of available-for-sale securities:


                                               Gross
                                             Unrealized
                                 Cost        Gain/(Loss)   Gross Fair Value
                                 ----        -----------   ----------------
Short-term municipals        $ 1,009,329    $       (17)  $   1,009,312
Bond funds                       827,042        (37,037)        790,005
Corporate bonds                1,871,473        (20,350)      1,851,123
Equities                         758,739         18,111         776,850
                               ---------        --------      ---------
Total available-for-sale
  securities                 $ 4,466,583    $   (39,293)  $   4,427,290
                               =========        ========      =========


During the year ended December 31, 2001 and 2000, the Company did not realize
any gain or loss on sales of available-for-sale securities.  The net adjustment
to unrealized losses during fiscal 2001 and fiscal 2000 on available-for-sale
securities included in stockholders' equity totaled $39,293 and zero,
respectively.  The Company views its available-for-sale securities as available
for current operations.

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

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


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


In Fourth Quarter 2001 and subsequent to the Form 10-QSB filed on November 14,
2001, the Company recorded a $700,000 pre-tax charge related to an impairment of
an investment resulting from a subsequent bank failure.  A portion of the
$1 million certificate of deposit the Company invested is unlikely to be
collected.  The revised carrying amount of $300,000 is comprised of (i) $100,000
representing the amount already collected by the Company on the certificate of
deposit and (ii) $200,000 representing the estimated amount realizable on the
certificate of deposit based upon information obtained from the FDIC.


NOTE C - INTANGIBLE ASSETS

Intangible assets are summarized as follows:


                                 December 31,              December 31,
                                    2001                       2000
                                    ----                       ----
                                        Accumulated                 Accumulated
                             Cost       Amortization     Cost       Amortization
                             ----       ------------     ---        ------------
Trademarks. . . . .      $18,136,728    $11,362,737  $18,135,614    $10,593,725
Patents. . . . . .         1,327,454      1,251,742    1,327,454      1,231,750
Licenses. . . . . .          124,886        109,200      124,886         96,720
Goodwill. . . . . .        1,274,685        958,334    1,266,099        826,429
Covenants not to
  compete. . . . . .         162,140        162,140      162,140        162,140
                          ----------     ----------   ----------     ----------
                         $21,025,893    $13,844,153  $21,016,193    $12,910,764
                          ==========     ==========   ==========     ==========



Intangible assets arose principally from the Doak acquisition (Note D) and the
following significant transactions.

1.  TRANS*VER*SAL(r) Acquisition

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

2.  DECONAMINE(r) Acquisition

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

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

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

Additionally during 2000, the Company revised its estimate of the useful life of
DECONAMINE(r).  The Company believes that a remaining useful life of 13 years is
appropriate.

3.	PAMINE(r) Acquisition

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

4.	CARMOL(r) Acquisition

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

5.	ACIDMANTLE(r) Acquisition

In May 1996, the Company acquired from Novartis AG the trademark rights to the
ACIDMANTLE(r) skin treatment line, including the manufacturing, marketing and
distribution rights within the United States and Puerto Rico.  Approximately
$100,000 of the purchase price remains due at December 31, 2000.  The
majority of the Purchase Price of $900,000 was attributed to trademarks with an
estimated life of 10 years.

6.	BRONTEX(r) Acquisition

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

During April 2001, the Company revised its estimate of the useful life of
BRONTEX(r).  The Company believes that a remaining useful life of 8 years is
appropriate.  Due to this change in estimate, the Company amortized an
additional $57,000 during 2001.


NOTE D - ACQUISITION OF DOAK PHARMACAL CO., INC.

In 1994 and 1995, the Company acquired the shares of Doak Pharmacal Co., Inc.,
for approximately $1,349,000.  Doak was a publicly traded company engaged in the
manufacture and sale of over-the-counter cosmetic dermatologic products and
ethical dermatologic products.  The acquisition was accounted for as a
purchase. Goodwill resulting from this purchase totaling approximately
$1,266,000 is being amortized over ten years.


NOTE E - PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:


                                       Year ended          Year ended
                                    December 31, 2001   December 31, 2000
                                    -----------------   -----------------

Furniture and Fixtures             $       678,684     $       599,449
Equipment                                1,125,088             570,841
Leasehold Improvements                     167,930              19,783
                                           -------              ------
                                         1,971,702           1,190,073
Accumulated Depreciation                (1,173,710)           (932,292)
                                        -----------          ----------
                                   $       797,992     $       254,781
                                        ===========          ==========






                                 F-17


NOTE F - INCOME TAXES

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

                                      Year ended            Year ended
                                   December 31, 2001     December 31, 2000
                                   -----------------     -----------------

Current
     Federal                           $1,810,000              $560,000
     State                                287,000                85,000
                                          -------                ------
                                        2,097,000               645,000
                                        ---------               -------

Deferred
     Federal                           (1,260,000)             (958,000)
     State                               (183,000)              (85,000)
                                         ---------              --------
                                       (1,443,000)           (1,043,000)
                                       -----------           -----------
                                       $  654,000           $  (398,000)
                                       ===========           ===========

The following is a summary of the items giving rise to deferred tax assets at
December 31, 2001 and 2000.


                                            2001                 2000
                                            ----                 ----
Current
     Allowance for doubtful accounts   $   88,629           $    91,079
     Allowance on sales                   508,969               234,010
     Investment loss accrual              259,000                  -
     Inventory reserves and
       capitalization                     272,350               341,333
     Accrued expenses                     132,964                21,951
                                          -------                ------
                                        1,261,912               688,373
                                        ---------               -------

Long-term
     Intangibles and fixed assets       3,149,730             1,398,200
                                        ---------             ---------

Total deferred tax assets               4,411,642             2,086,573

Less valuation allowance                     -               (1,043,286)
                                        ---------            -----------
                                    $   4,411,642         $   1,043,287
                                        =========             =========



During the Fourth Quarter 2001, the Company determined that no deferred tax
asset valuation allowance was necessary.  The Company believes that its
projections of future taxable income makes it more likely than not that such
deferred assets will be realized.  During the Fourth Quarter 2000, the Company
determined that a 50% valuation allowance on its deferred tax assets was
needed. A full valuation allowance had been recorded at December, 31, 1999.

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

Deferred tax assets and additional paid in capital have been increased by
$2,042,045 for the tax benefit relating to the exercise of warrants.

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


                                         Year ended         Year ended
                                      December 31, 2001  December 31, 2000
                                      -----------------  -----------------

Tax at statutory rate                       34.0%              (34.0%)
State income tax expense, net of
     Federal tax effect                      2.8                 2.3
Change in valuation allowance              (24.5)               18.3
Other                                        3.0                (2.8)
                                             ---                -----
Effective tax rate                          15.3%              (16.2%)
                                            =====              =======


NOTE G -REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

On April 7, 1999, the Company entered into a loan agreement with LaSalle
Business Credit, Inc. ("LaSalle") that is comprised of a $5 million revolving
asset-based credit facility and a $2.5 million acquisition note for future
product acquisitions. Advances under this revolving credit facility are
calculated pursuant to a formula, which is based on the Company's then
"eligible" accounts receivable and inventory levels.  Advances under the $2.5
million acquisition note are pursuant to the Company finding a potential
acquisition and receiving LaSalle's final approval.  At the execution date, this
loan agreement had an initial term of three years, required an annual fee, and
was subject to an unused credit line percentage fee of one quarter of one
percent (.25%).  Interest accrued on amounts outstanding under this loan
agreement at the rate equal to the prime rate of interest, announced from time
to time, by LaSalle National Bank plus 1% for the revolving credit facility and
plus 2% for the amount outstanding for the acquisition note.  The Company's
obligations under this loan have been collateralized by the Company's grant to
LaSalle of a lien upon substantially all assets of the Company.

The loan agreement with LaSalle includes various restrictive covenants
prohibiting the Company with certain limited exceptions, from, among other
things, incurring additional indebtedness and paying dividends, substantial
asset sales and certain other payments.  The loan agreement also contains
financial covenants including net worth, minimum net loss, interest coverage
ratio, debt service ratio, and earnings before interest, taxes, depreciation,
and amortization ("EBITDA").

On February 7, 2000, the Company borrowed $1,161,000 from the acquisition note
in order to satisfy the note payable that was in connection with the acquisition
of BRONTEX(r).

As of March 31, 2000, the Company was in violation of the net worth covenant,
interest coverage ratio covenant, debt service coverage ratio covenant, and
EBITDA covenant, which have been waived by LaSalle.

On June 19, 2000, LaSalle amended the Loan Agreement by reducing future funding
through the use of the acquisition note by $1 million, decreasing the revolving
asset-based credit facility by $1.5 million, increasing the interest rate by
1/2% for the acquisition note, increasing the interest rate by 1/2% for the
revolving asset-based credit facility, and altered some covenants to more
favorable terms.

The amended Loan Agreement is comprised of a $3.5 million revolving asset-based
credit facility and a $1.5 million acquisition note.  Interest now accrues on
amounts outstanding under this Loan Agreement at the rate equal to the prime
rate of interest, announced from time to time, by LaSalle National Bank plus
1 1/2% for the revolving credit facility (11% as of December 31, 2000) and plus
2 1/2% for the amount outstanding for the acquisition note (12% as of December
31, 2000).

On June 29, 2001, LaSalle amended the Loan Agreement by reducing the interest
rate by 1/2% for the acquisition note and the revolving asset-based credit
facility.  In addition, the maximum allowable capital expenditures covenant
for each calendar year was favorably increased from $150,000 to $300,000.

On October 15, 2001, the Company paid the remaining $702,000 in borrowings
issued under the acquisition note.

Interest now accrues on amounts outstanding under the Loan Agreement at the rate
equal to the prime rate of interest, announced from time to time, by LaSalle
National Bank plus 1% for the revolving credit facility (5.75% as of December
31, 2001) and plus 2% for the amount outstanding for the acquisition note (6.75%
as of December 31, 2001).

The Company had no borrowings issued under the revolving asset-based line of
credit and the acquisition note at December 31, 2001 with a remaining
availability pursuant to a borrowing base of $3,500,000 from the revolving
line of credit and $411,000 from the acquisition note.  As of December 31, 2001,
the Company was in compliance with LaSalle's covenants.

Long-term debt consists of the following:


                                    December 31, 2001     December 31, 2000
                                    -----------------     -----------------

Installment note due 2001 (a)        $      60,084          $      60,084
Installment note due 2001 (b)                 -                    91,323
Capital lease obligation (c)               311,914                   -
Other capital lease obligations (d)        151,584                 53,876
Acquisition note (e)                          -                   919,228

Other installment notes                      1,701                  1,701
                                           -------                -------

                                           525,283              1,126,212
Less:  current maturities                 (219,544)              (464,643)
                                          ---------             ----------

                                      $    305,739           $    661,569
                                          =========             ==========



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

(b) The note payable, which originated in May 1996 in connection with the
    acquisition of  a trademark (ACIDMANTLE(r)) is noninterest bearing and is
    payable in installments of $250,000 in May 1997, and $100,000 each per
    year from May 1998 through 2001.  Interest at an annual rate of 9.5% has
    been imputed for this note.  The seller has been granted a security interest
    in the assets acquired by the Company.  During 2001, the Company paid the
    remaining outstanding balance.

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

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

(d) On December 31, 2000, the other capital lease obligations consisted of a
    forklift and automobile lease payable in monthly installments of $1,928
    through April 2002 and $1,225 from April 2002 through March 2004.  The
    interest rates for the two capital lease obligations are 7.6% and 8.9%
    respectively.  During September 2001, the Company entered into financing
    agreements for $73,000 for the purchase of automobiles.  The term of the
    loan is 5 years with an interest rate of 6.9%.  During October 2001, the
    Company entered into a financing agreement for $50,000 for the purchase
    of an automobile.  The term of the loan is 5 years with an interest rate of
    6.5%.

(e) The acquisition note arose in February 2000 as a result of repayment of the
    note payable in connection with the acquisition of the trademark BRONTEX(r).
    Interest accrues on amounts outstanding under the acquisition note at the
    rate equal to the prime rate of interest, announced from time to time, by
    LaSalle National Bank plus 2 1/2% (12% as of December 31, 2000).  On
    October 15, 2001, the Company paid the remaining $702,000 in borrowings
    issued under the acquisition note.

The annual maturities of long-term debt are $219,544 due in 2002, $169,217 due
in 2003, $87,226 due in 2004, $26,522 due in 2005 and $22,774 due in 2006 and
beyond.  Because of the nature of the Company's debt, it is impractical to
determine its fair value.


NOTE H - RELATED PARTY TRANSACTION

1. Transactions With an Affiliated Company

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

2. Transactions With Shareholders

The Company leases office facilities in Fairfield, New Jersey from Daniel and
Iris S. Glassman, directors and shareholders of the Company.  The lease is for
the period from February 1, 1998 to January 31, 2003 for 14,100 square feet of
office and warehouse space.  The rent expense, including an allocated portion of
real estate taxes, was approximately $223,000 and $225,000 for the years ended
December 31, 2001 and 2000, respectively.

On January 3, 2000, the Company advanced $100,000 to Daniel Glassman, pursuant
to a promissory note bearing interest at 8.25% per annum.  The accrued interest
and principal is due in full, three years from the execution date, except that
fifty percent of all future bonus payments will be applied first to accrued
interest, then to principal.  On December 31, 2001, Mr. Glassman owed $71,420
in principal and interest from this promissory note.  During March 2002,
Mr. Glassman paid the remaining outstanding principal and interest balances in
full.

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


NOTE I -SHAREHOLDERS' EQUITY

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

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

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

1. Stock Repurchase Plan

In January 1997, the Company announced a program to repurchase up to 400,000
shares of the outstanding common stock in open market transactions over 24
months.  In January 1999, the Company completed the program and began another
program to repurchase an additional 600,000 shares of the outstanding common
stock in open market transactions or a cumulative repurchase of 12% over the
next 36 months.  These shares will be held in Treasury by the Company to be
used for purposes deemed necessary by the Board of Directors, including funding
the Company's matching contributions to the 401(k) Plan.  During 2001, the
Company acquired 34,448 shares at a cost of $244,999.  During 2000, the Company
acquired 25,000 shares at a cost of $32,438.

2. Incentive and Non-Qualified Stock Option Plan

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

Under the 1999 Incentive and Non-Qualified Stock Option Plan, 3,250,000 shares
of common stock are reserved for issuance.   The plan will expire on January 31,
2010, but options may remain outstanding past this date.  As of December 31,
2001 and 2000, there were 2,505,000 and 2,812,000 shares were available for
grant.

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


                                                               Weighted
                                                               Average
                                          Number of            Exercise
                                           Options              price
                                           -------              -----

Balance, December 31, 1999                 1,311,570            $1.37

  Granted                                    455,589             1.59
  Exercised                                   (5,000)             .69
  Canceled or forfeited                     (425,173)            1.23
                                           ----------           -----

Balance, December 31, 2000                 1,336,986            $1.50
                                           ----------           -----

  Granted                                    385,892            $6.86
  Exercised                                 (171,770)            1.53
  Canceled or forfeited                     (117,337)            3.03
                                           ----------           -----

Balance, December 31, 2001                 1,433,771            $2.82
                                           ==========           =====






                                F-23


As of December 31, 2001, options outstanding for 1,063,470 shares were
exercisable at a weighted average price of $1.70, and the weighted remaining
contractual life was 3.1 years.  As of December 31, 2000, options outstanding
for 1,067,252 shares were exercisable at a weighted average price of $1.49,
and the weighted remaining contractual life was 4.4 years.  During 2001 and
2000, compensation cost for options and warrants issued to non-employees were
$332,185 and $15,262.  There were 95,917 options outstanding and exercisable
to non-employees at December 31, 2001.  There were 103,577 options outstanding
to nonemployees at December 31, 2000, of which 100,877 were exercisable.
Options issued typically vest over 3 years and have expiration dates ten years
after issuance for employees and five years for board members and employees
that have over 10% ownership.

The following table summarizes option data as of December 31, 2001:

                     Number      Weighted              Number
                   Outstanding   Average     Weighted Exercisable   Weighted
Range of Exercise    as of      Remaining     Average    as of      Average
   Prices          December 31, Contractual  Exercise December 31,  Exercise
   ------             2001         Life        Price     2001         Price
                      ----         ----        -----     ----         -----

$  .83 - $1.40      402,774        3.8         $1.22     330,774      $1.22
  1.41 -  3.66      739,396        3.0          1.63     702,396       1.62
  3.67 - 13.00      291,601        3.8          8.03      30,300       8.84
                    -------                               ------
                  1,433,771                            1,063,470
                  =========                            =========


The fair value of each option granted has been estimated on the grant date using
the Black-Scholes Option Valuation Model.  The following assumptions were made
in estimated fair value:

  Dividend yield                                               0%
  Risk-free interest rate                                      6.0%
  Expected life after vesting period
    Directors and officers                                     4 years
    Others                                                     2 years
  Expected volatility - through December 1, 1995               60%
    December 2, 1995 - through December 31, 2000               90%
    January 1, 2001 - through December 31, 2001                60%

Had compensation cost been determined under SFAS No. 123, net income (loss) and
net income (loss) per share would have been as follows:


                                               Year ended December 31,
                                               2001               2000
                                               ----               ----
Net income (loss)
  As reported                              $ 3,611,966       $ (2,062,832)
  Pro forma for SFAS No. 123 adjustment    $ 3,362,005       $ (2,383,352)


Net income (loss) per share
  As reported
    Basic                                        $0.42             $(0.26)
    Diluted                                      $0.37             $(0.26)
  Pro forma for SFAS No. 123 adjustment
    Basic                                        $0.39             $(0.30)
    Diluted                                      $0.35             $(0.30)

The weighted average fair value of options granted during 2001 and 2000 was
$ 3.68 and $ 1.59, respectively.

The exercise price of all options granted during the years ended December 31,
2001 and 2000 equaled or was greater than the market price on the grant date.

3. Reserved Shares

The following table summarizes shares of common stock reserved for issuance at
December 31, 2001:


                                                                 Number
                                              Exercise          Of shares
     Reserved for                               Price            Issuable
     ------------                               -----            --------


Warrants for consulting services
  (expiring July 9, 2008)                       $2.34              8,500
Warrants for consulting services
  (expiring July 31, 2003)                       2.38             32,766
Warrants for consulting services
  (expiring April 1, 2005)                       2.12            100,000
Warrants for consulting services
  (expiring May 21, 2004)                        3.15              1,800
Warrants for consulting services
  (expiring May 24, 2004)                        3.20              8,500
Warrants for consulting services
  (expiring April 30, 2004)                      3.22              8,000
Warrants issued for proceeds
  (expiring November 5, 2004)                   14.11            100,000
Warrants issued to private placement
  advisor (expiring October 29, 2005)            8.50            100,000
1990 and 1999 Stock Option Plans                               1,433,771
                                                               ---------
                                                               1,793,337



All warrants listed above are exercisable except for the 100,000 warrants issued
to the private placement advisor, which are exercisable on May 1, 2005.

On April 2, 2001, as compensation for prior consulting services, the Company
granted to a consultant, warrants to purchase 100,000 shares of common stock at
the price of $2.125 per share, which are exercisable immediately,
nonforfeitable, and will expire 4 years from its initial exercise date.  During
the First Quarter 2001, the Company expensed  $132,897 for these services.

During the Second Quarter 2001, the Company granted various consultants warrants
to purchase 18,300 shares of common stock at prices ranging from $3.15 to $3.22,
which are exercisable immediately, nonforfeitable, and will expire 3 years from
its initial exercise date.  During the Second Quarter 2001, the Company
expensed $26,106 for these services.

On July 23, 2001, 70,000 warrants previously issued to Stern Stewart & Company
were exercised.  As a result of this exercise, the Company issued 48,050 shares
of common stock.  In lieu of cash payment by Stern Stewart to the Company,
Stern Stewart forfeited 21,950 shares of common stock.

On July 31, 2001, 750,000 warrants previously issued to Berlex Laboratories,
Inc. were exercised.  As a result of this exercise, the Company issued 750,000
shares of common stock and received $937,500 in proceeds.

On December 20, 2001, 3,000 warrants previously issued to a consultant were
exercised.  As a result of the exercise, the Company issued 3,000 shares of
common stock and received $3,656 in proceeds.

In conjunction with the share issuance in the private placement with selected
investors on October 30, 2001, the Company issued 100,000 warrants to the
Company's financial advisor with an exercise price of $8.50 and maturity of
October 29, 2005.

On November 6, 2001, the Company sold 100,000 warrants with an exercise price of
$14.11 and a term of 3 years to selected investors for $150,000.

For financial reporting purposes, the tax benefit resulting from the exercise
of non-qualified options and warrants allowable for income tax purposes in
excess of expense recorded for financial reporting purposes is credited to
additional-paid in capital.

4. Private Placement

On October 30, 2001, the Company completed a private placement of 1,511,000
unregistered shares of common stock at $7.73 per share.  The offering price was
based upon the preceding twenty-day bid closing price prior to October 30th,
less 15%.  In addition, the advisors of the private placement were issued
100,000 warrants with an exercise price of $8.50.  The net proceeds from the
offering was approximately $10.9 million after deducting estimated offering
expenses.  Proceeds from the offering, will be used for general corporate
purposes.


NOTE J - COMMITMENTS AND CONTINGENCIES

1.	Leases

The Company leases office facilities in Fairfield, New Jersey from Daniel and
Iris S. Glassman, directors and shareholders of the Company, and warehouse
facilities in Fairfield, New Jersey; and office facilities in Chicago, Illinois.
The Company vacated its leased manufacturing space in Westbury, New York in
1999.

The lease on the Fairfield, New Jersey facility, head quarters, is for a period
from February 1, 1998 to January 31, 2003 for 14,100 square feet of office and
warehouse space, with an option to renew and also includes payments of
electric, water and sewer and the allocated portion of the real estate taxes.
Rent expense, including an allocated portion of real estate taxes, was
approximately $223,000 and $225,000 for the years ended December 31, 2001 and
2000, respectively.

The lease on the Fairfield, New Jersey 6,000 square foot warehouse, is for a
period from February 1, 1999 to January 31, 2001, with an option to renew and
also includes payments of electric, water and sewer, insurance, and common
area maintenance.  On March 21, 2001, the Company renewed the lease for a term
expiring on February 28, 2003.  Rent expense was approximately $52,000 and
$50,000 for the years ended December 31, 2001 and 2000, respectively.

Approximate aggregate minimum annual rental commitments, including rent and real
estate taxes, are as follows:  $294,000 for 2002, $33,000 for 2003, and none for
2004 and beyond.  Total rent expense for the years ended December 31, 2001 and
2000 were $280,000 and $282,000, respectively.

2.	Distribution Arrangement

The Company has a distribution arrangement with a third party public warehouse
located in Tennessee to warehouse and distribute substantially all of its
products.  This arrangement provides that the Company will be billed based on
invoiced sales of the products distributed by such party, plus certain
additional charges.

3.	Legal Proceedings

The Company is involved in legal proceedings of various types in the ordinary
course of business.  While any such litigation to which the Company is a party
contains an element of uncertainty, management presently believes that the
outcome of each such proceeding or claim which is pending or known to be
threatened, or all of them combined, will not have a material adverse effect on
the Company's consolidated financial position.


4.	Defined Contribution 401(k) Plan

The Company has a defined contribution 401(k) plan whereby the Company matches
employee contributions up to 25% of the employee's first 6% of contributions
with shares of the Company's common stock held in Treasury. The Company's
contributions for the 401(k) employee match was approximately $38,000 and
$46,000 incurred for the year ended December 31, 2001 and 2000, respectively.

5.  Recent Government Regulations

On November 3, 2000, the Company was informed by the Department of Health &
Human Services of recent developments relating to phenylpropanolamine (PPA).
The Agency's Nonprescription Drugs Advisory Committee (NDAC) determined that
there is an association between PPA and hemorrhagic stroke and recommended
that PPA not be considered generally recognized as safe for OTC use as a
nasal decongestant.  Based on these recent developments, Food and Drug
Administration (FDA) intends to initiate rulemaking to classify PPA as
nonmonograph (not generally recognized as safe and effective) for OTC use.
Also, FDA has significant concerns about the continued use of PPA in
prescription drug products, and therefore intends to take action to remove PPA
from prescription drug products.

The Company currently has two non-strategic products, DUADACIN(r) and
IPSATOL(r), with PPA and has ceased distribution until possible approved
alternatives, including reformulations, are available.  In June 2001, the
Company reformulated DUADACIN(r) not using PPA.   Management presently believes
that the outcome of this recent development will not have a material adverse
effect on the Company's consolidated financial position or results from
operations.

6.	Co-Promotion Agreement

On March 15, 2001, the Company entered into a three year agreement with Adams
Laboratories to supplement the Company's promotional efforts for the product
ENTSOL(r) Spray.  However, if after the conclusion of the first year the
annual net sales are less than $1,750,000, the agreement can be terminated.
During the term of this agreement, the Company is responsible for a commission
equal to fifty percent of the profit from the sale of ENTSOL(r) Spray.  In
accordance with the agreement, profit is defined as net sales less cost of
goods sold less all promotional costs dedicated to ENTSOL(r) Spray incurred
by the Company.  On August 1, 2001, the agreement was amended to extend the
annual sales threshold of $1,750,000 to include an additional 3 1/2 months.
Currently, if the cumulative net sales from March 15, 2001 until June 30, 2002
are less than $1,750,000, the agreement can be terminated.  During 2001, the
Company expensed approximately $47,000 for Adams Laboratories' co-promotions.


NOTE K - NET INCOME (LOSS) PER SHARE

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

Basic net income per common share is determined by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding.
Diluted net income (loss) per common share is determined by dividing the net
income by the weighted number of shares outstanding and dilutive common
equivalent shares from stock options and warrants.  A reconciliation of the
weighted average basic common shares outstanding to weighted average diluted
common shares outstanding follows:


                                  As of December 31,    As of December 31,
                                         2001                  2000
                                  ------------------    ------------------


     Basic Shares                      8,570,000             7,900,000
     Dilution: Stock options
       and warrants                    1,090,000                     0
                                       ---------             ---------
     Diluted shares                    9,660,000             7,900,000

     Net income (loss)               $ 3,611,966          $ (2,062,832)

     Net income (loss) per share
     Basic                                $ 0.42               $ (0.26)
     Diluted                              $ 0.37               $ (0.26)


In addition to stock options and warrants included in the above computation,
options and warrants to purchase 491,000 shares of common stock at prices
ranging from $7.05 to $14.11 per share were outstanding for the twelve months
ending December 31, 2001.  These were not included in the computation of
diluted income per share because their exercise price was greater than the
average market price of the Company's common stock and, therefore, the effect
would be anti-dilutive.

For the twelve months ended December 31, 2000, stock options and warrants to
purchase 2,201,000 shares of common stock at prices ranging from $0.83 to $4.03
per share were not included in the above computation.  These were not considered
in the computation of diluted income (loss) per share because of the net loss
during the period and, therefore, the effect would be anti-dilutive.


 NOTE L - BUSINESS SEGMENT INFORMATION

The Company's two reportable segments are Kenwood Therapeutics (nutritional,
respiratory, personal hygiene and internal medicine brands) and Doak
Dermatologics, Inc. (dermatological brands).

The accounting policies used to develop segment information correspond to those
described in the summary of significant accounting policies. The reportable
segments are distinct business units operating in different market segments
with no intersegment sales.  The following information about the two segments
are for the three and twelve months ended December 31, 2001 and 2000.


                                  Three Months Ended    Three Months Ended
                                  December 31, 2001     December 31, 2000
                                  -----------------     -----------------
Net sales:
Kenwood Therapeutics                 $2,954,066            $3,501,519
Doak Dermatologics, Inc.              4,893,786             3,499,091
                                      ---------             ---------
                                     $7,847,852            $7,000,610
                                      =========             =========
Depreciation and
amortization:
Kenwood Therapeutics                   $278,530              $183,969
Doak Dermatologics, Inc.                 63,653                63,001
                                         ------                ------
                                       $342,183              $246,970
                                        =======               =======
Income (loss) before
income tax (benefit):
Kenwood Therapeutics                   $397,186              $428,384
Doak Dermatologics, Inc.              1,000,793             1,359,489
                                      ---------             ---------
                                     $1,397,979            $1,787,873
                                      =========             =========
Income tax expense
(benefit):
Kenwood Therapeutics                ($1,040,000)            ($627,000)
Doak Dermatologics, Inc.                614,000               366,000
                                      ---------               -------
                                      ($426,000)            ($261,000)
                                      =========             ==========
Net income (loss):
Kenwood Therapeutics                 $1,437,186            $1,055,384
Doak Dermatologics, Inc.                386,793               993,489
                                      ---------             ---------
                                     $1,823,979            $2,048,873
                                      =========             =========
Geographic information
(revenues):
Kenwood Therapeutics
   United States                     $2,899,949            $3,389,264
   Other countries                       54,117               112,255
                                         ------               -------
                                     $2,954,066            $3,501,519
                                      =========             =========
Doak Dermatologics, Inc.
   United States                     $4,497,279            $3,247,734
   Other countries                      396,507               251,357
                                        -------               -------
                                     $4,893,786            $3,499,091
                                      =========             =========
Net sales by category:
   Dermatology                       $4,893,786            $3,499,091
   Respiratory                        2,029,166             2,013,171
   Nutritional                          206,726               764,270
   Internal Medicine                    665,515               701,633
   Personal Hygiene                      52,659                22,445
                                         ------                ------
                                     $7,847,852            $7,000,610
                                      =========             =========



                                    Twelve Months Ended   Twelve Months Ended
                                     December 31, 2001     December 31,2000
                                    -------------------   -------------------
Net sales:
Kenwood Therapeutics                   $10,177,512            $7,664,884
Doak Dermatologics, Inc.                15,525,454            10,892,545
                                        ----------            ----------
                                       $25,702,966           $18,557,429
                                        ==========            ==========
Depreciation and
amortization:
Kenwood Therapeutics                      $917,622              $706,410
Doak Dermatologics, Inc.                   251,862               248,158
                                           -------               -------
                                        $1,169,484              $954,568
                                         =========               =======
Income (loss) before
income tax (benefit):
Kenwood Therapeutics                      $424,642            (5,417,336)
Doak Dermatologics, Inc.                 3,841,324             2,956,504
                                         ---------             ---------
                                        $4,265,966           ($2,460,832)
                                         =========             =========
Income tax expense
(benefit):
Kenwood Therapeutics                   ($1,030,000)          ($1,387,000)
Doak Dermatologics, Inc.                 1,684,000               989,000
                                         ---------               -------
                                          $654,000             ($398,000)
                                           =======               =======
Net income (loss):
Kenwood Therapeutics                    $1,454,642           ($4,030,336)
Doak Dermatologics, Inc.                 2,157,324             1,967,504
                                         ---------             ---------
                                        $3,611,966           ($2,062,832)
                                         =========             =========
Geographic information
(revenues):
Kenwood Therapeutics
  United States                         $9,796,902            $7,205,065
  Other countries                          380,610               459,819
                                           -------               -------
                                       $10,177,512            $7,664,884
                                        ==========             =========
Doak Dermatologics, Inc.
  United States                        $14,113,841            $9,393,769
  Other countries                        1,411,613             1,498,776
                                         ---------             ---------
                                       $15,525,454           $10,892,545
                                        ==========            ==========
Net sales by category:
  Dermatology                          $15,525,454           $10,892,545
  Respiratory                            3,380,299             3,491,122
  Nutritional                            2,120,454             2,200,535
  Internal Medicine                      4,443,372             1,673,437
  Personal Hygiene                         233,387               299,790
                                           -------               -------
                                       $25,702,966           $18,557,429
                                        ==========            ==========



                                  F-29



                                 December 31, 2001      December 31, 2000

Segment assets:
Kenwood Therapeutics               $31,988,309             $15,044,032
Doak Dermatologics, Inc.             3,058,175               2,381,504
                                     ---------               ---------
                                   $35,046,484             $17,425,536
                                    ==========              ==========



The basis of accounting that is used by the Company to allocate expenses that
relate to both segments are based upon the proportionate quarterly net sales of
each segment.  Accordingly, the allocation percentage used can differ between
quarters and years depending on the segments proportionate share of net sales.