UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONWashington,
  D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2003

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

Commission File Number 0-18881

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

| | DELAWARE                                                                   |  | 22-2581418                             | 
| | -------------------------------------------------------------------------- |  | -------------------------------------- | 
| |                                                                            |  |                                        | 
| | (State or other jurisdiction
      of
      incorporation or organization) |  | (I.R.S. EmployerIdentification Number) | 
| |                                                                            |  |                                        | 
| | 383 Route 46 W., Fairfield,
      NJ                                       |  | 07004                                  | 
| |                                                                            |  |                                        | 
| | (Address of principal executive offices)                                   |  | (Zip Code)                             | 
| |                                                                            |  |                                        | 
| | Registrants telephone number including
      area code: 973-882-1505      | 

|Securities Registered Pursuant to Section 12(b) of the
      Act:
|-----------------------------------------------------------------

| | Title of each class                           |  | Name of each exchange 
      on which registered
| | --------------------------------------------- |  | ------------------------------------------------
| |                                               |  |                                                 
| | Common Stock, Par Value 
      $.01 Per Share |  | New York Stock Exchange                         

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

Yes X No_____

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

Yes X No_____

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

Yes X No_____

The aggregate market value of
  the voting Common Stock held by nonaffiliates of the Registrant as ofMarch
  5, 2004 was approximately $381,316,713 (calculated by excluding all shares held
  by executive officers, directors and holders known to the registrant of five
  percent or more of the voting power of the registrants Common Stock, without
  conceding that such persons are affiliates of the registrant for
  purposes of the federal securities laws). This amount does not include any value
  for the Class B Common Stock, for which there is no established United States
  public trading market.

As of March 5, 2004, there were outstanding 15,108,302 shares
  of Common Stock, $.01 par value, and 429,752 shares of Class B Common Stock,
  $.01 par value.

Documents incorporated by reference: Certain information called
  for in Parts II and III of this Form 10-K is incorporated by reference from
  the registrants 2004 Proxy Statement or in amendment to this Form 10-K,
  which will be filed no later than 120 days after December 31, 2003.



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TABLE OF CONTENTS

|PART I   |                                                                                                                 | Page Numbers
|-------- | --------------------------------------------------------------------------------------------------------------- | ------------
|         |                                                                                                                 |             
|         | ITEM 1:  Business                                                                                               | 3           
|         | ITEM 2:  Properties                                                                                             | 26          
|         | ITEM 3:  Legal Proceedings                                                                                      | 26          
|         | ITEM 4:  Submission of Matters to a Vote of
        Security Holders                                            | 27          
|PART II  |                                                                                                                 |             
|         | ITEM 5:  Market For Registrants Common
        Equity and Related Stockholder Matters                          | 27          
|         | ITEM 6:  Selected Financial Data                                                                                | 28          
|         | ITEM 7:  Managements Discussion and
        Analysis of Financial Condition and Results of Operations          | 29          
|         | ITEM 7A: Quantitative and Qualitative Disclosures About
        Market Risk                                     | 37          
|         | ITEM 8:  Financial Statements and Supplementary
        Data                                                    | 37          
|         | ITEM 9:  Changes In and Disagreements With
        Accountants on Accounting and Financial Disclosure           | 38          
|         | ITEM 9A:  Controls and Procedures                                                                               | 38          
|PART III |                                                                                                                 |             
|         | ITEM 10: Directors and Executive Officers of the Registrant                                                     | 38          
|         | ITEM 11: Executive Compensation                                                                                 | 38          
|         | ITEM 12: Security Ownership of Certain Beneficial Owners
        and Management and Related Stockholder Matters | 38          
|         | ITEM 13: Certain Relationships and Related Transactions                                                         | 39          
|         | ITEM 14: Principal Accountant Fees and Services                                                                 | 39          
|PART IV  |                                                                                                                 |             
|         | ITEM 15: Exhibits, Financial Statement Schedules
      and Reports on Form 8-K                                  | 39          



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PART I

FORWARD-LOOKING STATEMENTS

Some of the statements under the
  captions Risk Factors, Managements Discussion and Analysis
  of Financial Condition and Results of Operations or Business
  or contained or incorporated by reference in this Form 10-K constitute forward-looking
  statements within the meaning of the Private Securities Litigation Reform
  Act of 1995. These forward-looking statements include statements that address
  activities, events or developments that we expect, believe or anticipate will
  or may occur in the future, including:

| |  | our plans to execute our Acquire,
      Enhance, Grow strategy;                                                                                                   
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                   
| |  | market acceptance of our products;                                                                                                                                
|  |  |                                                                                                                                                                   
| |  | our plans to launch new and enhanced
      products;                                                                                                              
|  |  |                                                                                                                                                                   
| |  | our plans to increase our sales;                                                                                                                                  
|  |  |                                                                                                                                                                   
| |  | our ability to obtain new distributors
      and market approvals in new countries;                                                                               
|  |  |                                                                                                                                                                   
| |  | our plans to pursue patents;                                                                                                                                      
|  |  |                                                                                                                                                                   
| |  | our ability to successfully compete
      in the marketplace;                                                                                                     
|  |  |                                                                                                                                                                   
| |  | our plans to increase the size
      of our sales force;                                                                                                          
|  |  |                                                                                                                                                                   
| |  | our earnings estimates and future
      financial condition and results of operations;                                                                            
|  |  |                                                                                                                                                                   
| |  | our plans to effect a rescission
      offer relating to our 401(k) plan and its expected impact on our financial
      condition;                                
|  |  |                                                                                                                                                                   
| |  | the adequacy of our cash, cash
      equivalents and cash generated from operations to meet our working capital
      requirements for the next twelve months; and
|  |  |                                                                                                                                                                   
| |  | the impact of the changes in the
      accounting rules discussed in this Form 10-K.                                                                              

In some cases, you can also identify
  forward-looking statements by terminology such as may, should,
  could, would, predicts, potential,
  continue, expects, anticipates, future,
  intends, plans, believes, estimates
  and similar expressions. All forward-looking statements are based on assumptions
  that we have made based on our experience and perception of historical trends,
  current conditions, expected future developments and other factors we believe
  are appropriate. These statements are subject to numerous risks and uncertainties,
  many of which are beyond our control, including the statements set forth under
  Risk Factors.No forward-looking statement
  can be guaranteed, and actual results may differ materially from those projected.
  We undertake no obligation to publicly update any forward-looking statement,
  whether as a result of new information, future events or otherwise.

ITEM 1: BUSINESS

Overview

We are a specialty pharmaceutical
  company that acquires, develops and markets prescription and over-the-counter
  products in selected markets. Our Doak Dermatologics subsidiary promotes our
  branded dermatologic and podiatric products, including our CARMOL®40, LIDAMANTLE®,
  ROSULA® and ZODERM® product lines, to dermatologists and podiatrists
  in the U.S. through its dedicated sales force of more than 110 representatives.
  Our Kenwood Therapeutics division promotes our branded gastrointestinal products,
  including ANAMANTLE®HC, PAMINE®, PAMINE® FORTE and, within a
  month from the date of this report, FLORA-Q to gastroenterologists and
  colon and rectal surgeons in the U.S. through its dedicated sales force of more
  than 30 representatives. To a lesser extent, Kenwood Therapeutics also markets
  nutritional supplements and respiratory products.



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Our products are manufactured
  by third parties according to our quality control standards and principally
  distributed through wholesalers to retail pharmacies and healthcare institutions
  throughout the U.S. and selected international markets.

Our Industry

We target segments of the dermatologic,
  podiatric and gastrointestinal markets where we believe that our sales force
  can effectively reach the groups of physicians who write a majority of the prescriptions
  for conditions treated by our products.

Many of the pharmaceutical products
  sold in these specialty markets were originally discovered, researched or developed
  by major pharmaceutical companies. Due largely to industry consolidation, the
  costs of marketing and regulatory compliance, or lack of strategic fit, these
  types of products often do not justify continued promotion by major pharmaceutical
  companies. Major pharmaceutical companies typically focus on so-called blockbuster
  drugs, which are often described as having the potential to generate annual
  sales in excess of $500 million. These companies frequently sell their smaller
  products to specialty pharmaceutical companies.

Dermatologic and Podiatric Markets

Based on data from NDCHealth,
  we estimate the U.S. market for prescription dermatologic and podiatric drugs
  accounted for approximately $5.8 billion in retail prescription sales for 2003.
  Within the dermatologic market, approximately 13,700 dermatologists specialize
  in treating a variety of skin disorders, including acne, eczema and psoriasis.
  Our dermatologic products compete in areas such as acne, rosacea, topical anesthetics
  and xerosis, a segment of the market we estimate accounted for approximately
  $2.4 billion in retail prescription sales in 2003. Within the podiatric market,
  approximately 14,000 podiatrists treat patients suffering from a range of foot
  disorders, including athletes foot and nail disorders that can be treated
  with prescription products.

Gastrointestinal Market

Based on data from NDCHealth,
  we estimate that the U.S. market for prescription gastrointestinal drugs accounted
  for approximately $18.6 billion in retail prescription sales for 2003. Within
  the gastrointestinal market, approximately 10,600 gastroenterologists specialize
  in treating a variety of stomach and intestinal disorders. We estimate that
  the segment of this market that focuses on the lower gastrointestinal tract,
  excluding heartburn related disorders, accounted for approximately $2.1 billion
  in retail prescription sales for 2003. Many of the drugs in this segment treat
  conditions such as constipation, hemorrhoids and colitis. Our drugs address
  principally hemorrhoids and symptoms associated with irritable bowel syndrome,
  specifically gastrointestinal pain and cramping.

Our Strategy

Our primary objective is to be
  a leading specialty pharmaceutical company focused on selected pharmaceutical
  needs within the dermatologic, podiatric and gastrointestinal markets. Following
  our strategy of Acquire, Enhance, Grow, we seek to fulfill unmet needs in our
  selected markets:

| |  | Acquire We have acquired,
      and intend to acquire, rights to manufacture and market pharmaceutical and
      health related products with demonstrated safety and effectiveness and an
      established presence in the market. To date, our ideal product acquisition
      candidates have not been actively promoted, and did not compete directly
      with products offered by major pharmaceutical companies. We also focus on
      candidates that have barriers to entry for competitive products, including
      patent protection, complexity of manufacturing processes and patient and
      physician loyalty. As we grow, we may also seek acquisitions of more established
      products.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Enhance We enhance
      our product brands by extending their useful lives by broadening their list
      of approved indications, developing additional dosage strengths, producing
      convenient packaging sizes and developing novel product formulations.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Grow Our goal is
      to grow by increasing net sales. We seek to increase net sales by aggressively
      promoting our branded products through our nationwide sales and marketing
      force to key groups of physicians, principally in the dermatologic, podiatric
      and gastrointestinal fields, who write a high volume of prescriptions for
      our types of products. We supplement the activities of our sales force with
      direct mail, telemarketing campaigns, journal advertising and by providing
      samples of our products to physicians. We also selectively contract with
      third parties to promote our products in order to target a broader physician
      audience.

Our Acquire, Enhance, Grow
  strategy also encompasses the introduction of new products through modest research
  and development efforts relating to improving compounds already in use, as well
  as the acquisition of compounds in late stages of clinical development. In addition,
  we regularly review opportunities to acquire businesses that market products
  or have products under development that may complement or expand our areas of
  therapeutic focus.

Our Products

We now receive a majority of our
  sales from products that contain a synthetic form of urea, a naturally occurring
  substance in the body. When applied to the skin, the urea removes the surface
  layer of dead cells. When combined with other compounds, urea helps ingredients
  penetrate the skin more easily and work more effectively. In addition, urea
  acts as a powerful moisturizer to help relieve the dry skin often associated
  with the conditions our products are designed to treat. The CARMOL® family
  of products, DPM CREAM, ROSULA® AQUEOUS CLEANSER, ROSULA® AQUEOUS
  GEL, ZODERM® GEL and ZODERM® CLEANSER all contain urea.

The following is a list of major
  products, by therapeutic category, that we currently market and distribute.

|Dermatologic and
      Podiatric     |  | Strength |  | Primary Uses                                                    
|------------------------------------ |  | -------- |  | ----------------------------------------------------------------
|                                     |  |          |  |                                                                 
|CARMOL®                              |  |          |  |                                                                 
|CARMOL®40                            |  | Rx       |  | Mild to severe dry skin, xerosis, nail disorders                
|CARMOL®HC                            |  | Rx       |  | Inflammatory skin conditions                                    
|CARMOL®SCALP LOTION                  |  | Rx       |  | Dandruff                                                        
|CARMOL®10, 20                        |  | OTC      |  | Dry skin                                                        
|ROSULA®                              |  |          |  |                                                                 
|ROSULA®
      AQUEOUS CLEANSER       |  | Rx       |  | Rosacea and acne                                                
|ROSULA®AQUEOUS
      GEL             |  | Rx       |  | Rosacea and acne                                                
|ZODERM®                              |  |          |  |                                                                 
|ZODERM®
      CLEANSER 4.5% and 8.5% |  | Rx       |  | Acne                                                            
|ZODERM®
      CREAM 4.5% and 8.5%    |  | Rx       |  | Acne                                                            
|ZODERM®
      GEL 4.5% and 8.5%      |  | Rx       |  | Acne                                                            
|ACIDMANTLE®                          |  |          |  |                                                                 
|LIDAMANTLE®HC                        |  | Rx       |  | Skin pH balancer, topical anesthetic
      and anti-inflammatory
|LIDAMANTLE®                          |  | Rx       |  | Skin pH balancer and topical anesthetic                         
|ACIDMANTLE®                          |  | OTC      |  | Skin pH balancer                                                
|DPMCREAM                            |  | OTC      |  | Dry, irritated, itchy feet                                      
|Gastrointestinal                     |  |          |  |                                                                 
|ANAMANTLE®HC                         |  | Rx       |  | Hemorrhoids and anal fissures                                   
|PAMINE®, PAMINE® FORTE               |  | Rx       |  | Antispasmodic for relief of gastrointestinal
      pain         
|FLORA-Q                             |  | OTC      |  | Bacteria strains for proper balance
      of intestinal flora   
|Nutritional                          |  |          |  |                                                                 
|GLUTOFAC®-ZX                         |  | Rx       |  | Multi-vitamin/multi-mineral supplement                          
|Respiratory                          |  |          |  |                                                                 
|DECONAMINE®                          |  | Rx       |  | Antihistamine and decongestant                                  
|ENTSOL®                              |  | OTC      |  | Nasal wash                                                      
|TYZINE®                              |  | Rx       |  | Topical nasal decongestant                                      
|BRONTEX®                             |  | Rx       |  | Cough suppressant and expectorant                               



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Our core branded products that
  we actively promote in the dermatologic, podiatric and gastrointestinal markets
  are described below:

CARMOL®40 is a prescription
  40% urea-based topical therapy that removes the surface layer of dead cells
  and improves skin moisture. CARMOL®40 is available in three formulations-
  a lotion, cream and gel. CARMOL®40 LOTION is marketed for mild to moderate
  dry skin, CARMOL®40 CREAM is marketed for moderate to severe dry skin,
  and CARMOL®40 GEL is marketed for site-specific dry skin, nail debridement
  and as a nail softener. We developed CARMOL®40 as an enhancement to our
  CARMOL® 10 product. We estimate that CARMOL®40 currently has approximately
  35% of the prescription xerosis market. For 2003, net sales for CARMOL®40
  CREAM were approximately $20,412,000, net sales for CARMOL®40 LOTION were
  approximately $7,701,000 and net sales for CARMOL®40 GEL were approximately
  $8,463,000.

ROSULA® AQUEOUS CLEANSER
  and ROSULA® AQUEOUS GEL are internally developed urea-based topical prescription
  products that treat skin conditions, including acne and rosacea. We launched
  ROSULA® AQUEOUS GEL in January 2003 and ROSULA® AQUEOUS CLEANSER in
  July 2003. The active ingredients in ROSULA® AQUEOUS GEL and ROSULA®
  AQUEOUS CLEANSER, sodium sulfacetamide and sulfur, have antibacterial properties
  that are effective against acne and reduce the redness and swelling associated
  with rosacea. The products urea base acts as a moisturizer resulting in
  less dryness. We believe that ROSULA® AQUEOUS CLEANSER and ROSULA®
  AQUEOUS GEL are the first and only prescription therapies for the treatment
  of acne and rosacea that combine the benefits of sodium sulfacetamide and sulfur
  with the moisturizing effects of urea.

ZODERM® CLEANSER, ZODERM®
  CREAM and ZODERM® GEL are internally developed urea-based topical prescription
  products that treat acne. We launched ZODERM® CLEANSER, ZODERM® CREAM
  and ZODERM® GEL in March 2004. The active ingredient in ZODERM® CLEANSER
  and ZODERM® GEL, benzoyl peroxide, has antibacterial properties that are
  effective against acne. The products urea base acts as a moisturizer resulting
  in less dryness. We believe that ZODERM® CLEANSER, ZODERM® CREAM and
  ZODERM® GEL are the first and only prescription therapies for the treatment
  of acne that combine the benefits of benzoyl peroxide with the moisturizing
  effects of urea.

LIDAMANTLE® and LIDAMANTLE®HC,
  available in cream and lotion formulations, are prescription products with a
  topical anesthetic that help relieve pain, soreness, itching and irritation
  caused by insect bites, eczema and other skin conditions. LIDAMANTLE® and
  LIDAMANTLE®HC lower the pH level of the skin, providing an environment
  that facilitates healing, protects against infections and alleviates irritation.
  LIDAMANTLE®HC also contains hydrocortisone, which helps to reduce inflammation.
  We launched the lotion formulation of LIDAMANTLE® and LIDAMANTLE®HC
  in November 2003.

ANAMANTLE®HC,
  launched in January 2003, is a prescription cream containing a topical anesthetic
  and hydrocortisone, which treats hemorrhoids and anal fissures. ANAMANTLE®HC
  lowers the pH level of the skin to create an environment that promotes healing,
  reduces the likelihood of infections, reduces swelling and soothes irritation.
  ANAMANTLE®HC cream is packaged as single-use, disposable dispensers with
  a unique applicator that we believe makes ANAMANTLE®HC cream cleaner and
  simpler to use.

PAMINE® and PAMINE®
  FORTE are prescription lactose-free, antispasmodic oral therapies that
  provide relief from the symptoms associated with irritable bowel syndrome, specifically
  pain and cramping. PAMINE® FORTE contains twice the amount of the active
  ingredient of PAMINE® and may be taken less frequently than PAMINE®,
  which we believe may promote greater patient compliance. Because both PAMINE®
  and PAMINE® FORTE are not absorbed by the brain, they cause fewer side
  effects, such as dizziness and blurred vision, than comparable drugs that are
  absorbed by the brain.

FLORA-Q, anticipated
  to be launched in the end of March or in April 2004, is an over-the-counter
  blend of bacterial strains designed to promote the proper balance of natural
  healthful bacteria in the intestines, often referred to as flora or probiotics.
  FLORA-Q contains four proprietary strains of probiotic bacteria in a novel
  delivery system that ensures safe passage of the probiotic strains through the
  stomach and high potency delivery to the intestinal tract, where its beneficial
  effect is realized. Additionally, FLORA-Q requires no refrigeration and
  is available in a convenient capsule form.



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GLUTOFAC®ZX
  is a prescription nutritional supplement that helps to replenish the bodys
  reserves of vitamins and minerals.

Our net sales volume percentages
  by category for 2001, 2002 and 2003 were as follows:

| |                          | Year Ended
                December 31,
| | ------------------------ | ---------------------------------------
| |                          |                                        
| |                          | 2001                                   
| |                          |                                        
| | Dermatology and Podiatry | 60%                                    
| | Gastrointestinal         | 17%                                    
| | Respiratory              | 14%                                    
| | Nutritional              | 8%                                     
| | Other                    | 1%                                     

Sales and Marketing

We market and sell our products
  primarily through our full-time sales personnel and wholesalers. As of December
  31, 2003, we employed a national sales force, including district managers, of
  more than 140 representatives, which seeks to cultivate relationships of trust
  and confidence with dermatologists, podiatrists and gastroenterologists who
  issue a high volume of prescriptions in our core market segments. Our marketing
  and sales promotions principally target these doctors through visits where our
  representatives provide information and product samples to encourage them to
  prescribe our products. In addition, we use a variety of marketing techniques
  to promote our products, including journal advertising, promotional materials,
  specialty publications, convention participation, focus groups, educational
  conferences, telemarketing and informational websites.

As of December 31, 2003, Doak
  Dermatologics had more than 110 representatives and district managers who call
  on dermatologists and podiatrists throughout the U.S. As of December 31, 2003,
  our Kenwood Therapeutics division had 30 representatives and district managers
  who call on gastroenterologists in the U.S. To achieve our desired sales objectives,
  we believe we have created an attractive incentive program for our sales force
  that is based upon goals in prescription growth, market share improvement and
  growth in value for our shareholders.

We intend to seek new markets
  in which to promote our product lines and will continue expansion of our field
  sales force as product growth and/or product acquisitions warrant. In July 2003,
  we entered into a strategic relationship with Ventiv Health, Inc., a contract
  marketing and sales organization, to co-promote to obstetricians and gynecologists
  our ANAMANTLE® HC therapy for hemorrhoids and anal fissures. We believe
  that obstetricians and gynecologists represent a significant growth opportunity
  for ANAMANTLE® HC and that our agreement with Ventiv Health will enable
  us to more quickly and efficiently expand our sales into this market.

Customers

We sell our products primarily
  to wholesalers. Our customers include several of the nations leading wholesalers,
  such as AmerisourceBergen Corporation, Cardinal Health, Inc., McKesson Corporation,
  Quality King Distributors, Inc. and major drug chains. Our four largest customers
  listed below accounted for an aggregate of approximately 81% of our accounts
  receivable at December 31, 2003 and 86% of our accounts receivable at December
  31, 2002. The following table presents a summary of our sales to significant
  customers, who are also wholesalers, as a percentage of our total gross sales:

|                                | Year Ended 
                December 31,
|------------------------------- | ----------------------------------------
|
|Customer                        | 2001                                    
|AmerisourceBergen Corporation   | 12%                                     
|Cardinal Health, Inc.           | 20%                                     
|McKesson Corporation            | 11%                                     
|Quality King Distributors, Inc. | 40%                                     



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To facilitate sales of our products
  internationally, we have entered into agreements with approximately 30 international
  pharmaceutical wholesalers to provide for distribution and promotion of our
  products in more than 38 countries. Net sales from international business were
  approximately 2% for 2003, 4% for 2002 and 7% for 2001.

We continue to seek new international
  wholesalers and currently are in the process of obtaining market approvals in
  more than 10 new countries. Although we anticipate receiving the necessary approvals
  to market our products in these countries, there can be no assurance that these
  approvals will be received.

Third Party Payers

Our operating
  results and business success depend in large part on the availability of adequate
  third party payor reimbursement to patients for our branded prescription products.
  These payors include pharmacy benefit management organizations, governmental
  entities, managed care organizations and private health insurers. We strive
  to achieve the following strategic objectives for our branded prescription products
  with these payors:

| |  |  | increased patient access;               
| | - |  | ----------------------------------------
| |   |  |                                         
| |  |  | preferred formulary placement;
      and
| |   |  |                                         
| |  |  | growth in market share.                 

In 2003, we initiated a marketing
  campaign to raise the awareness of our Doak Dermatologics and Kenwood Therapeutics
  brands to third party payors. The campaign involves regularly scheduled targeted
  product mailings, private meetings and attendance at industry conferences. We
  have entered into reimbursement agreements with nationally recognized pharmacy
  benefit management organizations and we added a major health insurance company
  to the list of leading national managed care organizations participating in
  reimbursement agreements with us. We intend to continue expanding our existing
  base of national and regional relationships with third party payors.

Manufacturers and Suppliers

We do not own or operate any manufacturing
  or production facilities. Instead, approximately 10 independent companies manufacture
  and supply the vast majority of our products. For 2003, two vendors that manufacture
  and package products for us accounted for approximately 33% and 16% of our cost
  of sales. For 2002, two vendors that manufacture and package products for us
  accounted for approximately 41% and 12% of our cost of sales. Many of these
  companies also manufacture and supply products for some of our competitors.

With respect to our actively marketed
  products, CARMOL®40, ROSULA® AQUEOUS CLEANSER, ROSULA® AQUEOUS
  GEL, ZODERM® CLEANSER, ZODERM® CREAM, ZODERM® GEL, ANAMANTLE®
  HC, PAMINE®, PAMINE® FORTE, LIDAMANTLE®, LIDAMANTLE®HC and
  FLORA-Q we have written licensing, manufacturing or other supply agreements
  with our manufacturers or suppliers.

Intellectual Property

There are several patents covering
  certain aspects of our CARMOL®40, ROSULA® AQUEOUS CLEANSER, ROSULA®
  AQUEOUS GEL, ANAMANTLE® HC, FLORA-Q and ENTSOL® product lines.
  In addition, we have a number of patent applications pending with the U.S. Patent
  and Trademark Office and intend to pursue patents where cost-effective and practical.
  However, a large portion of our products are not patent protected, and we cannot
  assure you that any of our patents, if challenged, would be held valid and enforceable.
  In addition, competitors may independently develop similar technologies or design
  around patented aspects of our technology. In light of the uncertain outcome
  of the pending litigation described under Item 3: Legal Proceedings
  concerning various patents relating to our CARMOL®40 product line, you
  should not ascribe any significant value to such patents in making a decision
  to invest in us. We cannot predict the impact on our business that might result
  from any determination that our patents relating to CARMOL®40 are invalid,
  unenforceable or not infringed.

We own trademarks associated with
  each of our products, including several national and foreign trademark registrations,
  or common law rights, for each of our material products. We cannot provide any
  assurance as to the



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extent or scope of the trademarks or other proprietary protection
  secured by us on our products. To our knowledge, none of the trademarks owned
  by us infringe on any trademarks owned or used by others.

We rely on unpatented proprietary
  technologies in the development and commercialization of our products. We also
  depend upon the unpatentable skills, knowledge and experience of our scientific
  and technical personnel, as well as those of our advisors, consultants and other
  contractors. To help protect our proprietary know-how that is not patentable,
  and for inventions for which patents may be difficult to enforce, we often use
  trade secret protection and confidentiality agreements to protect our interests.
  To this end, we typically require employees, consultants and advisors to enter
  into agreements that prohibit the disclosure of confidential information and,
  where applicable, require disclosure and assignment to us of the ideas, developments,
  discoveries and inventions that arise from their activities for us. Additionally,
  these confidentiality agreements require that our employees, consultants and
  advisors do not bring to us, or use without proper authorization, any third
  partys proprietary technology.

Competition

The pharmaceutical industry is
  highly competitive. We compete primarily in the dermatologic, podiatric and
  gastrointestinal markets, and to a lesser extent, in the nutritional supplement
  market. We believe that competition for product sales is based primarily on
  brand awareness, price, availability and product efficacy. Additionally, since
  our current products generally are established and commonly sold, they are subject
  to competition from products with similar qualities. Our pharmaceutical products
  may be subject to competition from alternate therapies during the patent protection
  period, if applicable, and thereafter from generic equivalents.

Many of our competitors are large,
  well-established companies in the pharmaceutical, chemical, cosmetic and health
  care fields and may have greater resources than we do to devote to manufacturing,
  marketing, sales, research and development and acquisitions. Our competitors
  include AstraZeneca, Aventis, Axcan Pharma, Bristol-Myers Squibb, Connetics,
  Ferndale Laboratories, First Horizon Pharmaceuticals, Galderma, GlaxoSmithKline,
  Valeant Pharmaceuticals, Medicis Pharmaceutical, Ortho Pharmaceuticals, Pfizer,
  Salix Pharmaceuticals, Schering Plough, Schwarz Pharma, Upsher-Smith and others.

Dermik, a subsidiary of Aventis,
  recently introduced Vanamide, a competing product to CARMOL®40. We are
  a party to litigation regarding the introduction of this product by Dermik and
  Aventis. See Item 3: Legal Proceedings. In addition, several manufacturers
  of generic pharmaceutical products recently introduced significantly less expensive
  40% urea products that may be comparable to CARMOL®40 CREAM, CARMOL®40
  LOTION and CARMOL®40 GEL. We believe we compete successfully in the marketplace
  primarily based upon the proven effectiveness and therapeutic value of our CARMOL®40
  products and the brand loyalty of patients and physicians to CARMOL®40.
  However, we cannot predict the impact on our business that might result from
  any determination that our patents relating to CARMOL®40 are invalid or
  unenforceable, or from the introduction of Vanamide or any other competing product
  into the marketplace. These developments may adversely affect our sales of CARMOL®40.

Government Regulation

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

Noncompliance with applicable
  policies or requirements of the FDA or other regulators could subject us to
  enforcement actions, such as suspensions of product distribution, seizure of
  products, product recalls, fines, criminal penalties, injunctions, failure to
  approve pending drug product applications or withdrawal of product marketing
  approvals. Similar civil or criminal penalties could be imposed by other government
  agencies or various agencies of the states and localities in which our products
  are manufactured, sold or distributed and could have ramifications for



| | 9 | 
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our contracts with government agencies, such as our contract
  with the Veterans Administration and the Department of Defense. These
  enforcement actions would detract from managements ability to focus on
  our daily business and would have an adverse effect on the way we conduct our
  daily business, which could severely impact future profitability.

All manufacturers, marketers and
  distributors of human pharmaceutical products are subject to regulation by the
  FDA. New drugs must be the subject of an FDA approved new drug application before
  they may be marketed in the United States. The FDA can and does reject new drug
  applications or require additional clinical trials even when product candidates
  performed well in clinical trials. Some prescription and other drugs are not
  the subject of an approved marketing application but, rather, are marketed subject
  to the FDAs regulatory discretion and/or enforcement policies. Any change
  in the FDAs enforcement discretion and/or policies could alter the way we have
  to conduct our business and any such change could severely impact our future
  profitability.

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

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

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

Once the FDA issues a final monograph,
  the product must convert from prescription status to over-the-counter status.
  Recently, the final monograph for our DECONAMINE® and BRONTEX® immediate
  release products has been issued, which requires some of our DECONAMINE®
  and BRONTEX® immediate release products to convert from prescription status
  to over-the-counter status by December 31, 2004. We intend to continue to market
  and distribute the DECONAMINE® and BRONTEX® immediate release products
  as prescription only as long as we may lawfully continue to do so. We are exploring
  our marketing and distribution strategy for these products after they are converted
  from prescription status to over-the-counter status. We have not yet determined
  how our operations and financial condition will be affected.

We are the registered holders
  of one New Drug Application for PAMINE®, one Supplemental New Drug Application
  for PAMINE® FORTE and two Abbreviated New Drug Applications for TYZINE®
  and CARMOL®HC, which have been approved by the FDA. The New Drug Application
  permits a company to market products considered by the FDA to be new drugs.
  The Supplemental New Drug Application permits marketing of variations of products
  related to already approved NDAs or ANDAs, such as a new dosage
  strength. The Abbreviated New Drug Application permits a company to market generic
  versions of drugs previously approved by the FDA.



| | 10 | 
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We currently market, sell and
  distribute CARMOL®40, CARMOL® SCALP TREATMENT, ROSULA® AQUEOUS
  CLEANSER, ROSULA® AQUEOUS GEL, ZODERM® CLEANSER, ZODERM® CREAM,
  ZODERM® GEL, LIDAMANTLE®, LIDAMANTLE®HC and ANAMANTLE®HC
  as exempt drugs not requiring a NDA or an ANDA because these products have been
  considered by us to be identical, related, or similar to products that existed
  on the market prior to 1962. The FDA has set 1962 as the cut-off year for determining
  new technologies to be included in products or drugs for which NDA or ANDA filings
  would be required prior to commercialization.

Product Liability Insurance

We maintain product liability
  insurance on our products that provides coverage of up to $10,000,000 in the
  aggregate per year. This insurance is in addition to required product liability
  insurance maintained by the manufacturers of our products. We cannot assure
  you that any product liability claims against us will not exceed that coverage.
  To date, no product liability claim has been made against us and we are not
  aware of any pending or threatened claim.

Employees

As of December 31, 2003, we had
  approximately 250 employees. We also maintain active independent contractor
  relationships with various individuals with whom we have consulting agreements.
  We believe that our relationships with our employees are good. None of our employees
  is subject to a collective bargaining agreement.

Web Site Access to Filings with the Securities and Exchange
  Commission

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

Scientific Advisors

We have formed a group of scientific
  advisors having extensive experience in our core branded products to advise
  us in long-range planning and product development:

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

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

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



| | 11 | 
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Bryan C. Markinson, D.P.M.
  is Chief of Podiatric Medicine and Surgery and Assistant Clinical Professor
  of Orthopedics and Pathology at Mount Sinai School of Medicine. Dr. Markinson
  also is an adjunct professor, Division of Medical Sciences, for the New York
  College of Podiatric Medicine. Dr. Markinson has served on the staffs of Metropolitan
  Hospital, New York Methodist Hospital, New York Community Hospital of Brooklyn
  and Foot Clinics of New York. He is a member of the American Podiatric Medical
  Association, the New York State Podiatric Medical Association and a Fellow of
  the American Society of Podiatric Dermatology. Dr. Markinson received his B.S.
  from Long Island University and a D.P.M. from the New York College of Podiatric
  Medicine.

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

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

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

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

RISKS RELATED TO OUR BUSINESS

We derive a majority of our net sales from our core branded
  products, and any factor that hurts our sales of these products could reduce
  our revenues and profitability.

We derive a majority of our net
  sales from our core branded products: CARMOL®40, ROSULA®AQUEOUS CLEANSER,
  ROSULA® AQUEOUS GEL, ZODERM® CLEANSER, ZODERM® CREAM, ZODERM®
  GEL, PAMINE®, PAMINE® FORTE, LIDAMANTLE®, LIDAMANTLE®HC,
  ANAMANTLE®HC, FLORA-Q and GLUTOFAC®-ZX. These core branded
  products accounted for a total of approximately 79% of our net sales for 2003
  and approximately 70% of our net sales for 2002. We believe that the net sales
  of these products will constitute the majority of our overall net sales for
  the foreseeable future. Accordingly, any factor that hurts our sales of these
  core products, individually or collectively, could reduce our revenues and profitability.
  Many of our core branded products are subject to generic or comparable product
  competition currently or may be in the near future. Each of our core branded
  products could be rendered obsolete or uneconomical by regulatory or competitive
  changes. Net sales of our core branded products could also be adversely affected
  by other factors, including:

| |  | manufacturing or supply interruptions;                                                                                                                   
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                          
| |  | the development of new competitive
      pharmaceuticals and technological advances to treat the conditions addressed
      by our core branded products;
|  |  |                                                                                                                                                          
| |  | marketing or pricing actions by
      one or more of our competitors;                                                                                    
|  |  |                                                                                                                                                          
| |  | effectiveness of our sales and
      marketing efforts;                                                                                                  
|  |  |                                                                                                                                                          
| |  | legal or regulatory action by
      the FDA and other government regulatory agencies;                                                                    
|  |  |                                                                                                                                                          
| |  | changes in the prescribing practices
      of dermatologists, podiatrists and/or gastroenterologists;                                                    
|  |  |                                                                                                                                                          
| |  | restrictions on travel affecting
      the ability of our sales force to market to prescribing physicians in person;                                     



| | 12 | 
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| |  | changes in the reimbursement or
      substitution policies of third party payers or retail pharmacies;
|- |  | -------------------------------------------------------------------------------------------------------
|  |  |                                                                                                        
| |  | product liability claims; and                                                                          
|  |  |                                                                                                        
| |  | the outcome of disputes relating
      to trademarks, patents, license agreements and other rights.    

Failure to maintain CARMOL®40 net sales would reduce
  our revenues and profitability.

CARMOL®40 CREAM, CARMOL®40
  LOTION and CARMOL®40 GEL, our lead products in the CARMOL® family
  of products, accounted for approximately 49% of our net sales for 2003, 53%
  of our net sales for 2002 and 37% of our net sales for 2001. The concentration
  of our net sales in a single product line makes us particularly dependent on
  that line. If demand for the CARMOL®40 product line or any other material
  product line decreases and we fail to replace those sales, our revenues and
  profitability would decrease. We cannot assure you that we will be able to maintain
  our historical net sales levels of the CARMOL®40 product line, or that
  they will not decrease.

On January 29, 2003, we commenced
  legal proceedings against Dermik Laboratories, Inc. and its parent, Aventis
  Pharmaceuticals Inc., a wholly owned subsidiary of Aventis Pharma AG, alleging,
  among other things, the infringement by Dermik and Aventis of three patents
  owned by us relating to 40% urea dermatologic compositions and therapeutic uses.
  On April 24, 2003, the U.S. District Court for the District of New Jersey issued
  an order denying our request for a preliminary injunction to prevent Dermik
  and Aventis from allegedly infringing aspects of our patents relating to CARMOL®40.
  In issuing its ruling, the court concluded that we had failed to establish a
  likelihood of success on the merits that would warrant the issuance of a preliminary
  injunction in our favor. The court further stated its view that, based on the
  courts preliminary interpretation of the claims, the evidence presented
  seemed to indicate little or no likelihood of success by us on the merits and,
  further, that the defendants had established a substantial question of invalidity
  concerning the one patent at issue at the preliminary injunction hearing. In
  connection with this litigation, the court may ultimately hold our patents relating
  to CARMOL®40 to be invalid, unenforceable or not infringed. Subsequent
  to the ruling on the preliminary injunction, Dermik introduced Vanamide, a competing
  product to CARMOL®40.

In light of the uncertain outcome
  of our pending litigation concerning various patents relating to our CARMOL®40
  product line, you should not ascribe any significant value to these patents
  in making a decision to invest in our common stock. In addition, several generic
  pharmaceutical manufacturers recently introduced significantly less expensive
  40% urea products that may be comparable to CARMOL®40 CREAM, CARMOL®40
  and CARMOL®40 GEL. Any determination that our patents relating to CARMOL®40
  are invalid, unenforceable or not infringed, or the introduction of Vanamide,
  the introduction of those less expensive products or the introduction of any
  other competing product into the marketplace, may adversely affect our net sales
  of CARMOL®40. We may also be subject to counterclaims, including, without
  limitation, money damages or other relief relating to misuse of the patents.

Our operating results and financial condition may fluctuate
  which could negatively affect the price of our stock.

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

| |  | changes in the amount we spend
      to develop, acquire or license new products, technologies or businesses;                                                                           
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                         
| |  | changes in the amount we spend
      to promote our products;                                                                                                                           
|  |  |                                                                                                                                                                                         
| |  | delays between our expenditures
      to acquire new products, technologies or businesses and the generation of
      revenues from those acquired products, technologies or businesses;



| | 13 | 
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| |  | changes in treatment practices
      of physicians that currently prescribe our products;                                                                                 
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                           
| |  | changes in reimbursement policies
      of health plans and other similar health insurers, including changes that
      affect newly developed or newly acquired products;
|  |  |                                                                                                                                                                           
| |  | increases in the cost of raw materials
      used to manufacture our products;                                                                                            
|  |  |                                                                                                                                                                           
| |  | manufacturing and supply interruptions,
      including any failure by our manufacturers to comply with manufacturing
      specifications;                               
|  |  |                                                                                                                                                                           
| |  | development of new competitive
      products by others;                                                                                                                  
|  |  |                                                                                                                                                                           
| |  | the mix of products that we sell
      during any time period;                                                                                                            
|  |  |                                                                                                                                                                           
| |  | our responses to price competition;                                                                                                                                       
|  |  |                                                                                                                                                                           
| |  | market acceptance of our products;                                                                                                                                        
|  |  |                                                                                                                                                                           
| |  | the impairment and write-down
      of goodwill or other intangible assets;                                                                                               
|  |  |                                                                                                                                                                           
| |  | implementation of new or revised
      accounting, securities, tax or corporate responsibility rules, policies,
      regulations or laws;                                
|  |  |                                                                                                                                                                           
| |  | disposition of non-core products,
      technologies and other rights;                                                                                                    
|  |  |                                                                                                                                                                           
| |  | expenditures as a result of legal
      actions;                                                                                                                          
|  |  |                                                                                                                                                                           
| |  | termination or expiration of,
      or the outcome of disputes relating to, trademarks, patents, license agreements
      and other rights;                               
|  |  |                                                                                                                                                                           
| |  | increases in insurance rates for
      existing products and the cost of insurance for new products;                                                                      
|  |  |                                                                                                                                                                           
| |  | general economic and industry
      conditions, including changes in interest rates affecting returns on cash
      balances and investments, that affect customer demand;
|  |  |                                                                                                                                                                           
| |  | seasonality of demand for our
      products; and                                                                                                                         
|  |  |                                                                                                                                                                           
| |  | our level of research and development
      activities.                                                                                                                   

We have outstanding indebtedness, which could adversely affect
  our financial condition.

Our total consolidated long term
  debt as of December 31, 2003 was $37,141,508 and constituted approximately 20%
  of our total capitalization as of that date. Under our credit facility with
  Wachovia Bank, we and our subsidiary, Doak Dermatologics, are able to incur
  an additional $15,000,000 of indebtedness. In addition, under our credit facility,
  we have granted to Wachovia a lien on substantially all of our current and future
  property, including our intellectual property. The indenture for the outstanding
  convertible notes that are described in our financial statements does not restrict
  our ability to incur additional indebtedness, including senior debt, or incur
  liens on our properties and assets.

The degree to
  which we are indebted could have important consequences to you because:

| |  | a substantial portion of our cash
      flow from operations will be required to be dedicated to interest and principal
      payments and may not be available for operations, working capital, capital
      expenditures, expansion, acquisitions or general corporate or other purposes;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                             
| |  | our ability to obtain financing
      in the future may be impaired;                                                                                                                                                                                                                        
|  |  |                                                                                                                                                                                                                                                                                             
| |  | our ability to pay dividends to
      holders of our common stock may be restricted;                                                                                                                                                                                                        
|  |  |                                                                                                                                                                                                                                                                                             
| |  | we may be more highly leveraged
      than some of our competitors, which may place us at a competitive disadvantage;                                                                                                                                                                       
|  |  |                                                                                                                                                                                                                                                                                             
| |  | our flexibility in planning for,
      or reacting to, changes in our business and industry may be limited; and                                                                                                                                                                             
|  |  |                                                                                                                                                                                                                                                                                             



| | 14 | 
| | -- | 



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| |  | we may be more vulnerable in the
      event of a downturn in our business, our industry or the economy in general.
|- |  | -------------------------------------------------------------------------------------------------------------------

Our ability to make payments on
  and, if necessary, to refinance our debt, including our convertible notes, will
  depend upon our ability to generate cash in the future, which may be influenced
  by general economic, business, financial, competitive, legislative, regulatory
  and other factors beyond our control.

We cannot assure you that our
  business will generate sufficient cash flow from operations or that future borrowings
  will be available in an amount sufficient to enable us to pay our debt, including
  our convertible notes, or to fund our other liquidity needs. We may need to
  refinance all or a portion of our debt, including our convertible notes, on
  or before maturity. We cannot assure you that we would be able to refinance
  any of our debt, including any credit facilities and those notes, on commercially
  reasonable terms or at all.

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

We do not own or operate any manufacturing
  or production facilities. Independent companies manufacture and supply our products.
  Many of these companies also manufacture and supply products for some of our
  competitors. We do not have licensing or other supply agreements with many of
  these manufacturers or suppliers for our products, and therefore, many of them
  could terminate their relationship with us at any time, thereby hampering our
  ability to deliver and sell the manufactured product to our customers and negatively
  affecting our operating margins. From time to time, we have experienced minor
  delays in shipments from some of our vendors due to production management problems.
  Although we believe we can obtain replacement manufacturers, the absence of
  such agreements with our present suppliers may interrupt our ability to sell
  our products and seriously affect our present and future sales. Currently, all
  of our CARMOL® products (except CARMOL®HC), ROSULA®AQUEOUS CLEANSER,
  ROSULA® AQUEOUS GEL, ZODERM® CLEANSER, ZODERM® CREAM, ZODERM®
  GEL, LIDAMANTLE®, LIDAMANTLE®HC and ANAMANTLE®HC are contract
  manufactured in Canada solely by Groupe Parima, Inc. Any delays in manufacturing
  or shipping products by Groupe Parima, including any customs or related issues,
  may affect our product supply and ultimately have a negative impact on our sales
  and profitability.

The Food and Drug Administration,
  or FDA, requires that all manufacturers of pharmaceutical products sold in the
  U.S. comply with the FDAs regulations, including the current good manufacturing
  practices, or cGMP, regulations applicable to manufacturing processes. The cGMP
  validation of a new facility and the approval of that manufacturer for a new
  drug product may take a year or more before manufacture can begin at the facility.
  Delays in obtaining FDA validation of a replacement manufacturing facility could
  cause an interruption in the supply of our products. Although we have business
  interruption insurance covering the loss of income for up to $4,000,000, this
  insurance may not be sufficient to compensate us for any interruption of this
  kind. As a result, the loss of a manufacturer could cause a reduction in our
  sales, margins and market share, as well as harm our overall business and financial
  results.

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

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

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



| | 15 | 
| | -- | 



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We cannot be certain that supply
  interruptions will not occur or that our inventory will always be adequate.
  Numerous factors could cause interruptions in the supply of our finished products
  including:

| |  | timing, scheduling and prioritization
      of production by our current manufacturers;          
|- |  | -------------------------------------------------------------------------------------------------
|  |  |                                                                                                  
| |  | labor interruptions;                                                                             
|  |  |                                                                                                  
| |  | changes in our sources for manufacturing;                                                        
|  |  |                                                                                                  
| |  | the timing and delivery of domestic
      and international shipments;                           
|  |  |                                                                                                  
| |  | our failure to locate and obtain
      replacement manufacturers as needed on a timely basis; and
|  |  |                                                                                                  
| |  | conditions affecting the cost
      and availability of raw materials.                           

Our inability to accurately predict customer demand for our
  products could result in shortages or excess inventory.

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

We sell our products primarily
  to major wholesalers and retail pharmacy chains. Consistent with pharmaceutical
  industry patterns, 82% of our gross revenues for 2003 and 90% of our gross revenues
  for 2002 were derived from four major wholesalers. While we attempt to estimate
  inventory levels of our products at our major wholesale customers, using historical
  prescription information and historical purchase patterns, this process is inherently
  imprecise. These wholesalers rarely provide us with complete information regarding
  their inventory levels at regional distribution centers, or within their national
  distribution systems. We rely wholly upon our wholesale and retail drug chain
  customers to effect the distribution allocation of our products. There can be
  no assurance that these customers will adequately manage their local and regional
  inventories to avoid spot outages.

We cannot control or influence
  greatly the purchasing patterns of wholesale and retail drug chain customers.
  These are highly sophisticated customers that purchase our products in a manner
  consistent with their industry practices and perceived business interests. Our
  sales are subject to the purchase requirements of our major customers, which,
  presumably, are based upon their projected demand levels. Purchases by any given
  customer, during any given measurement period, may be above or below actual
  prescription volumes of one or more of our products during the same measurement
  period, resulting in increases or decreases in product inventory existing in
  the distribution channel, which are managed presumably in accordance with such
  customers business practices, without regard to our commercial interests.

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

Our principal strategy is to continue
  to expand our business by acquiring new products and companies, developing product
  line extensions of acquired brands, producing new products through modest research
  and development of compounds already in use, and successfully promoting our
  products by utilizing our sales force. There are several factors that could
  limit or restrict our ability to implement our acquisition strategy successfully:

| |  | we may not have the financing
      to acquire an available product;
|- |  | --------------------------------------------------------------------



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| |  | we may not be able to make acquisitions
      because other bidders may have greater financial resources;                                                                                                                                                   
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                             
| |  | we may be unable to locate suitable
      acquisition candidates;                                                                                                                                                                                           
|  |  |                                                                                                                                                                                                                                                             
| |  | we may not be able to achieve
      our targeted profit margins with some of the products available for acquisition;                                                                                                                                        
|  |  |                                                                                                                                                                                                                                                             
| |  | we must be able to maintain adequate
      operational, financial and management information systems and motivate and
      effectively manage an increasing number of employees, and as a result, we
      may not manage our acquisitions effectively; and
|  |  |                                                                                                                                                                                                                                                             
| |  | we may not be able to retain or
      hire the necessary qualified employees.                                                                                                                                                                               

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

We may need additional financing to implement our business
  strategy, which may not be available on terms acceptable to us.

In order to implement our business
  strategy, and to grow through acquisitions and product enhancement, we may need
  additional financing. Our ability to grow is dependent upon, and may be limited
  by, among other things, the availability of satisfactory financing arrangements.
  Our existing loan agreement with Wachovia restricts our ability to incur indebtedness
  and our ability to grant liens upon, and security interests in, our assets,
  including our intellectual property. As a result, we may not be able to obtain
  the additional capital necessary to pursue our business strategy. In addition,
  even if we can obtain additional financing, that financing may not be on terms
  that are satisfactory to us. Any indebtedness that we incur will rank senior
  to the interest of the holders of our common stock. We will need to finance
  any new acquisitions from one or more of the following:

| |  | our acquisition credit facility
      with Wachovia Bank;             
|- |  | ----------------------------------------------------------------------
|  |  |                                                                       
| |  | existing working capital and positive
      cash flow from operations;
|  |  |                                                                       
| |  | new borrowings; or                                                    
|  |  |                                                                       
| |  | issuing equity securities.                                            

Our earnings may be reduced in the future due to the potential
  impairment of our acquired intangible assets.

We have made acquisitions of products
  and businesses that include goodwill, license agreements, product rights and
  other intangible assets. We intend to make similar acquisitions in the future.
  As required by applicable accounting rules, we assess the value of these assets
  when events or changes in circumstances require. If we determine through this
  process that the value of these assets has been impaired, we may be required
  to record the impairment charge in our income statement. We cannot assure you
  that we will not need to record such charges in the future with respect to our
  current intangible assets, or any that we may acquire in the future. Any such
  charges may reduce our earnings substantially.

Our research and development efforts may require us to incur
  substantial expenses, some of which we may not recoup.

We reevaluate our research and
  development efforts regularly to assess whether our efforts to develop a particular
  product or technology are progressing at a rate that justifies our continued
  expenditures. On the basis of



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these reevaluations, we have abandoned in the past, and may
  abandon in the future, our efforts on a particular product or technology. Products
  we are researching or developing may never be approved for marketing. If we
  fail to take a product or technology to market on a timely basis, we may incur
  significant expenses without a near term financial return.

In the future, we may supplement
  our internal research and development by entering into research and development
  agreements with other pharmaceutical companies. We may, upon entering into such
  agreements, be required to make significant up-front payments to fund projects.
  We cannot be sure, however, that we will be able to locate adequate research
  partners or that supplemental research will be available on terms acceptable
  to us in the future. If we are unable to enter into additional research partnership
  arrangements, we may incur additional costs to continue research and development
  internally or we may abandon one or more projects.

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

There is no proprietary protection
  for most of our branded pharmaceutical products, and competing generic or comparable
  products for most of these products are sold by other pharmaceutical companies.
  In addition, governmental and other pressure to reduce pharmaceutical costs
  may result in physicians prescribing products for which there are generic or
  comparable products. Increased competition from the sale of generic pharmaceutical
  or comparable products may cause a decrease in revenue from our branded products,
  which could have an adverse effect on our business, financial condition and
  results of operations, which would likely negatively affect the market price
  of our stock. In addition, our branded products for which there are no generic
  or comparable forms available, may face competition from different therapeutic
  treatments used for the same indications for which our branded products are
  used.

Our intellectual property rights might not afford us with
  meaningful protection.

Other than patents and patent
  applications pending with respect to our CARMOL®40, ROSULA®AQUEOUS
  CLEANSER, ROSULA® AQUEOUS GEL, ANAMANTLE®HC and ENTSOL® products,
  we do not have patents or patent applications pending with respect to any other
  focus products sold by us. The ownership of a patent or an interest in a patent
  does not always provide significant protection and the patents and applications
  in which we have an interest may be challenged as to their validity or enforceability.
  Others may independently develop similar technologies or design around the patented
  aspects of our technology. Challenges may result in significant harm to our
  business. The cost of responding to these challenges and the inherent costs
  to defend the validity of our patents, including the prosecution of infringements
  and the related litigation, could be substantial. Such litigation also could
  require a substantial commitment of managements time, which would detract
  from the time available to be spent maintaining and developing our business.

We rely on unpatented proprietary
  technologies in the development and commercialization of our products. We also
  depend upon the unpatentable skills, knowledge and experience of our scientific
  and technical personnel, as well as those of our advisors, consultants and other
  contractors. To help protect our proprietary know-how that is not patentable,
  and for inventions for which patents may be difficult to enforce, we often use
  trade secret protection and confidentiality agreements to protect our interests.
  These agreements may not effectively prevent disclosure of confidential information
  or result in the effective assignment to us of intellectual property, and may
  not provide an adequate remedy to us in the event of unauthorized disclosure
  of confidential information or other breaches of the agreements. In addition,
  others may independently develop similar or equivalent trade secrets or know-how.

In light of the uncertain outcome
  of the pending litigation concerning various patents relating to our CARMOL®40
  product line that is described in the risk factor entitled Failure to
  maintain CARMOL®40 net sales would reduce our revenues and profitability,
  you should not ascribe any significant value to such patents in making a decision
  to invest in our common stock. We cannot predict the impact on our business
  that might result from any determination that our patents relating to CARMOL®40
  are invalid or unenforceable.



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

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

Patents and patent applications
  to which we have rights may be subject to claims of rights by third parties.
  If there are conflicting claims to the same patent or patent application, we
  may not prevail and, even if we do have some rights in a patent or application,
  those rights may not be sufficient for the marketing and distribution of products
  covered by the patent or application.

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

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

Our four largest customers, who
  are wholesalers, accounted for an aggregate of approximately 81% of our accounts
  receivable at December 31, 2003 and 86% of our accounts receivable at December
  31, 2002. The following table presents a summary of sales to our four largest
  customers as a percentage of our total gross sales:

|                                | Year Ended
      December 31,
|------------------------------- | -----------------------------
|Customer                        | 2001                         
|AmerisourceBergen Corporation   | 12%                          
|Cardinal Health, Inc.           | 20%                          
|McKesson Corporation            | 11%                          
|Quality King Distributors, Inc. | 40%                          

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

Consolidation of wholesalers of pharmaceutical products can
  negatively affect our distribution terms and sales of our products.

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



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If we become subject to a product liability claim, we may
  not have adequate insurance coverage and our reputation could suffer.

Pharmaceutical and health related
  products, such as those we market, may carry health risks. Consequently, consumers
  may bring product liability claims against us. We maintain product liability
  insurance on our products that provides coverage of up to $10,000,000 in the
  aggregate per year. This insurance is in addition to the required product liability
  insurance maintained by the manufacturers of our products. We cannot assure
  that product liability claims will not exceed that coverage or that our reputation
  will not suffer as a result of any claims. If insurance does not fully fund
  any product liability claim, or if we are unable to recover damages from the
  manufacturer of a product that may have caused such injury, we must pay such
  claims from our own funds. Any such payment could have a detrimental effect
  on our financial condition. In addition, we may not be able to maintain our
  liability insurance at reasonable premium rates, if at all.

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

Chargebacks and rebates are the
  difference between the prices at which we sell our products to wholesalers and
  the price that third party payors, such as governmental agencies and managed
  care buying groups, ultimately pay pursuant to fixed price contracts. Medicare,
  Medicaid and reimbursement legislation or programs regulate drug coverage and
  reimbursement levels for most of the population in the United States. Federal
  law requires all pharmaceutical manufacturers to rebate a percentage of their
  revenue arising from Medicaid-reimbursed drug sales to individual states. Some
  of our products are subject to rebates of up to the greater of 15.1% of the
  average manufacturer price or the difference between the average manufacturer
  price and the lowest manufacturer price during a specified period. We record
  an estimate of the amount either to be charged back to us or rebated to the
  end-users at the time of sale to the wholesaler. Over recent years, the pharmaceutical
  industry in general has accepted the managed care system of chargebacks and
  rebates. Managed care organizations increasingly began using these chargebacks
  and rebates as a method to reduce overall costs in drug procurement. Levels
  of chargebacks and rebates have increased momentum and caused a greater need
  for more sophisticated tracking and data gathering to confirm sales at contract
  prices to third-party payors with respect to related sales to wholesalers. We
  record an accrual for chargebacks and rebates based upon factors including current
  contract prices, historical chargeback rates and actual chargebacks claimed.
  The amount of actual chargebacks claimed could, however, be higher than the
  amounts we accrue, and could reduce our profit margins.

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

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

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

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



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RISKS RELATED TO OUR INDUSTRY

We face significant competition within our industry.

The pharmaceutical industry is
  highly competitive. We compete primarily in the dermatologic, podiatric and
  gastrointestinal product markets and, to a lesser extent, in the nutritional
  supplement market. CARMOL®40 competes in an approximately $125 million
  market for prescription skin softeners that includes Lac-Hydrin, marketed by
  a division of Bristol-Myers Squibb, and Vanamide, marketed by a subsidiary of
  Aventis. In addition, several manufacturers of generic pharmaceutical products
  recently introduced significantly less expensive 40% urea products that may
  be comparable to CARMOL®40 CREAM, CARMOL®40 LOTION and CARMOL®40
  GEL. We cannot predict the impact of these recently introduced products on our
  net sales.

Many of our competitors are large,
  well-established companies in the pharmaceutical, chemical, cosmetic and health
  care fields. Our competitors include AstraZeneca, Aventis, Axcan Pharma, Bristol-Myers
  Squibb, Connetics, Ferndale Laboratories, First Horizon Pharmaceuticals, Galderma,
  GlaxoSmithKline, Valeant Pharmaceuticals, Medicis Pharmaceutical, Ortho Pharmaceuticals,
  Pfizer, Salix Pharmaceuticals, Schering Plough, Schwarz Pharma, Upsher-Smith
  and others. Many of these companies have greater resources than we do to devote
  to marketing, sales, research and development and acquisitions. As a result,
  they have a greater ability than us to undertake more extensive research and
  development, marketing and pricing policy programs. In addition, many of these
  competitors have greater name-recognition than we do among purchasers of pharmaceutical
  products, and in some cases, they have a reputation for producing highly-effective
  products.

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

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

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

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



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All manufacturers, marketers and
  distributors of human pharmaceutical products are subject to regulation by the
  FDA. New drugs must be the subject of an FDA-approved new drug application before
  they may be marketed in the United States. Some prescription and other drugs
  are not the subject of an approved marketing application but, rather, are marketed
  subject to the FDAs regulatory discretion and/or enforcement policies.
  Any change in the FDAs enforcement discretion and/or policies could alter
  the way we have to conduct our business and any such change could severely impact
  our future profitability. For example, several of our products, including CARMOL®40,
  ROSULA®, ZODERM® and ANAMANTLE®HC, are marketed in the United
  States without an FDA-approved marketing application because they have been
  considered by us to be identical, related, or similar to products that existed
  on the market prior to 1962. Under FDA policies, such products have not been
  required to have marketing approval, except when significant changes are made
  to the product that existed on the market prior to 1962. If a competitor submits
  a new drug application to the FDA for any of these drugs, the FDA may require
  us to also file a new drug application or an abbreviated new drug application
  for that same drug in order to continue marketing it in the United States.

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

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

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

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



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

We may need to change our business practices to comply with
  changes to, or may be subject to charges under, the fraud and abuse laws.

We are subject to various federal
  and state laws pertaining to health care fraud and abuse, including anti-kickback,
  marketing and pricing laws. Violations of these laws are punishable by criminal
  and/or civil sanctions, including, in some instances, imprisonment and exclusion
  from participation in federal and state health care programs such as Medicare
  and Medicaid. In the future, we may have to change our business practices, or
  our existing business practices could be challenged as unlawful, due to changes
  in laws, regulations or rules or due to administrative or judicial findings.
  Changes or challenges of these kinds could reduce our profitability.

We may become subject to federal false claims or other similar
  litigation brought by private individuals and the government.

The Federal False Claims Act allows
  persons meeting specified requirements to bring suit alleging false or fraudulent
  Medicare or Medicaid claims and to share in any amounts paid to the government
  in fines or settlement. These suits, known as qui tam actions, have increased
  significantly in recent years and have increased the risk that a health care
  company will have to defend a false claim action, pay fines and/or be excluded
  from Medicare and Medicaid programs. Federal false claims litigation can lead
  to civil monetary penalties, criminal fines and imprisonment and/or exclusion
  from participation in Medicare, Medicaid and other federally funded health programs.
  Other alternate theories of liability may also be available to private parties
  seeking redress for these claims. A number of parties have brought claims against
  numerous pharmaceutical manufacturers, and we cannot be certain that these claims
  will not be brought against us, or if they are brought, that these claims might
  not be successful.

RISKS RELATED TO OUR COMMON STOCK

Our Class B common stock has the right, as a class, to elect
  a majority of our board of directors and has disparate voting rights with respect
  to all other matters on which our stockholders vote, your voting rights will
  be limited and the market price of our common stock may be affected adversely.

Holders of our common stock are
  entitled to one vote per share on matters on which our stockholders vote generally.
  As long as there are at least 325,000 shares of our Class B common stock outstanding,
  holders of our Class B common stock vote, as a class, to elect a majority of
  our board of directors. In addition, shares of our Class B common stock are
  entitled to five votes per share on all other matters to be voted on by stockholders
  in general. The ability of the holders of our Class B common stock to elect
  a majority of our directors and the differential in the voting rights between
  the common stock and the Class B common stock could affect adversely the market
  price of our common stock. All of the outstanding shares of our Class B common
  stock are currently held by Daniel Glassman, our founder and Chairman of the
  Board, President and Chief Executive Officer, Iris Glassman and Bradley Glassman.

Our founder and Chairman of the Board, President and Chief
  Executive Officer exercises substantial control over our affairs.

At December 31, 2003, Daniel Glassman,
  our founder and Chairman of the Board, President and Chief Executive Officer,
  and members of his immediate family (including Iris Glassman and Bradley Glassman),
  were the



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beneficial owners of approximately 5% of our outstanding common
  stock, consisting of all outstanding shares of Class B common stock and 310,026
  shares of common stock. The Class B common stock currently votes, as a class,
  to elect a majority of our board of directors, and has five votes per share
  or approximately 14% of the total voting power, with respect to all other matters
  on which our stockholders are entitled to vote other than the election of the
  board of directors. As a result, Daniel Glassman exercises control over the
  election of our board of directors and significantly influences all of our corporate
  actions. The interests of Mr. Glassman and his family may differ from those
  of our other stockholders and they may be able to take actions that advance
  their respective interests to the detriment of our other stockholders. Mr. Glassmans
  ability to exercise control over the election of the board of directors may
  discourage, delay or prevent a merger or acquisition and could discourage any
  bids for our common stock at a premium over the market price.

We have potential liability arising from securities transferred
  to accounts of 401 (k) plan participants in violation of applicable securities
  laws.

From 1997 through January 2004,
  we failed to register, in compliance with applicable securities laws, shares
  of our common stock transferred to accounts of participants in our 401(k) plan
  and the interests of those participants in that plan, which may also be deemed
  securities requiring registration. We intend to offer a 30-day right of rescission
  to those participants who received shares of our common stock in violation of
  applicable securities laws during the two years preceding the date of that registration,
  the statute of limitations period that we believe may generally apply to claims
  for rescission under applicable state laws, or possibly a longer or shorter
  period. Under the rescission offer, the participants will be entitled to require
  us to repurchase those shares at the price per share of our common stock when
  the shares were transferred to the participants account, plus interest
  at a rate to be determined.

Based upon our preliminary investigation,
  we currently believe that approximately 22,000 shares of our common stock were
  transferred to accounts of 401(k) plan participants since January 1, 2002 in
  violation of applicable securities laws and, if subject to our rescission offer,
  would have an aggregate repurchase price of approximately $301,000, plus interest.
  We may also face fines or other penalties for our violation of applicable securities
  laws, and we cannot assure you that we will not be required to offer rescission
  to participants who received shares of our common stock prior to the two-year
  period covered by our anticipated rescission offer.

In addition, applicable securities
  laws do not expressly provide that our planned rescission offer will terminate
  a participants right to rescind a sale of stock that was not properly
  registered. Accordingly, we may continue to have a contingent liability relating
  to the shares transferred to accounts of participants who do not accept the
  rescission offer, based upon the price per share of our common stock when the
  shares were transferred to the participants account.

Our certificate of incorporation and Delaware law may delay
  or prevent our change of control, even if beneficial to investors.

Our charter authorizes us to issue
  up to 2,000,000 shares of preferred stock with such designations, rights and
  preferences as the board of directors may determine from time to time. This
  authority empowers the board of directors, without further stockholder approval,
  to issue preferred shares with dividend, liquidation, conversion, voting or
  other rights that could decrease the voting power or other rights of the holders
  of our common stock. The issuance of such preferred stock could, under some
  circumstances, discourage, delay or prevent a change of control. To date, we
  have not issued any shares of preferred stock. In addition, we are and will
  continue to be, subject to the anti-takeover provisions of the Delaware General
  Corporation Law, which could delay or prevent a change of control.

Our stock price has fluctuated considerably and may decline.

Stock prices of emerging growth
  pharmaceutical and small-cap companies such as ours fluctuate significantly.
  In particular, our stock price per share since January 1, 2002, has fluctuated
  from a low of $6.80 to a high of $32.50. A variety of factors that could cause
  the price of our common stock to fluctuate, perhaps substantially, includes:



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| |  | announcements of developments
      related to our business;                                                                                              
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                           
| |  | quarterly fluctuations in our
      actual or anticipated operating results;                                                                              
|  |  |                                                                                                                                                           
| |  | general conditions in the pharmaceutical
      and health care industries;                                                                                
|  |  |                                                                                                                                                           
| |  | new products or product enhancements
      by us or our competitors;                                                                                      
|  |  |                                                                                                                                                           
| |  | developments in patents or other
      intellectual property rights and litigation;                                                                       
|  |  |                                                                                                                                                           
| |  | developments in our relationships
      with our customers and suppliers;                                                                                 
|  |  |                                                                                                                                                           
| |  | current events affecting the political,
      economic and social situation in the United States and other countries where
      our subsidiaries operate;
|  |  |                                                                                                                                                           
| |  | changes in financial estimates
      and recommendations by securities analysts;                                                                          
|  |  |                                                                                                                                                           
| |  | lack of an active, liquid trading
      market for our common stock;                                                                                      
|  |  |                                                                                                                                                           
| |  | acquisitions and financings;                                                                                                                              
|  |  |                                                                                                                                                           
| |  | the operating and stock price
      performance of other companies that investors may deem comparable; and                                                
|  |  |                                                                                                                                                           
| |  | purchases or sales of blocks of
      our common stock, including any short-selling activities.                                                           

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

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

We are at risk of securities class action litigation due
  to our stock price volatility.

In the past, securities class
  action litigation has often been brought against companies following periods
  of volatility in the market price of their securities. Due to the expected volatility
  of our stock price, we could be the target of securities litigation in the future.
  Securities litigation could result in substantial costs and divert managements
  attention and resources from our business.

The exercise of outstanding warrants and options, the conversion
  of outstanding notes, or the issuance of other shares could reduce the market
  price of our stock.

We currently have outstanding
  a substantial number of options and warrants to purchase shares of our common
  stock and notes convertible into shares of our common stock. If the holders
  of all outstanding warrants and options exercised them and the holders of all
  outstanding convertible notes converted them, we would have approximately an
  additional 3,771,711 shares of common stock issued and outstanding as of December
  31, 2003. The sale, or availability for sale, of such substantial amounts of
  additional shares of common stock in the public marketplace could reduce the
  prevailing market price of our securities and otherwise impair our ability to
  raise additional capital through the sale of equity securities.



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We may sell equity securities in the future, which would
  cause dilution.

We may sell equity securities
  in the future to obtain funds for general corporate or other purposes. We may
  sell these securities at a discount to the market price. Any future sales of
  equity will dilute the holdings of existing stockholders, possibly reducing
  the value of their investment.

ITEM 2: PROPERTIES

We lease 24,000 square feet of
  office and warehouse space at 383 Route 46 West, Fairfield, New Jersey, under
  a lease expiring on January 31, 2008, with Daniel Glassman, our Chairman, CEO
  and President, and his spouse Iris Glassman, a member of our board and our Treasurer.

We lease an 11,500 square foot
  warehouse at a different location in Fairfield, New Jersey. This new lease has
  an initial term of three years expiring in January 2007 and has a two-year renewal
  at our option.

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

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

ITEM 3: LEGAL PROCEEDINGS

Dermik/Aventis Litigation

On January 29, 2003, we commenced
  legal proceedings against Dermik Laboratories and its parent, Aventis Pharmaceuticals,
  a wholly owned subsidiary of Aventis Pharma AG, alleging, among other things,
  the infringement by Dermik and Aventis of three patents owned by us relating
  to 40% urea dermatologic compositions and therapeutic uses.

In the complaint, filed in the
  United States District Court for the District of New Jersey, we stated that
  the marketing and sale by Dermik and Aventis of the 40% urea cream, Vanamide,
  which would compete with our CARMOL®40 product line, infringed three of
  our patents, including a composition patent for dermatologic products including
  40% urea and two methodology patents for the therapeutic use of urea-based products.

On April 24, 2003, the U.S. District
  Court for the District of New Jersey issued an order denying our request for
  a preliminary injunction to prevent Dermik and Aventis from allegedly infringing
  aspects of our patent concerning the composition and use of our CARMOL®40
  product line. In issuing its ruling, the court concluded that we had failed
  to establish a likelihood of success on the merits that would warrant the issuance
  of preliminary injunction in our favor. The court further stated its view that,
  based on the courts preliminary interpretation of the claims, the evidence
  presented seemed to indicate little or no likelihood of success by us on the
  merits and, further, that the defendants had established a substantial question
  of invalidity concerning the one patent at issue at the preliminary injunction
  hearing. We cannot assure you that, in connection with this litigation, the
  court will not ultimately hold our patents relating to CARMOL®40 to be
  invalid, unenforceable or not infringed, or that we will not be subject to counterclaims,
  including, without limitation, money damages or other relief relating to misuse
  of the patents. We continue to review with our advisors our strategies and alternatives
  with respect to this lawsuit.

The timing and the ultimate final
  outcome of our lawsuit against Dermik and Aventis are uncertain. Dermik began
  selling Vanamide during the second quarter of 2003. Launch of Vanamide or any
  other competing 40% urea product could have a material adverse effect on our
  sales and profits attributable to CARMOL®40.



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DPT Lakewood Litigation

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

Among other things,
  we are seeking damages from DPT Lakewood for misappropriation of our trade secrets.
  DPT Lakewood has counterclaimed against us seeking a declaration of invalidity
  and non-infringement of the patents in question and making a claim for interference
  with contract and prospective economic advantage.

On March 6, 2003, DPT Laboratories,
  Ltd., filed a lawsuit against us alleging defamation arising from our press
  release announcing commencement of the litigation against DPT Lakewood. On July
  11, 2003, the District Court for the Western District of Texas denied our motion
  to dismiss. Despite this ruling, we continue to believe that this suit is without
  merit and we intend to vigorously defend our position.

General Litigation

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

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

No issues were submitted to a
  vote of the security holders during the fourth quarter of 2003.

PART II

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

Shares of our common stock were
  traded on The Nasdaq National Market under the symbol BPRX until
  May 13, 2003, when they were listed and began trading on the New York Stock
  Exchange under the symbol BDY. Our Class B common stock is not publicly
  traded.

The following table sets forth
  the range of high and low sales prices for shares of our common stock for the
  periods indicated. On March 4, 2004, the closing sale price for our common stock
  was $26.18 per share, as reported on the New York Stock Exchange.

|                                   | Price Range
|---------------------------------- | -----------
|                                   | High       
|Year Ended December
      31, 2002 |            
|First quarter                      | $24.00     
|Second quarter                     | 14.02      
|Third quarter                      | 13.28      
|Fourth quarter                     | 15.65      
|                                   |            
|Year Ended December
      31, 2003 |            
|First quarter                      | $16.95     
|Second quarter                     | 17.98      
|Third quarter                      | 32.50      
|Fourth quarter                     | 31.70      



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As of March 8,
  2004, there were 195 registered holders of record of shares of our common stock.

Dividend Policy

We have never declared a cash
  dividend. We intend to retain any earnings to fund future growth and the operation
  of our business and, therefore, we do not anticipate paying any cash dividends
  in the foreseeable future. In addition, our credit facility limits our ability
  to declare cash dividends.

Equity Compensation Plans

Information about our equity compensation
  plans is set forth in our Definitive Proxy Statement for our 2004 Annual Meeting
  and is incorporated herein by reference.

Sale of Unregistered Securities

See Note J.7. Commitments
  and Contingencies  Securities Transferred to 401(K) Plan in Notes
  to Consolidated Financial Statements, filed as part of this report, for information
  concerning sales of unregistered securities.

ITEM 6: SELECTED FINANCIAL DATA

The following selected consolidated
  financial data set forth below for each of the years ended December 31, 2003,
  2002, 2001, 2000 and 1999 have been derived from our audited consolidated financial
  statements. You should read this table in conjunction with our audited consolidated
  financial statements and related notes, our unaudited condensed consolidated
  interim financial statements and related notes and Managements Discussion
  and Analysis of Financial Condition and Results of Operations included
  elsewhere or incorporated by reference.

|                                                                          |                  
|------------------------------------------------------------------------- | -----------------
|                                                                          | 1999             
|Net sale;                                                                 | $18,850,294      
|Cost of sales;                                                            | 5,083,148        
|Gross profit;                                                             | 13,767,146       
|Selling, general and administrative;                                      | 11,473,059       
|Depreciation and amortization;                                            | 1,138,052        
|Interest expense (income), net;                                           | 235,473          
|Losses (gains) on short-term investments;                                 |                 
|Loss due to impairment of asset;                                          |                 
|Other income;                                                             |                 
|                                                                          |                  
|Total expenses;                                                           | 12,846,584       
|                                                                          |                  
|Income (loss) before income tax expense;                                  | 920,562          
|Income tax expense (benefit);                                             | 360,000          
|Net income (loss);                                                        | $     560,562    
|                                                                          |                  
|Basic net income (loss) per common share;                                 | $            0.07
|                                                                          |                  
|Diluted net income
      (loss) per common share                          | $           0.07 
|                                                                          |                  
|Shares used in computing basic
      net income (loss) per common share   | 7,970,000        
|                                                                          |                  
|Shares used in computing diluted
      net income (loss) per common share | 8,020,000        
|                                                                          |                  

_________________

(1) Consists of an impairment
  loss of $3,897,000 relating to the DECONAMINE® trademark.(2)
  Gives effect to $447,160 in interest and other expenses, net of tax effects,
  relating to our convertible notes.

|                                                 | As of December 31,
|------------------------------------------------ | ------------------
|Balance Sheet Data                               | 1999              
|Cash and cash equivalents                        | $     385,640     
|Short term investments                           |                  
|                                                 | 737,323           
|Total assets                                     | 21,047,645        
|Long term debt (excluding current
      portion) | 162,922           
|Stockholders equity                             | 13,882,070        



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

The following discussion of our
  financial condition and results of operations should be read in conjunction
  with our audited consolidated financial statements and related notes. The following
  discussion and analysis contains forward-looking statements regarding our future
  performance. All forward-looking information is inherently uncertain and actual
  results may differ materially from the assumptions, estimates or expectations
  reflected or contained in the forward-looking statements. See Forward-Looking
  Statements and Risk Factors.

Overview

We are a specialty pharmaceutical
  company that acquires, develops and markets prescription and over-the-counter
  products within the dermatologic, podiatric and gastrointestinal markets. We
  have experienced substantial growth in annual net sales and net income since
  2001 through increased sales of existing products and new product sales, recognizing
  net sales of $74.7 million for 2003, $39.7 million for 2002 and $25.7 million
  for 2001 and net income of $16.8 million for 2003, $7.6 million for 2002 and
  $3.6 million for 2001.

Our Carmol®40 product line
  accounted for approximately 49% of our net sales for 2003, 53% for 2002 and
  37% for 2001 and has faced increasing competition, particularly commencing in
  the latter half of 2003. To lessen our dependence on this product line, we have
  sought to grow our other product lines, both in terms of dollar volume and percentage
  of revenues.

We market and sell our products
  in the highly competitive pharmaceutical industry primarily through our full-time
  sales personnel and wholesalers. We seek to expand our market reach through
  promotion of our products in new geographic regions and for wider application
  in existing regions, and will continue expansion of our field sales force as
  product growth, geographic reach or product acquisitions warrant.

In 2003, we raised capital for
  acquisitions and general corporate purposes through the issuance of $37 million
  in aggregate principal amount of our 4% convertible senior subordinated notes
  due 2013 and the issuance of 4,600,000 shares of our common stock in a follow-on
  offering that yielded net proceeds to us, after underwriting discount and offering
  expenses, of approximately $96 million. A major challenge and opportunity facing
  Bradley is to utilize these funds in the best ways possible, likely in large
  part through the acquisition of one or more product lines or companies.

Results of Operations

Percentage of Net Revenues

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

|                                     | Year Ended
      December 31,
|------------------------------------ | -----------------------------
|                                     | 2001(1)                      
|Net sales                            | 100                          
|Gross profit                         | 83.8                         
|Operating expenses                   | 67.5                         
|Operating income                     | 16.3                         
|Interest expense (income),
      net | (0.3                         
|Income tax expense                   | 2.5                          
|                                     |                              
|Net income                           | 14.1                         
|                                     |                              

______________________

(1)
  Included in operating expenses is a loss on a short-term investment of $700,000.



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Year Ended December 31, 2003 Compared to Year Ended December
  31, 2002

Net sales for 2003 were
  $74,679,000, representing an increase of $35,010,278, or approximately 88%,
  from $39,668,973 for 2002.

For 2003, Doak Dermatologics
  net sales were $56,617,119, representing an increase of $26,936,337, or approximately
  91%, from $29,680,782 for 2002. The increase was a result of new product sales
  from ROSULA® AQUEOUS GEL of $3,621,851; ROSULA® AQUEOUS CLEANSER of
  $2,881,046; LIDAMANTLE® LOTION of $142,381; LIDAMANTLE®HC LOTION of
  $222,581 and CARMOL®HC 3oz. of $373,347. In addition, Doak benefited from
  same product sales growth from CARMOL®40 CREAM of $8,309,648, CARMOL®40
  LOTION of $3,007,504, CARMOL®40 GEL of $4,063,089, LIDAMANTLE® CREAM
  of $1,307,994 and LIDAMANTLE®HC CREAM of $1,877,373. The total net sales
  for CARMOL®40 CREAM, LOTION and GEL for 2003 were approximately $36,576,959.

For 2003, Kenwood Therapeutics
  net sales were $18,062,000, representing an increase of $8,073,941, or approximately
  81%, from $9,988,191 for 2002. The increase in net sales was led by new product
  sales of ANAMANTLE® HC of $3,870,307 and PAMINE® FORTE of $1,371,363
  and same product sales growth from DECONAMINE® of $1,516,666 and PAMINE®
  2.5mg of $624,199.

The overall increases in the sales
  of our products and in particular, CARMOL®40 products, LIDAMANTLE®
  CREAM, LIDAMANTLE® HC CREAM and PAMINE® 2.5mg, were primarily due
  to greater promotional efforts, including an increase in number of sales representatives
  detailing those products and the utilization of market research data to target
  receipt of product messages by physicians and customers who we believe will
  generate higher sales. The overall increases in DECONAMINE® were primarily
  due to our negotiation of more favorable managed care contracts. As of December
  31, 2003, we had approximately $4,300,000 of unshipped orders, which were subsequently
  shipped in the first quarter 2004 or cancelled by us. The orders were not shipped
  due to our concern over wholesaler purchases during the quarter exceeding actual
  prescription demand.

During the second quarter of 2003,
  a competitor launched a competing product to CARMOL®40 CREAM with the same
  active ingredient. During the fourth quarter 2003, generic competitors introduced
  less expensive comparable products to CARMOL®40 CREAM, CARMOL®40 LOTION
  and CARMOL®40 GEL also with the same active ingredient. These introductions
  of competing products may result in reduced demand for our CARMOL®40 products.
  If sales of the CARMOL®40 product line or any other material product line
  decreases and we fail to replace those sales, our revenues and profitability
  would decrease.

Cost of sales for 2003
  was $6,533,119, representing an increase of $1,964,658, or approximately 43%,
  from $4,568,461 for 2002. The gross profit percentage for 2003 was 91%, compared
  to 88% for 2002. The increase in the gross profit percentage reflects a change
  in our sales mix, with greater sales of existing prescription products, including
  CARMOL®40 products and the new prescription products launched in 2003.

Selling, general and administrative
  expenses for 2003 were $39,558,738, representing an increase of $17,668,506,
  or 81%, compared to $21,890,232 for 2002. The increase in selling, general and
  administrative expenses reflects increased spending on sales and marketing to
  implement our strategy of aggressively marketing our dermatology, podiatry and
  gastrointestinal brands, increases in legal expenses of approximately $1,131,000
  and increases in compensation expenses relating to our Economic Value Added
  bonus plan for approximately $1,673,000 compared to the same period in the prior
  year. The increases in legal expenses were primarily due to current litigation.

Selling, general and administrative
  expenses as a percentage of net sales were 53% for 2003, representing a decrease
  of 2% compared to 55% for 2002. The decrease in selling, general and administrative
  expenses as a percentage of net sales for 2003 are a result of net sales growing
  faster than selling, general and administrative expenses.



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Depreciation and amortization
  expenses for 2003 were $1,207,116, representing an increase of $67,585 from
  $1,139,531 for 2002.

Gain on investment for
  2003 was $312,285, compared with a loss on investment of $49,535 for 2002.

Interest income for 2003
  was $936,345, representing an increase of $499,439 from 2002. The increase was
  principally due to investment increases from cash generated from operations
  and the net proceeds from the closings of $25 million of our 4% senior subordinated
  convertible notes due 2013 in June 2003, an additional $12 million of these
  notes in July 2003 and 4,600,000 shares of our common stock in a follow-on offering
  in December 2003.

Interest expense for 2003
  was $1,048,192, representing an increase of $970,547 from 2002. The increase
  was principally due to interest expense related to our convertible notes.

Income tax expense for
  2003 was $10,756,000, representing an increase of $6,010,000 from $4,746,000
  for 2002. The effective tax rate used to calculate the income tax expense for
  2003 was approximately 39%. The effective tax rate used to calculate the income
  tax expense for 2002 was 38%.

Net income for 2003 was
  $16,824,716, representing an increase of $9,190,241, or 120%, from $7,634,475
  for 2002. Net income as a percentage of net sales for 2003 was 23%, representing
  an increase of 4% compared to 19% for 2002. The improvement for 2003 was principally
  due to the increase in net sales, gross profit margin, and interest income described
  above, partially offset by our increase in selling, general and administrative
  expenses and interest expense.

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

Net sales for 2002 were
  $39,668,973, representing an increase of $13,966,007, or approximately 54%,
  compared to $25,702,966 in 2001. The increase during 2002 primarily reflected
  an increase in net sales of Doak Dermatologics new product sales from CARMOL®40
  GEL of approximately $4,400,000, and same product sales growth from CARMOL®40
  CREAM of approximately $4,035,000, CARMOL®40 LOTION of approximately $3,358,000,
  other CARMOL® products of approximately $938,000, ACIDMANTLE®/LIDAMANTLE®
  line of products of approximately $1,318,000 and Kenwood Therapeutics
  respiratory products of $1,172,000. The increase during 2002 was partially offset
  by a decline in PAMINE® net sales by Kenwood Therapeutics of approximately
  $1,297,000.

The overall increases in respiratory
  products were primarily due to our negotiation of more favorable managed care
  contracts and the timing of wholesale purchases. The overall increases in sales
  of our dermatology products, particularly CARMOL®40 CREAM, CARMOL®40
  LOTION and ACIDMANTLE®/LIDAMANTLE® line of products, were primarily
  due to greater promotional attention and the utilization of market research
  data to ensure product messages are received by physicians and customers who
  we believe will generate higher net sales. Due to the offering of slight pricing
  discounts and extended payment terms to wholesalers and increased demand for
  our products, we shipped during December 2002 $2,653,000 in products to a major
  customer. The sales decline in PAMINE® was primarily due to the realignment
  of our sales force and the focusing of our promotional efforts towards greater
  growth opportunities in the area of dermatology.

Cost of sales for 2002
  was $4,568,461, representing an increase of $400,416, or approximately 10%,
  from $4,168,045 for 2001. The gross profit percentage for 2002 was 88%, compared
  to 84% during 2001. The increase in the gross profit percentage reflects a change
  in our sales mix, with greater sales of Doak Dermatologics prescription products
  that generate a higher gross profit percentage.

Selling, general and administrative
  expenses for 2002 were $21,890,232, representing an increase of $6,417,173,
  or approximately 41%, compared to $15,473,059 for 2001. The increase in selling,
  general and administrative expenses reflect increased investment in our sales
  and marketing areas, with resulting increases in promotional and advertising
  expenses in order to implement our strategy of marketing Doak Dermatologics
  products



| | 31 | 
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and the hiring of additional executive personnel in anticipation
  of continued revenue growth. Selling, general and administrative expenses as
  a percentage of net sales were 55% for 2002, a decrease of 5% compared to 60%
  in 2001.

Depreciation and amortization
  for 2002 was $1,139,531, representing a decrease of $29,953 from 2001.

Interest income, net for
  2002 was $359,261, representing an increase of $285,673 from 2001. The improvement
  was principally due to a decrease in borrowings under our revolving asset-based
  credit facility and an increase in interest income from short-term investments
  generated by investing excess cash flow from operations and proceeds from our
  October 30, 2001 private placement of common stock.

Losses on short-term investments
  for 2002 were $49,535, compared to $700,000 in 2001. During 2001, we recorded
  a $700,000 loss related to the impairment of an investment resulting from a
  bank failure.

Income tax expense for
  2002 was $4,746,000, compared to $654,000 in 2001. Our effective tax rate was
  38% in 2002, compared to 15% in 2001, due to the reduction of the valuation
  allowance against our deferred tax assets of $1,043,000 recorded in 2001.

Net income for 2002 was
  $7,634,475, representing an increase of $4,022,509, or approximately 111% compared
  to $3,611,966 for 2001.

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

Net income for Doak Dermatologics
  for 2002 was approximately $6,443,000, representing an increase of approximately
  $4,286,000, or approximately 199%, compared to approximately $2,157,000 for
  2001. The increase was principally due to an increase in net sales and gross
  profit percentage. The new product sales of CARMOL®40 GEL and same product
  sales growth of CARMOL®40 CREAM and ACIDMANTLE®/LIDAMANTLE® line
  of products primarily contributed to the increase in net sales and the gross
  profit percentage.

Liquidity and Capital Resources

Our cash and cash equivalents
  and short-term investments were $182,502,880 at December 31, 2003 and $26,008,816
  at December 31, 2002. Cash provided by operating activities for 2003 was $25,928,425.
  The sources of cash primarily resulted from net income of $16,824,716 plus non-cash
  charges for depreciation and amortization of $1,207,116; non-cash charges for
  amortization of deferred financing costs of $216,171; non-cash compensation
  for consulting services of $11,041; a bad debt expense of $23,640; tax benefit
  from exercise of non-qualified stock options and warrants of $1,242,177; a decrease
  in accounts receivable of $1,258,508 primarily due to an increase in cash collections;
  an increase in accounts payable of $2,589,099; an increase in accrued expenses
  of $3,941,157 resulting primarily from an increase in rebates; and an increase
  in income taxes payable of $1,020,866. The sources of cash were partially offset
  by an increase in deferred income taxes of $1,023,964; a gain on investment
  of $312,285 from sales of short-term investments; an increase in inventories
  of $227,963, primarily due to initial purchases of finished goods of our newly
  launched products; and an increase in prepaid expenses and other of $841,854.

Cash used in investing activities
  for 2003 was $33,052,924, resulting from net purchases of short-term investments
  of $32,629,664 and property and equipment of $423,260.

Cash provided by financing activities
  for 2003 was $130,791,982, which was principally the result of the gross proceeds
  from the sale of common stock in December 2003 of $103,132,000; the proceeds
  from the sale in June and July 2003 of our 4% convertible senior subordinated
  notes in the principal amount of $37,000,000, proceeds from exercise of stock
  options and warrants of $971,607 and distribution of treasury shares valued
  at $107,378 to fund our 401(k) plan, partially offset by payments of offering
  costs associated with the sale of our



| | 32 | 
| | -- | 



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common stock of $6,926,543; payments of deferred financing costs
  associated with the sale of our convertible notes of $2,709,041; payments of
  notes payable of $238,364 and purchases of treasury shares of $545,055.

We have a loan agreement with
  Wachovia Bank with respect to a $5 million revolving asset-based credit facility
  and a $10 million acquisition facility for future product acquisitions. Advances
  available under the revolving asset-based credit facility are calculated using
  a formula, which is based upon our eligible accounts receivable and inventory
  levels. As of December 31, 2003, we are eligible to borrow approximately $3,957,000
  under the $5 million revolving asset-based credit facility. Advances under the
  $10 million acquisition facility are subject to our finding a potential acquisition,
  satisfying financial covenants and, depending upon the size of the acquisition,
  Wachovias approval. This loan agreement has an initial term of two years,
  expiring on October 31, 2004. Interest accrues on amounts outstanding at a rate
  equal to LIBOR plus 1.85% and the commitment fee accrues on the unused portion
  of the asset-based credit facility and the acquisition facility at a rate equal
  to .05% per annum. Our obligations under this loan agreement are secured by
  our grant to Wachovia of a lien upon substantially all of our assets.

As of the date of this Form 10-K,
  we have not borrowed any funds from the revolving asset-based credit facility
  or the acquisition facility.

In June and July of 2003, we issued
  in two related private placements an aggregate of $37 million in aggregate principal
  amount of our 4% convertible senior subordinated notes due June 13, 2013. The
  notes bear interest at the rate of 4% per annum, payable semi-annually in arrears
  on June 15 and December 15 of each year, and are convertible into shares of
  our common stock at any time prior to maturity at a conversion price of $20.00
  per share. Beginning on June 15, 2008, we will have the right, at our option,
  to redeem all or a portion of the notes at a cash redemption price equal to
  100% of the principal amount of notes to be redeemed, plus any accrued and unpaid
  interest. On June 15, 2008, holders of the notes may require us to purchase
  all or a portion of their notes for cash at a purchase price equal to 100% of
  the principal amount of notes to be purchased, plus any accrued and unpaid interest.
  In addition, holders of the notes may require us to purchase all or a portion
  of their notes for cash upon either a change in control of our company or the
  termination of trading of our common stock, each as described in the indenture
  governing the notes.

The notes rank junior to all of
  our existing and future senior indebtedness and are subordinated to all existing
  and future liabilities of our subsidiaries, including trade payables. In connection
  with the issuance of the notes, we entered into two registration rights agreements
  under which we agreed to file and keep effective a shelf registration statement
  covering resales of the notes and the common stock issuable upon conversion
  of the notes. If we fail to comply with certain of our obligations under the
  registration rights agreements, additional interest will accrue on the notes
  at an annual rate of up to one percent.

During 2003, we had expensed $821,321
  of interest relating to the notes. Additionally, we paid $2,709,041 of financing
  fees relating to these notes, which are included as deferred financing fees
  on our balance sheet, and are being amortized over a ten year period, which
  is the life of the notes.

During 2003, we completed an offering
  of 4,600,000 shares of common stock at a price of $22.42 per share. The Company
  received net proceeds of $96,159,457 from the offering after deducting offering
  expenses. We expect to use the proceeds from the offering for acquisitions and
  general corporate purposes.

As of December 31, 2003, we had
  the following contractual obligations and commitments:

|Year ending 
      December 31, | Operating
      Leases | Capital
      Leases(a) | Convertible
      Notes due
      2013(b) | Other Debt | Minimum
      Inventory 
      Purchases(c)
|------------------------------- | ---------------------- | ----------------------- | ----------------------------------------- | ---------- | -------------------------------------------
|                                |                        |                         |                                           |            |                                            
|2004                            | $     575,680          |                         | $  36,073                                 |            | $             -0-                          
|2005                            | 574,424                |                         | 30,209                                    |            | -0-                                        
|2006                            | 585,924                |                         | 22,748                                    |            | -0-                                        
|2007                            | 462,874                |                         | -0-                                       |            | -0-                                        
|2008                            | 40,979                 |                         | -0-                                       |            | -0-                                        
|Thereafter                      | -0-                    |                         | -0-                                       |            | 37,000,000                                 
|                                |                        |                         |                                           |            |                                            
|                                | $  2,239,881           |                         | $  89,030                                 |            | $37,000,000                                
|                                |                        |                         |                                           |            |                                            



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______________________

|(a) |  | Lease amounts include interest
      and minimum lease payments.                                                                                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                       
|(b) |  | On June 15, 2008, holders of the
      notes may require us to purchase all or a portion of their notes for cash
      at a purchase price equal to 100% of the principal amount of notes to be
      purchased, plus any accrued and unpaid interest.
|    |  |                                                                                                                                                                                                                                                       
|(c) |  | For more information on minimum
      inventory purchases, see co-promotion agreement in Note J.6
      of the notes to our consolidated financial statements included elsewhere
      in this Form 10-K.                                           

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

Critical Accounting Policies

In preparing financial statements
  in conformity with accounting principles generally accepted in the U.S., we
  are required to make estimates and assumptions that affect the reported amounts
  of assets and liabilities and the disclosure of contingent assets and liabilities
  at the date of the financial statements and revenues and expenses for the relevant
  reporting period. Actual results could differ from those estimates. We believe
  that the following critical accounting policies affect our more significant
  estimates used in the preparation of financial statements. Management has discussed
  the development and selection of the critical accounting estimates discussed
  below with our audit committee, and our audit committee has reviewed our disclosures
  relating to these estimates.

Revenue recognition. Revenue
  from product sales, net of estimated provisions, is recognized when the merchandise
  is shipped to an unrelated third party, as provided in Staff Accounting: Bulletin
  No. 104, Revenue Recognition in Financial Statements. Accordingly,
  revenue is recognized when all four of the following criteria are met:

| |  | persuasive evidence that an arrangement
      exists;      
|- |  | -----------------------------------------------------------
|  |  |                                                            
| |  | delivery of the products has occurred;                     
|  |  |                                                            
| |  | the selling price is both fixed
      and determinable; and
|  |  |                                                            
| |  | collectibility is reasonably probable.                     

Our customers consist primarily
  of large pharmaceutical wholesalers who sell directly into the retail channel.
  Provisions for sales discounts, and estimates for chargebacks, rebates, damaged
  product returns and exchanges for expired products, are established as a reduction
  of product sales revenues at the time revenues are recognized, based on historical
  experience adjusted to reflect known changes in the factors that impact these
  reserves. These revenue reductions are generally reflected either as a direct
  reduction to accounts receivable through an allowance, or as an addition to
  accrued expenses if the payment is due to a party other than the wholesale or
  retail customer.

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

Chargebacks and rebates
  are based on the difference between the prices at which we sell our products
  to wholesalers and the sales price ultimately paid under fixed price contracts
  by third party payers, who are often governmental agencies and managed care
  buying groups. We record an estimate of the amount either to be charged



| | 34 | 
| | -- | 



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back to us, or rebated to the end user, at the time of sale
  to the wholesaler. We have recorded reserves for chargebacks, returns and rebates
  based upon various factors, including current contract prices, historical trends
  and our future expectations. The amount of actual chargebacks, returns and rebates
  claimed could be either higher or lower than the amounts we accrued. Changes
  in our estimates would be recorded in the income statement in the period of
  the change.

Product returns. In the
  pharmaceutical industry, customers are normally granted the right to return
  product for a refund if the product has not been used prior to its expiration
  date, which is typically two to three years from the date of manufacture. Our
  return policy typically allows product returns for products within an eighteen-month
  window from six months prior to the expiration date and up to twelve months
  after the expiration date. Our return policy conforms to industry standard practices.
  We believe that we have sufficient data to estimate future returns over the
  revised time period at the time of sale. Management is required to estimate
  the level of sales, which will ultimately be returned pursuant to our return
  policy, and record a related reserve at the time of sale. These amounts are
  deducted from our gross sales to determine our net revenues. Our estimates take
  into consideration historical returns of a given product, product specific information
  provided by our customers and information obtained regarding the levels of inventory
  being held by our customers, as well as overall purchasing patterns by our customers.
  Management periodically reviews the reserves established for returns and adjusts
  them based on actual experience. If we over or under estimate the level of sales,
  which will ultimately be returned, there may be a material impact to our financial
  statements.

Intangible assets. We have
  made acquisitions of products and businesses that include goodwill, license
  agreements, product rights and other identifiable intangible assets. We assess
  the impairment of identifiable intangibles, including goodwill prior to January
  1, 2002, when events or changes in circumstances indicate that the carrying
  value may not be recoverable. Some factors we consider important which could
  trigger an impairment review include:

| |  | significant underperformance compared to expected
      historical or projected future operating results;
|- |  | ---------------------------------------------------------------------------------------------------------
| |  | significant changes in our use of the acquired
      assets or the strategy for our overall business; and
| |  | significant negative industry or economic
      trends.                                                  

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

As of January 1, 2002, we adopted
  Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
  and Other Intangible Assets, which eliminated the amortization of purchased
  goodwill. Adoption of this standard did not have a material effect on our financial
  statements. Upon adoption of SFAS No. 142, we performed an impairment test of
  our goodwill, which amounted to $289,328 at January 1, 2002, and determined
  that no impairment of the recorded goodwill existed. The fair value of our Doak
  Dermatologics subsidiary that we acquired in January 1995 was calculated on
  the basis of discounted estimated future cash flows and compared to the related
  book value. Under SFAS No. 142, goodwill will be tested, for impairment at least
  annually, and more frequently if an event occurs that indicates the goodwill
  may be impaired. We performed the test at December 31, 2002, and noted that
  no impairment existed.

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

Deferred income taxes are
  provided for the future tax consequences attributable to the differences between
  the carrying amounts of assets and liabilities and then respective tax base.
  Deferred tax assets are reduced by a valuation allowance when, in our opinion,
  it is more likely than not that some portion of the deferred tax assets will
  not be realized. As of December 31, 2003 and 2002, we determined that no deferred
  tax asset valuation allowance



| | 35 | 
| | -- | 



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was necessary, and we eliminated our previously established
  valuation allowance. We believe that our projections of future taxable income
  makes it more likely than not that these deferred tax assets will be realized.
  If our projections of future taxable income changes in the future, we may be
  required to reduce deferred tax assets by a valuation allowance.

Impact of Inflation

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

Seasonality

Sales of our respiratory products
  are primarily concentrated in the fall and winter months. Consequently, revenues
  from these products generally are, and will be, determined by the severity of
  the cough/cold/flu season. We expect the impact of seasonality to decrease as
  we acquire or obtain licenses for products that treat chronic conditions. However,
  we anticipate that seasonality may continue to affect sales for the foreseeable
  future.

Recent Accounting Pronouncements

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

In December 2003, FASB issued
  FASB Interpretation 46(R) (FIN 46(R)), Consolidation of Variable Interest
  Entities. FIN 46(R) clarifies the application of Accounting Research Bulletin
  51, Consolidated Financial Statements, for some types of entities
  that do not have sufficient equity at risk for the entity to finance its activities
  without additional subordinated financial support from other parties, or in
  which equity investors do not have the characteristics of a controlling financial
  interest (variable interest entities). Variable interest entities
  within the scope of FIN 46(R) will be required to be consolidated by their primary
  beneficiary. The primary beneficiary of a variable interest entity is determined
  to be the party that absorbs: a majority of the entitys expected losses,
  receives a majority of its expected returns, or both. FIN 46(R) applies immediately
  to variable interest entities created after January 31, 2003, and to variable
  interest entities in which an enterprise obtains an interest after that date.
  It applies to us in the first fiscal year or interim period ending after December
  15, 2003, to variable interest entities in which an enterprise holds a variable
  interest that it acquired before February 1, 2003. The Company adopted FIN 46(R)
  in December 2003. The adoption of FIN 46(R) did not have a material effect on
  our financial position or results of operations.

In November 2002, the EITF reached
  a consensus opinion on EITF 00-21, Revenue Arrangements with Multiple
  Deliverables (EITF 00-21"). The consensus provides that revenue
  arrangements with multiple deliverables should be divided into separate units
  of accounting if specified criteria are met. The consideration for the arrangement
  should be allocated to the separate units of accounting based on their relative
  fair values, with different provisions if the fair value of all deliverables
  are not known or if the fair value is contingent on delivery of specified items
  or performance conditions. Applicable revenue recognition criteria should be
  considered separately for each separate unit of accounting. EITF 00-21 is effective
  for revenue arrangements entered into in fiscal periods beginning after June
  15, 2003. Adoption of EITF 00-21 did not have a material effect on our financial
  condition or results of operations.

In April 2003, the FASB issued
  SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
  Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative
  instruments, including certain derivative instruments embedded in other contracts,
  and for hedging activities under SFAS 133. In particular, this



| | 36 | 
| | -- | 



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Statement clarifies under what circumstances a contract with
  an initial net investment meets the characteristic of a derivative and when
  a derivative contains a financing component that warrants special reporting
  in the statement of cash flows. This statement is effective for contracts entered
  into or modified after June 30, 2003 and its adoption did not have a material
  impact on our financial condition or results of operations.

In May 2003, the FASB issued SFAS
  150, Accounting for Certain Financial Instruments with Characteristics
  of both Liabilities and Equity. SFAS 150 requires issuers to classify
  as liabilities, or assets in some circumstances, three classes of freestanding
  financial instruments that embody obligations for the issuer. Generally, the
  statement is effective for financial instruments entered into or modified after
  May 31, 2003 and is otherwise effective at the beginning of the first interim
  period beginning after June 15, 2003. We do not have any financial instruments
  within the scope of SFAS 150 as of December 31, 2003, and, therefore, SFAS 150
  did not have a material impact on our consolidated financial statements.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
  RISK

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

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

As of December
  31, 2003, we had the following outstanding debt with fixed rate interest and
  no outstanding debt with variable interest rates:

|Period      | Debt (a)   |  | Average Fixed
      Rate Interest
|----------- | ---------- |  | ---------------------------------
|            |            |  |                                  
|Fiscal 2004 | 91,677     |  | 6.6%                             
|Fiscal 2005 | 27,733     |  | 6.70%                            
|Fiscal 2006 | 22,098     |  | 6.73%                            
|Fiscal 2007 |           |  | N/A                              
|Fiscal 2008 |           |  | N/A                              
|Thereafter  | 37,000,000 |  | 4.00%                            

______________________

|(a) |  | Debt amounts include all interest
      except for convertible notes and minimum debt payments.
|--- |  | -----------------------------------------------------------------------------------------------

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

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements and related
  financial statement schedule at December 31, 2003 and 2002, and for each of
  the three years ended December 31st and the Independent Auditors Report
  thereon, are contained on pages F-1 through F-38 of this report on Form 10-K.



| | 37 | 
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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
  ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

We maintain a set of disclosure
  controls and procedures that are designed to ensure that information required
  to be disclosed in the reports that we file under the Securities Exchange Act
  of 1934, as amended (Exchange Act), is recorded, processed, summarized and
  reported within the time periods specified in the SECs rules and forms. We
  carried out an evaluation under the supervision and with the participation of
  management, including our President and Chief Executive Officer and our Chief
  Financial Officer, of the effectiveness of the design and operation of Bradleys
  disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange
  Act as of the end of the period covered by this report. Our President and Chief
  Executive Officer and Chief Financial Officer concluded that our disclosure
  controls and procedures provide reasonable assurance as of the end of the period
  for which the report is being filed that (i) information required to be disclosed
  in our reports under the Exchange Act is recorded, processed, summarized and
  reported within the time periods specified in the SECs rules and forms and
  (ii) such information is accumulated and communicated to our management, including
  our President and Chief Executive Officer and our Chief Financial Officer, as
  appropriate, to allow timely decisions regarding required disclosure.

We are committed to a continuing
  process of identifying, evaluating and implementing improvements to the effectiveness
  of our disclosure and internal controls and procedures. Our management, including
  our President and Chief Executive Officer and Chief Financial Officer, does
  not expect that our controls and procedures will prevent all errors. Because
  of the inherent limitations in all control systems, no evaluation of controls
  can provide absolute assurance that all control issues within Bradley have been
  or will be detected.

There has not been any change
  in our internal controls over financial reporting that occurred during our fourth
  fiscal quarter that has materially affected, or is reasonably likely to materially
  affect, our internal controls over financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

This information is incorporated
  by reference from our Proxy Statement for the 2004 Annual Meeting of Stockholders
  or in a subsequent amendment to this Report. Information regarding compliance
  by our directors and executive officers and owners of more than 10% of Bradleys
  common stock with the reporting requirements of Section 16(a) of the Securities
  Exchange Act of 1934, as amended, will be set forth in and incorporated by reference
  from our Proxy Statement for the 2004 Annual Meeting of Stockholders under the
  heading Section 16(a) Beneficial Ownership Reporting Compliance or in a subsequent
  amendment to this Report.

ITEM 11. EXECUTIVE COMPENSATION

This information is incorporated
  by reference from our Proxy Statement for the 2004 Annual Meeting of Stockholders
  under the heading Executive Compensation or in a subsequent amendment to this
  Report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

This information is incorporated
  by reference from our Proxy Statement for the 2004 Annual Meeting of Stockholders
  under the heading Security Ownership of Certain Beneficial Owners and Management
  or in a subsequent amendment to this Report.



| | 38 | 
| | -- | 



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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

This information is incorporated
  by reference from our Proxy Statement for the 2004 Annual Meeting of Stockholders
  under the heading Certain Relationships and Related Transactions or in a subsequent
  amendment to this Report.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

This information is incorporated
  by reference from our Proxy Statement for the 2004 Annual Meeting of Stockholders
  under the heading Independent Accountant Matters or in a subsequent amendment
  to this Report.

PART IV

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

|(a) |  | Financial Statements
      See F-Pages hereof.
|--- |  | ----------------------------------------------



|(b) |  | Financial Statement Schedules
      See Schedule II at page S-1.
|--- |  | ----------------------------------------------------------------



|(c) |  | Reports on Form 8-K
      Form 8-K filed on October 31, 2003, reporting the Companys
        Third Quarter 2003 financial results.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------



|(d) |  | Exhibits
|--- |  | --------



|Exhibit
      Number |  | Description
      of Documents                                                                                                                                                                                                                                                            
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1                  |  | Certificate of Incorporation of the Company, as amended
      (incorporated herein by reference from the Companys Proxy Statement
      for the 1998 Annual Meeting)                                                                                                                     
|                     |  |                                                                                                                                                                                                                                                                                           
|3.2                  |  | By-laws of the Company, as amended (incorporated herein
      by reference from the Companys Proxy Statement for the 1998 Annual
      Meeting)                                                                                                                                          
|                     |  |                                                                                                                                                                                                                                                                                           
|4.1                  |  | Bradley Pharmaceuticals, Inc. 401(k) Savings Plan (incorporated
      herein by reference to Exhibit 4.1 to the Companys Form S-8 filed
      on February 3, 2004)                                                                                                                       
|                     |  |                                                                                                                                                                                                                                                                                           
|4.2                  |  | Indenture, dated as of June 11, 2003, between the Company
      and American Stock Transfer and Trust Company, as Trustee (incorporated
      herein by reference to Exhibit 4.1 of the Companys Quarterly Report
      on Form 10-Q for the period ended June 30, 2003)                 
|                     |  |                                                                                                                                                                                                                                                                                           
|4.3                  |  | First Supplemental Indenture, dated as of July 24, 2003,
      between the Company and American Stock Transfer and Trust Company, as Trustee
      (incorporated herein by reference to Exhibit 4.1.1 of Companys Quarterly
      Report on Form 10-Q for the period ended June 30, 2003)
|                     |  |                                                                                                                                                                                                                                                                                           
|4.4                  |  | Form of 4% Convertible Senior Subordinated Note due 2013
      (incorporated herein by reference to Exhibit 4.2 of the Companys Quarterly
      Report on Form 10-Q for the period ended June 30, 2003)                                                                                  



| | 39 | 
| | -- | 



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|4.5  |  | Registration Rights Agreement, dated as of
      June 11, 2003, among the Company, UBS Securities LLC and Raymond James &
      Associates, Inc. (incorporated herein by reference to Exhibit 4.3 of the
      Companys Quarterly Report on Form 10-Q for the period ended June 30,
      2003)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                                                                                                                                 
|4.6  |  | Registration Rights Agreement dated as of July
      24, 2003 among the Company, UBS Securities LLC and Raymond James & Associates,
      Inc. (incorporated herein by reference to Exhibit 4.4 of the Companys
      Quarterly Report on Form 10-Q for the period ended June 30, 2003)        
|     |  |                                                                                                                                                                                                                                                                                                 
|10.1 |  | 1990 Stock Option Plan, as amended (incorporated
      herein by reference to Exhibit 10.1 to the Companys Annual Report
      on Form 10-KSB for the year ended December 31, 1996)*                                                                                                           
|     |  |                                                                                                                                                                                                                                                                                                 
|10.2 |  | Loan and Security Agreement with Wachovia Bank
      dated November 20, 2002 (incorporated herein by reference to Exhibit 10.28
      to the Companys Form 8-K filed on December 12, 2002)                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                 
|10.3 |  | 1999 Incentive and Non-Qualified Stock Option
      Plan, as amended (incorporated herein by reference from the Companys
      Proxy Statement for the 1998 Annual Meeting)*                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                                                 
|21   |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                 
|23.1 |  | Consent of Grant Thornton, LLP                                                                                                                                                                                                                                                                  
|     |  |                                                                                                                                                                                                                                                                                                 
|24.1 |  | Power of Attorney (included on the signature
      page to this report)                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                 
|31.1 |  | Rule 13a-14(a) Certification of Chief Executive
      Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                 
|31.2 |  | Rule 13a-14(a) Certification of Chief Financial
      Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                 
|32.1 |  | Certification pursuant to 18 U.S.C. Section
      1350 by the Chief Executive Officer, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                 
|32.2 |  | Certification pursuant to 18 U.S.C. Section
      1350 by the Chief Financial Officer, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002                                                                                                                               

|
|

|* |  | Management contracts or compensatory plans
      or arrangements.
|- |  | -----------------------------------------------------------------

SIGNATURES

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

|March 12, 2004 | BRADLEY PHARMACEUTICALS, INC.
|-------------- | -----------------------------
|               |                              
|               | By:                          



| | 40 | 
| | -- | 



---





POWER OF ATTORNEY

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

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

|DATE           | SIGNATURE              | TITLE                                                                               
|-------------- | ---------------------- | ------------------------------------------------------------------------------------
|               |                        |                                                                                     
|March 12, 2004 | /s/ Daniel Glassman    | Chairman of the Board                                                               
|               | (Daniel Glassman)      | President and Chief 
        Executive Officer
        (Principal Executive Officer)
|               |                        |                                                                                     
|March 12, 2004 | /s/ R. Brent Lenczycki | Vice President and                                                                  
|               | (R. Brent Lenczycki)   | Chief Financial Officer 
        (Principal and Accounting Officer)                 
|               |                        |                                                                                     
|March 12, 2004 | /s/ Michael Bernstein  | Chairman of the Audit Committee,                                                    
|               | (Michael Bernstein)    | Chairman of the Compensation Committee                                              
|               |                        |                                                                                     
|March 12, 2004 | /s/ C. Ralph Daniel    | Director                                                                            
|               | (Dr. C. Ralph Daniel)  |                                                                                     
|               |                        |                                                                                     
|March 12, 2004 | /s/ Andre Fedida       | Director                                                                            
|               | (Dr. Andre Fedida)     |                                                                                     
|               |                        |                                                                                     
|March 12, 2004 | /s/ Iris Glassman      | Treasurer and Director                                                              
|               | (Iris Glassman)        |                                                                                     
|               |                        |                                                                                     
|March 12, 2004 | /s/ Steven Kriegsman   | Director                                                                            
|               | (Steven Kriegsman)     |                                                                                     
|               |                        |                                                                                     
|March 12, 2004 | /s/ Alan Wolin         | Secretary and Director                                                              
|               | (Dr. Alan Wolin)       |                                                                                     



| | 41 | 
| | -- | 



---

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, 2003 and 2002 | F-3       
|                                                     |                                                                 |           
|                                                     |                                                                 |           
|                                                     | Consolidated Statements of Operations
      for the             |           
|                                                     | Years Ended December 31, 2003,
      2002 and 2001              | F-5       
|                                                     |                                                                 |           
|                                                     |                                                                 |           
|                                                     | Consolidated Statement of Shareholders
      Equity for the    |           
|                                                     | Years Ended December 31, 2003,
      2002 and 2001              | F-6       
|                                                     |                                                                 |           
|                                                     |                                                                 |           
|                                                     | Consolidated Statements of Cash
      Flows for the             |           
|                                                     | Years Ended December 31, 2003,
      2002 and 2001              | F-6       
|                                                     |                                                                 |           
|                                                     |                                                                 |           
|                                                     | Notes to Consolidated Financial
      Statements                | F-8 - F-38



| | 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, 2003 and
  2002, and the related consolidated statements of operations, shareholders
  equity and cash flows for each of the three years in the period ended December
  31, 2003. 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, 2003 and 2002, and
  the consolidated results of their operations, and their consolidated shareholders
  equity and their consolidated cash flows for each of the three years in the
  period ended December 31, 2003, in conformity with accounting principles generally
  accepted in the United States of America.



We have also audited Schedule II for each of the three years
  in the period ended December 31, 2003. In our opinion, this schedule, when considered
  in relation to the basic financial statements taken as a whole, presents fairly,
  in all material respects, the information therein.



GRANT THORNTON LLP



New York, New York
  February 24, 2004



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



---





|Bradley Pharmaceuticals, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETS
|-------------------------------------------------------------------------

|                                  |                                               |                            | December 31,
|--------------------------------- | --------------------------------------------- | -------------------------- | ------------
|ASSETS                            | 2003                                          |                            | 2002        
|                                  |                                               |                            |             
|CURRENT
      ASSETS              |                                               |                            |             
|                                  | Cash and
      cash equivalents               | $144,488,208               |             
|                                  | Short-term
      investments                  | 38,014,672                 |             
|                                  | Accounts
      receivable - net of allowances | 2,610,715                  |             
|                                  | Inventories                                   | 2,393,690                  |             
|                                  | Deferred
      tax asset                      | 2,676,208                  |             
|                                  | Prepaid
      expenses and other              | 1,640,188                  |             
|                                  | Prepaid
      income taxes                    | -                          |             
|                                  |                                               |                            |             
|                                  |                                               | Total
      current assets | 191,823,681 
|                                  |                                               |                            |             
|PROPERTY
      AND EQUIPMENT, NET | 952,436                                       |                            | 915,681     
|                                  |                                               |                            |             
|INTANGIBLE
      ASSETS, NET      | 5,238,532                                     |                            | 6,059,143   
|                                  |                                               |                            |             
|GOODWILL                          | 289,328                                       |                            | 289,328     
|                                  |                                               |                            |             
|DEFERRED
      TAX ASSET          | 2,474,990                                     |                            | 2,787,479   
|                                  |                                               |                            |             
|DEFERRED
      FINANCING COSTS    | 2,620,161                                     |                            | 127,291     
|                                  |                                               |                            |             
|OTHER ASSETS                      | 13,555                                        |                            | 7,326       
|                                  |                                               |                            |             
|                                  |                                               |                            | $203,412,683
|                                  |                                               |                            |             

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







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



---





|Bradley Pharmaceuticals, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETS
|-------------------------------------------------------------------------

|LIABILITIES AND SHAREHOLDERS'
      EQUITY              | December 31,                                                             
|------------------------------------------------------- | -------------------------------------------------------------------------
|                                                        |                                                                          
|                                                        |                                                                          
|CURRENT LIABILITIES                                     |                                                                          
|                                                        | Current maturities of
      long-term debt                               
|                                                        | Accounts payable                                                         
|                                                        | Accrued expenses                                                         
|                                                        | Income taxes payable                                                     
|                                                        |                                                                          
|                                                        |                                                                          
|                                                        |                                                                          
|LONG-TERM LIABILITIES                                   |                                                                          
|Long-term debt, less
      current maturities           | 49,831                                                                   
|4% convertible senior
      subordinated notes due 2013 | 37,000,000                                                               
|                                                        |                                                                          
|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
      15,752,287 shares at December 31, 2003,  
|                                                        | 10,836,018 shares at
      December 31, 2002                             
|                                                        | Common stock, Class
      B, $.01 par value, authorized,                 
|                                                        | 900,000 shares; issued
      429,752 shares at December 31, 2003 and 2002
|                                                        | Additional paid-in capital                                               
|                                                        | Accumulated other comprehensive
      gain (loss)                        
|                                                        | Retained earnings                                                        
|                                                        | Treasury stock - common
      stock - at cost                            
|                                                        |                                                                          
|                                                        |                                                                          
|                                                        |                                                                          
|                                                        |                                                                          
|                                                        |                                                                          
|                                                        |                                                                          

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



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



---





|Bradley Pharmaceuticals, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONS
|-----------------------------------------------------------------------------------

|                                                   |                    | Years ended December 31,
|-------------------------------------------------- | ------------------ | ------------------------
|                                                   |                    | 2003                    
|                                                   |                    |                         
|                                                   |                    |                         
|Net sales                                          |                    | $74,679,251             
|                                                   |                    |                         
|Cost of sales                                      | 6,533,119          |                         
|                                                   |                    |                         
|                                                   |                    | 68,146,132              
|                                                   |                    |                         
|                                                   |                    |                         
|Selling, general and
      administrative expenses | 39,558,738         |                         
|Depreciation and amortization                      | 1,207,116          |                         
|Interest expense                                   | 1,048,192          |                         
|Interest income                                    | (936,345)          |                         
|Losses (gains) on short-term
      investments     | (312,285)          |                         
|                                                   |                    |                         
|                                                   |                    | 40,565,416              
|                                                   |                    |                         
|                                                   | Income before      |                         
|                                                   | income tax expense | 27,580,716              
|                                                   |                    |                         
|Income tax expense                                 | 10,756,000         |                         
|                                                   |                    |                         
|                                                   | NET INCOME         | $16,824,716             
|                                                   |                    |                         
|                                                   |                    |                         
|Net income per common
      share                  |                    |                         
|                                                   | Basic              | $           1.55        
|                                                   |                    |                         
|                                                   | Diluted            | $           1.35        
|                                                   |                    |                         
|                                                   |                    |                         
|Weighted average number                            |                    |                         
|                                                   | of common shares   |                         
|                                                   | Basic              | 10,820,000              
|                                                   |                    |                         
|                                                   | Diluted            | 12,840,000              
|                                                   |                    |                         

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

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



---





|Bradley Pharmaceuticals, Inc. and SubsidiariesCONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
|-------------------------------------------------------------------------------------------

|                                                          | Common stock, 
      $.01 par value |  | Class B 
      common stock, 
      $.01 par value |  | Additional 
      paid 
      in capital |  | Accumulated 
      other 
      comprehensive 
      gain (loss) |  | Retained 
      earnings 
      (accumulated 
      deficit) |  | Treasury 
      stock |        |             
|--------------------------------------------------------- | ----------------------------------- |  | -------------------------------------------------- |  | ---------------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------------------------------ |  | --------------------- | ------ | ------------
|                                                          | Shares                              |  | Amount                                             |  | Shares                                   |  | Amount                                                           |  |                                                              |  |                       | Shares |             
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Balance at December
      31, 2000                        | 8,206,627                           |  | $  82,066                                          |  | 431,552                                  |  | $4,316                                                           |  | $  15,537,697                                                |  | $       -             |        | $(2,677,379)
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Stock options/ warrants
      exercised                   | 972,820                             |  | 9,729                                              |  |                                          |  |                                                                  |  | 3,522,298                                                    |  |                       |        |             
|Shares issued for
      consulting services               | 475                                 |  | 5                                                  |  |                                          |  |                                                                  |  | 2,974                                                        |  |                       |        |             
|Warrants and options
      issued for consulting services |                                     |  |                                                    |  |                                          |  |                                                                  |  | 332,185                                                      |  |                       |        |             
|Private placement                                         | 1,520,017                           |  | 15,200                                             |  |                                          |  |                                                                  |  | 10,846,629                                                   |  |                       |        |             
|Warrants issued for
      proceeds                        |                                     |  |                                                    |  |                                          |  |                                                                  |  | 150,000                                                      |  |                       |        |             
|Stock conversion                                          | 1,800                               |  | 18                                                 |  | (1,800)                                  |  | (18)                                                             |  | -                                                            |  |                       |        |             
|Purchase of treasury
      stock                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Distribution of treasury
      stock                      |                                     |  |                                                    |  |                                          |  |                                                                  |  | 8,989                                                        |  |                       |        |             
|Other compehensive
      income/ (loss):                  |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Net
      income                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        | 3,611,966   
|Net unrealized losses
      on available-for-sale         |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|securities                                                |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  | (39,293)              |        |             
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Total comprehensive
      income                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Balance at December
      31, 2001                        | 10,701,739                          |  | $107,018                                           |  | 429,752                                  |  | $4,298                                                           |  | $  30,400,772                                                |  | $(39,293)             |        | $934,587    
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Stock options/ warrants
      exercised                   | 133,599                             |  | 1,335                                              |  |                                          |  |                                                                  |  | 679,459                                                      |  |                       |        |             
|Shares issued for
      consulting services               | 680                                 |  | 7                                                  |  |                                          |  |                                                                  |  | 9,029                                                        |  |                       |        |             
|Options issued for
      consulting services              |                                     |  |                                                    |  |                                          |  |                                                                  |  | 104,649                                                      |  |                       |        |             
|Registration cost                                         |                                     |  |                                                    |  |                                          |  |                                                                  |  | (110,057)                                                    |  |                       |        |             
|Purchase of treasury
      stock                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Distribution of treasury
      stock                      |                                     |  |                                                    |  |                                          |  |                                                                  |  | 69,744                                                       |  |                       |        |             
|Other compehensive
      income/ (loss):                  |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Net
      income                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        | 7,634,475   
|Net
      unrealized gains on available-for-sale          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|securities                                                |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  | 137,616               |        |             
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Total comprehensive
      income                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Balance at December
      31, 2002                        | 10,836,018                          |  | $108,360                                           |  | 429,752                                  |  | $4,298                                                           |  | $  31,153,596                                                |  | $98,323               |        | $8,569,062  
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Stock options/ warrants
      exercised                   | 316,269                             |  | 3,163                                              |  |                                          |  |                                                                  |  | 2,210,621                                                    |  |                       |        |             
|Shares issued for
      follow-on offering                | 4,600,000                           |  | 46,000                                             |  |                                          |  |                                                                  |  | 96,159,457                                                   |  |                       |        |             
|Shares issued for
      consulting services               | -                                   |  | -                                                  |  |                                          |  |                                                                  |  | -                                                            |  |                       |        |             
|Options issued for
      consulting services              |                                     |  |                                                    |  |                                          |  |                                                                  |  | 11,041                                                       |  |                       |        |             
|Purchase of treasury
      stock                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Distribution of treasury
      stock                      |                                     |  |                                                    |  |                                          |  |                                                                  |  | 92,198                                                       |  |                       |        |             
|Other compehensive
      income/ (loss):                  |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Net
      income                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        | 16,824,716  
|Net
      unrealized loss on available-for-sale           |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|securities                                                |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  | (115,368)             |        |             
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Total comprehensive
      income                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             
|Balance at December
      31, 2003                        | 15,752,287                          |  | $157,523                                           |  | 429,752                                  |  | $4,298                                                           |  | $129,626,913                                                 |  | $(17,045)             |        | $25,393,778 
|                                                          |                                     |  |                                                    |  |                                          |  |                                                                  |  |                                                              |  |                       |        |             

|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,
|--------------------------------------------------------- | -------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------
|                                                          |                                                                      |                                                            | 2003                    
|                                                          |                                                                      |                                                            |                         
|                                                          |                                                                      |                                                            |                         
|Cash flows from operating
      activities                |                                                                      |                                                            |                         
|                                                          | Net income                                                           | $  16,824,716                                              |                         
|                                                          | Adjustments to reconcile
      net income to net cash                |                                                            |                         
|                                                          |                                                                      | provided by operating
      activities:                    |                         
|                                                          |                                                                      | Depreciation and amortization                              | 1,207,116               
|                                                          |                                                                      | Amortization of deferred
      financing costs             | 216,171                 
|                                                          |                                                                      | Deferred income taxes                                      | (1,023,964)             
|                                                          |                                                                      | Allowance for doubtful
      accounts                      | 23,640                  
|                                                          |                                                                      | Inventory provision                                        | -                       
|                                                          |                                                                      | Losses (Gains) on
      short-term investments             | (312,285)               
|                                                          |                                                                      | Noncash compensation
      for consulting services         | 11,041                  
|                                                          |                                                                      | Tax benefit due to
      exercise of non-qualified options |                         
|                                                          |                                                                      | and warrants                                               | 1,242,177               
|                                                          |                                                                      | Changes in operating
      assets and liabilities:         |                         
|                                                          |                                                                      | Accounts
      receivable                                  | 1,258,508               
|                                                          |                                                                      | Inventories                                                | (227,963)               
|                                                          |                                                                      | Prepaid
      expenses and other                           | (841,854)               
|                                                          |                                                                      | Accounts
      payable                                     | 2,589,099               
|                                                          |                                                                      | Accrued
      expenses                                     | 3,941,157               
|                                                          |                                                                      | Income
      taxes payable                                 | 1,020,866               
|                                                          |                                                                      |                                                            |                         
|Net cash provided by
      operating activities           | 25,928,425                                                           |                                                            | 9,588,835               
|                                                          |                                                                      |                                                            |                         
|Cash flows from investing
      activities:               |                                                                      |                                                            |                         
|                                                          | Investments in trademarks,
      patents and other                   |                                                            |                         
|                                                          | intangible assets                                                    | -                                                          |                         
|                                                          | Proceeds (purchases)
      from short-term investments- net          | (32,629,664)                                               |                         
|                                                          | Purchase of property
      and equipment                             | (423,260)                                                  |                         
|                                                          |                                                                      |                                                            |                         
|Net cash provided by
      (used in) investing activities | (33,052,924)                                                         |                                                            | 1,473,380               
|                                                          |                                                                      |                                                            |                         
|Cash flows from financing
      activities:               |                                                                      |                                                            |                         
|                                                          | Payment of notes payable                                             | (238,364)                                                  |                         
|                                                          | Proceeds from sale of
      4% convertible senior subordinated notes | 37,000,000                                                 |                         
|                                                          | Payment of revolving
      credit line, net                          | -                                                          |                         
|                                                          | Proceeds from private
      placement                                | -                                                          |                         
|                                                          | Proceeds from sale of
      common stock                             | 103,132,000                                                |                         
|                                                          | Proceeds from exercise
      of stock options and warrants           | 971,607                                                    |                         
|                                                          | Proceeds from warrant
      sale                                     | -                                                          |                         
|                                                          | Payment of deferred
      financing costs                            | (2,709,041)                                                |                         
|                                                          | Payment of offering
      and registration costs                     | (6,926,543)                                                |                         
|                                                          | Purchase of treasury
      stock                                     | (545,055)                                                  |                         
|                                                          | Distibution of treasury
      stock                                  | 107,378                                                    |                         
|                                                          |                                                                      |                                                            |                         
|Net cash provided by
      (used in) financing activities | 130,791,982                                                          |                                                            | (578,704)               
|                                                          |                                                                      |                                                            |                         
|                                                          |                                                                      | NET INCREASE IN CASH
      AND CASH                        |                         
|                                                          |                                                                      | EQUIVALENTS                                                | 123,667,483             
|                                                          |                                                                      |                                                            |                         
|Cash and cash equivalents
      at beginning of year      | 20,820,725                                                           |                                                            | 10,337,214              
|                                                          |                                                                      |                                                            |                         
|Cash and cash equivalents
      at end of year            | $144,488,208                                                         |                                                            | $20,820,725             
|                                                          |                                                                      |                                                            |                         
|Supplemental disclosures
      of cash flow information:  |                                                                      |                                                            |                         
|                                                          | Cash paid during the
      year for:                                 |                                                            |                         
|                                                          |                                                                      | Interest                                                   | $       786,000         
|                                                          |                                                                      | Income taxes                                               | $    9,510,000          

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

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

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



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



---





Bradley Pharmaceuticals, Inc.
  and SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003


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



















2. Cash and Cash Equivalents























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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003




|Customer                      | 2003 | 2002 | 2001
|----------------------------- | ---- | ---- | ----
|AmerisourceBergen Corporation | 17%  | 17%  | 12% 
|Cardinal Health, Inc.         | 27%  | 24%  | 20% 
|McKesson Corporation          | 24%  | 26%  | 11% 
|Quality King Distributors     | 14%  | 23%  | 40% 







| |                                        | 2003        |  | 2002       
| | -------------------------------------- | ----------- |  | -----------
| | Accounts receivable                    |             |  |            
| | Trade                                  | $ 5,147,220 |  | $ 5,851,759
| | Other                                  | 20,933      |  | 89,029     
| |                                        |             |  |            
| |                                        | 5,168,153   |  | 5,940,788  
| | Less allowances:                       |             |  |            
| | Chargebacks                            | 1,219,622   |  | 1,350,698  
| | Returns                                | 925,685     |  | 364,236    
| | Discounts                              | 121,910     |  | 137,001    
| | Doubtful accounts                      | 290,221     |  | 195,990    
| |                                        |             |  |            
| |                                        | 2,557,438   |  | 2,047,925  
| |                                        |             |  |            
| | Accounts receivable, net of allowances | $2,610,715  |  | $ 3,892,863
| |                                        |             |  |            























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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003




















| |                   | 2003        |  | 2002       
| | ----------------- | ----------- |  | -----------
| | Finished goods    | $ 2,225,719 |  | $ 1,820,609
| | Raw materials     | 308,494     |  | 622,945    
| | Valuation reserve | (140,523)   |  | (277,827)  
| |                   |             |  |            
| | Inventories, net  | $ 2,393,690 |  | $ 2,165,727
| |                   |             |  |            

















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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003
























Supplemental information on the accrued expenses at December
  31, 2003 and 2002 are as follows:

| |                       | 2003        |  | 2002       
| | --------------------- | ----------- |  | -----------
| | Employee compensation | $ 3,566,683 |  | $ 1,559,583
| | Rebate payable        | 184,294     |  | 370,599    
| | Rebate liability      | 3,904,752   |  | 1,999,630  
| | Other                 | 674,469     |  | 459,229    
| |                       |             |  |            
| | Accrued expenses      | $ 8,330,198 |  | $ 4,389,041
| |                       |             |  |            













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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003






























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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003


























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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003
































































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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003














|                                                                                                                                                                                           | Year ended December
      31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------
|                                                                                                                                                                                           | 2003                         
|Net income, as reported                                                                                                                                                                    | $16,824,716                  
|Deduct: Total stock-based employee
             compensation expense determined under
             fair value based method for all awards,
        net
             of related tax effects | (1,452,989)                  
|                                                                                                                                                                                           |                              
|Pro forma net income for basicComputation                                                                                                                                                  | $15,371,727                  
|                                                                                                                                                                                           |                              
|Net income, as reported                                                                                                                                                                    | $16,824,716                  
|Deduct: Total stock-based employeecompensation expense
        determined under 
             fair value based method for all awards,
        net 
             of related tax effects     | (1,452,989)                  
|Add: After-tax interest expense andother from convertible
        notes                                                                                                                    | 447,160                      
|                                                                                                                                                                                           |                              
|Pro forma net income for dilutedComputation                                                                                                                                                | $15,818,887                  
|                                                                                                                                                                                           |                              
|Earnings per share:                                                                                                                                                                        |                              
|Basicas reported                                                                                                                                                                          | $1.55                        
|                                                                                                                                                                                           |                              
|Basicpro forma                                                                                                                                                                            | $1.42                        
|                                                                                                                                                                                           |                              
|Dilutedas reported                                                                                                                                                                        | $1.35                        
|                                                                                                                                                                                           |                              
|Dilutedpro forma                                                                                                                                                                          | $1.23                        
|                                                                                                                                                                                           |                              







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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003






















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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003
























|                                    | Cost         |  | Gross 
      Unrealized 
      Gain/ (Loss) |  | Gross Fair Value
|----------------------------------- | ------------ |  | ------------------------------------------- |  | ----------------
|Treasury notes                      | $  1,479,746 |  | $    32,392                                 |  | $  1,512,138    
|Municipal bonds                     | 30,011,093   |  | (49,437)                                    |  | 29,961,656      
|                                    |              |  |                                             |  |                 
|Total available-for-sale securities | $31,490,839  |  | $ (17,045)                                  |  | $31,473,794     
|                                    |              |  |                                             |  |                 







|               | Cost        |  | Gross 
      Unrealized 
      Gain/ (Loss) |  | Gross Fair Value
|-------------- | ----------- |  | ------------------------------------------- |  | ----------------
|Treasury notes | $ 2,993,698 |  | $         
        98,323                   |  | $  3,092,021    
|               |             |  |                                             |  |                 



















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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003




| | Municipal bonds, 5%maturity date
      January 1, 2004  | $ 1,000,111
| | ------------------------------------------------------- | -----------
| | Municipal bonds, 2%maturity date
      January 15, 2004 | 1,350,449  
| | Municipal bonds, 6% maturity date June 1,
      2004    | 958,122    
| | Municipal bonds, 2%maturity date
      June 25, 2004    | 1,084,884  
| | Municipal bonds, 4%maturity date
      July 1, 2004     | 589,771    
| | Municipal bonds, 3%maturity date
      August 1, 2004   | 753,113    
| | Municipal bonds, 2%maturity date
      August 31, 2004  | 804,428    
| |                                                         |            
| | Total held-to-maturity investments                      | $6,540,878 
| |                                                         |            











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





















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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003


| | Available-for-sale                         | Cost          |  | Estimated Fair
      
      Value
| | ------------------------------------------ | ------------- |  | ---------------------------------
| | Due in one year or less                    | $   3,030,081 |  | $   3,048,824                    
| | Due after one year through
      two years | 11,277,172    |  | 11,243,097                       
| | Due after two years                        | 17,183,586    |  | 17,181,873                       
| |                                            |               |  |                                  
| | Total                                      | $ 31,490,839  |  | $ 31,473,794                     















|                                  |                |  | December 31, 2003       |  |            |  |             |  | December 31,
      2002 |  |           
|--------------------------------- | -------------- |  | ----------------------- |  | ---------- |  | ----------- |  | ----------------------- |  | ----------
|                                  | Cost           |  | AccumulatedAmortization |  | Net        |  | Cost        |  | AccumulatedAmortization |  | Net       
|Trademarks                        | $   18,262,486 |  | $    13,059,682         |  | $5,202,804 |  | $18,262,486 |  | $    12,262,269         |  | $6,000,217
|Patents                           | 1,327,454      |  | 1,291,726               |  | 35,728     |  | 1,327,454   |  | 1,271,734               |  | 55,720    
|Licenses                          | 124,886        |  | 124,886                 |  | -0-        |  | 124,886     |  | 121,680                 |  | 3,206     
|Covenants not to 
        compete | 162,140        |  | 162,140                 |  | -0-        |  | 162,140     |  | 162,140                 |  | -0-       
|                                  |                |  |                         |  |            |  |             |  |                         |  |           
|                                  | $   19,876,966 |  | $    14,638,434         |  | $5,238,532 |  | $19,876,966 |  | $    13,817,823         |  | $6,059,143
|                                  |                |  |                         |  |            |  |             |  |                         |  |           









|           | Weighted 
      Average 
      Amortization 
      Period
|---------- | ---------------------------------------------------------
|Trademarks | 13                                                       
|Patents    | 7                                                        
|Licenses   | 10                                                       











| | Aggregate Amortization
      Expense |         
| | ------------------------------------ | --------
| | For the fiscal year ended 2001       | $933,388
| | For the fiscal year ended 2002       | 833,269 
| | For the fiscal year ended 2003       | 821,480 
| |                                      |         
| | Estimated Amortization
      Expense |         
| | Year ended December 31, 2004         | $748,460
| | Year ended December 31, 2005         | 732,083 
| | Year ended December 31, 2006         | 671,038 
| | Year ended December 31, 2007         | 638,263 
| | Year ended December 31, 2008         | 636,613 











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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003














































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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003










































|                                         | 2003                      |  | 2002                    |  | 2001                   
|---------------------------------------- | ------------------------- |  | ----------------------- |  | -----------------------
|Reported
      net income                | $ 16,824,716              |  | $ 7,634,475             |  | $ 3,611,966            
|Addback:
      goodwill amortization     | -0-                       |  | -0-                     |  | 118,933                
|                                         |                           |  |                         |  |                        
|Adjusted
      net income                | $ 16,824,716              |  | $ 7,634,475             |  | $ 3,730,899            
|                                         |                           |  |                         |  |                        
|Basic
      earnings per common share:   |                           |  |                         |  |                        
|Reported
      net income                | $            1.55         |  | $         
        0.73 |  | $          0.42        
|Goodwill
      amortization              | 0.00                      |  | 0.00                    |  | 0.02                   
|                                         |                           |  |                         |  |                        
|Adjusted
      net income                | $           
        1.55 |  | $         
        0.73 |  | $          0.44        
|                                         |                           |  |                         |  |                        
|Diluted
      earnings per common share: |                           |  |                         |  |                        
|Reported
      net income                | $           
        1.35 |  | $         
        0.67 |  | $         
        0.37
|Goodwill
      amortization              | 0.00                      |  | 0.00                    |  | 0.02                   
|                                         |                           |  |                         |  |                        
|Adjusted
      net income                | $           
        1.35 |  | $         
        0.67 |  | $         
        0.39
|                                         |                           |  |                         |  |                        



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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003












|                         | December 31, 2003 | December 31, 2002
|------------------------ | ----------------- | -----------------
|                         |                   |                  
|Furniture and Fixtures   | $    1,064,760    |                  
|Equipment                | 1,422,382         |                  
|Leasehold Improvements   | 267,550           |                  
|                         |                   |                  
|                         | 2,754,692         |                  
|Accumulated Depreciation | (1,802,256)       |                  
|                         |                   |                  
|                         | $      952,436    |                  
|                         |                   |                  

















|         | Year ended
      December 31, 
      2003 | Year ended
      December 31, 
      2002 | Year ended
      December 31, 
      2001
|-------- | ----------------------------------------- | ----------------------------------------- | -----------------------------------------
|Current  |                                           |                                           |                                          
|Federal  | $ 10,130,000                              |                                           | $  3,846,000                             
|State    | 1,947,000                                 |                                           | 897,000                                  
|         |                                           |                                           |                                          
|         | 12,077,000                                |                                           | 4,743,000                                
|Deferred |                                           |                                           |                                          
|Federal  | (1,097,000)                               |                                           | 2,000                                    
|State    | (224,000)                                 |                                           | 1,000                                    
|         |                                           |                                           |                                          
|         | (1,321,000)                               |                                           | 3,000                                    
|         |                                           |                                           |                                          
|         | $  10,756,000                             |                                           | $  4,746,000                             
|         |                                           |                                           |                                          



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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003


The following is a summary of the items giving rise to deferred
  tax assets at December 31, 2003 and 2002.



|                                              | 2003         |  | 2002         
|--------------------------------------------- | ------------ |  | -------------
|Current                                       |              |  |              
|Allowance
        for doubtful accounts       | $    113,186 |  | $      72,516
|Allowance
        on sales                    | 1,934,925    |  | 633,971      
|Investment
        loss accrual               | -0-          |  | 259,000      
|Inventory
        reserves and capitalization | 194,171      |  | 229,198      
|Other
        accrued expenses                | 433,926      |  | 145,070      
|                                              |              |  |              
|                                              | $ 2,676,208  |  | $ 1,339,755  
|                                              |              |  |              
|Long-term                                     |              |  |              
|Intangibles
        and fixed assets          | $ 2,474,990  |  | $ 2,787,479  
|                                              |              |  |              

























|                                 | Year ended
      December 31, 
      2003 | Year ended
      December 31,
      2002 | Year ended
        December 31,
        2001
|-------------------------------- | ----------------------------------------- | ---------------------------------------- | --------------------------------------------
|                                 |                                           |                                          |                                             
|Tax at statutory rate            | 35.0%                                     |                                          | 34.0%                                       
|State income tax expense, net of |                                           |                                          |                                             
|Federal tax effect               | 4.5                                       |                                          | 4.8                                         
|Change in valuation allowance    | -0-                                       |                                          | -0-                                         
|Other                            | (0.5)                                     |                                          | (0.5)                                       
|                                 |                                           |                                          |                                             
|Effective tax rate               | 39.0%                                     |                                          | 38.3%                                       
|                                 |                                           |                                          |                                             



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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003






































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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003


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

As of December 31, 2003, the Company had no borrowings issued under
the revolving asset-based line of credit and the acquisition note with a remaining
availability pursuant to a borrowing base of approximately $3,957,000 from the
$5,000,000 revolving line of credit and $10,000,000 from the acquisition note.

The Company had no borrowings issued under the revolving asset-based
line of credit and the acquisition note at December 31, 2002.

3. Long-term Debt (Excluding the Notes)

Long-term debt (excluding the Notes) consists of the following:



|                                            | December 31,
      2003 | December 31,
      2002
|------------------------------------------- | ----------------------- | -----------------------
|Installment note due
        2001 (a)       | $ 60,084                |                        
|Capital lease obligation
        (b)        | -0-                     |                        
|Other capital lease
        obligations (c) | 81,424                  |                        
|                                            |                         |                        
|                                            | 141,508                 |                        
|                                            |                         |                        
|Less: current maturities                    | (91,677)                |                        
|                                            |                         |                        
|                                            | $ 49,831                |                        
|                                            |                         |                        



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



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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003




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



| | On June 28, 2001, the credit facility was amended
      by increasing the funding commitment to $380,225. On July 14, 2003, the
      Company paid the outstanding balance of $128,693.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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





|Year
      2004 | $        91,677
|--------------- | ---------------
|Year
      2005 | 27,733         
|Year
      2006 | 22,098         
|Year
      2007 | -0-            
|Year
      2008 | -0-            
|Thereafter      | 37,000,000     
|                |                
|Total           | $  37,141,508  
|                |                



















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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003








































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



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003








































| | F-28 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003


|                           | Number of Options | Weighted
      Average 
      Exercise 
        Price
|-------------------------- | ----------------- | -----------------------------------------------------
|                           |                   |                                                      
|Balance, January 1, 2001   | 1,336,986         |                                                      
|                           |                   |                                                      
|Granted                    | 385,892           |                                                      
|Exercised                  | (171,770)         |                                                      
|Canceled or forfeited      | (117,337)         |                                                      
|                           |                   |                                                      
|Balance, December 31, 2001 | 1,433,771         |                                                      
|                           |                   |                                                      
|Granted                    | 490,500           |                                                      
|Exercised                  | (111,370)         |                                                      
|Canceled or forfeited      | (26,778)          |                                                      
|                           |                   |                                                      
|Balance, December 31, 2002 | 1,786,123         |                                                      
|                           |                   |                                                      
|Granted                    | 214,300           |                                                      
|Exercised                  | (135,136)         |                                                      
|Canceled or forfeited      | (69,634)          |                                                      
|                           |                   |                                                      
|Balance, December 31, 2003 | 1,795,653         |                                                      
|                           |                   |                                                      























| | F-29 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003








|Range of Exercise
      Prices | Number
      Outstanding 
      as of 
      December 31, 
      2003 | Weighted
      Average
      Remaining
      Contractual
      Life | Weighted 
      Average 
      Exercise 
      Price | Number
      Exercisable
      as of
      December 31,
      2003 | Weighted
      Average
      Exercise
      Price
|------------------------------ | --------------------------------------------------------------------- | ------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------
|                               |                                                                       |                                                                     |                                                      |                                                                    |                                                  
|$1.06 - $ 1.19                 | 201,474                                                               |                                                                     | 2.9                                                  |                                                                    | $1.15                                            
|1.31 - 1.98                    | 683,486                                                               |                                                                     | 1.4                                                  |                                                                    | 1.43                                             
|2.00 - 4.03                    | 52,800                                                                |                                                                     | 1.7                                                  |                                                                    | 2.23                                             
|7.05 - 9.97                    | 266,923                                                               |                                                                     | 2.3                                                  |                                                                    | 7.86                                             
|10.53 - 11.76                  | 41,219                                                                |                                                                     | 3.3                                                  |                                                                    | 10.78                                            
|12.40 - 14.39                  | 380,084                                                               |                                                                     | 7.0                                                  |                                                                    | 13.19                                            
|14.93 - 20.18                  | 65,167                                                                |                                                                     | 8.8                                                  |                                                                    | 17.63                                            
|22.85 - 26.68                  | 104,500                                                               |                                                                     | 9.8                                                  |                                                                    | 25.07                                            
|                               |                                                                       |                                                                     |                                                      |                                                                    |                                                  
|                               | 1,795,653                                                             |                                                                     |                                                      |                                                                    |                                                  
|                               |                                                                       |                                                                     |                                                      |                                                                    |                                                  







|                                   | 2003    | 2002    | 2001   
|---------------------------------- | ------- | ------- | -------
|Dividend yield                     | 0%      | 0%      | 0%     
|Risk-free interest rate            | 5.0%    | 5.0%    | 6.0%   
|Expected life after vesting period |         |         |        
|Directors and officers             | 4 years | 4 years | 4 years
|Others                             | 2 years | 2 years | 2 years
|Expected volatility                | 60%     | 60%     | 60%    

















|Reserved for                                                            | Exercise 
      Price | Number 
      of shares 
      Issuable
|----------------------------------------------------------------------- | --------------------- | ---------------------------------------
|                                                                        |                       |                                        
|Warrants for consulting services (expiring July 9, 2008)                | $2.34                 |                                        
|Warrants for consulting services (expiring May 24, 2004)                | 3.20                  |                                        
|Warrants issued for proceeds (expiring November 5, 2004)                | 14.11                 |                                        
|Warrants issued to private placement advisor (expiringOctober 29, 2005) | 8.50                  |                                        
|4% convertible senior subordinated notes due June 15,
        2013      | 20.00                 |                                        
|1990 and 1999 Stock Option Plans                                        | 7.04                  |                                        
|                                                                        |                       |                                        
|                                                                        |                       |                                        
|                                                                        |                       |                                        





| | F-30 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003






|                           | Number of 
      Warrants | Weighted 
      Average 
      Exercise
      Price
|-------------------------- | ------------------------- | ---------------------------------------------------
|                           |                           |                                                    
|Balance, January 1, 2001   | 864,266                   |                                                    
|                           |                           |                                                    
|Granted                    | 318,300                   |                                                    
|Exercised                  | (823,000)                 |                                                    
|Canceled or forfeited      | -0-                       |                                                    
|                           |                           |                                                    
|Balance, December 31, 2001 | 359,566                   |                                                    
|                           |                           |                                                    
|Granted                    | -0-                       |                                                    
|Exercised                  | (24,300)                  |                                                    
|Canceled or forfeited      | -0-                       |                                                    
|                           |                           |                                                    
|Balance, December 31, 2002 | 335,266                   |                                                    
|                           |                           |                                                    
|Granted                    | -0-                       |                                                    
|Exercised                  | (209,208)                 |                                                    
|Canceled or forfeited      | -0-                       |                                                    
|                           |                           |                                                    
|Balance, December 31, 2003 | 126,058                   |                                                    
|                           |                           |                                                    













| | F-31 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003


















As of December 31, 2003, the Company had the following lease
  commitments:





|Year
        ending December 31,    | Operating 
      Leases |  | Capital 
      Leases
|----------------------------------- | ----------------------- |  | ---------------------
|2004                                | $    575,680            |  | $ 36,073             
|2005                                | 574,424                 |  | 30,209               
|2006                                | 585,924                 |  | 22,748               
|2007                                | 462,874                 |  | -0-                  
|2008                                | 40,979                  |  | -0-                  
|Thereafter                          | -0-                     |  | -0-                  
|                                    |                         |  |                      
|                                    | $ 2,239,881             |  | $ 89,030             
|                                    |                         |  |                      
|Amounts
      representing interest |                         |  | (7,607)              
|                                    |                         |  |                      
|Total
        principal payments    |                         |  | $ 81,423             
|                                    |                         |  |                      

























| | F-32 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003






































| | F-33 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003


















































| | F-34 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003






























| | F-35 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003












|                                                                           | 2003         |  | 2002        |  | 2001       
|-------------------------------------------------------------------------- | ------------ |  | ----------- |  | -----------
|Basic
      Shares                                                         | 10,820,000   |  | 10,470,000  |  | 8,570,000  
|Dilution:                                                                  |              |  |             |  |            
|Convertible
        notes                                                  | 950,000      |  | -0-         |  | -0-        
|Stock
        options and warrants                                         | 1,070,000    |  | 970,000     |  | 1,090,000  
|                                                                           |              |  |             |  |            
|Diluted
        shares                                                     | 12,840,000   |  | 11,440,000  |  | 9,660,000  
|                                                                           |              |  |             |  |            
|Net income
        as reported                                             | $ 16,824,716 |  | $ 7,634,475 |  | $ 3,611,966
|After-tax
        interest expense andother
        from convertible notes | 447,160      |  | -0-         |  | -0-        
|                                                                           |              |  |             |  |            
|Adjusted
        net income                                                | $ 17,271,876 |  | $ 7,634,475 |  | $ 3,611,966
|                                                                           |              |  |             |  |            
|Net income
        per shareBasic                                          | $ 1.55       |  | $ 0.73      |  | $ 0.42     
|Diluted                                                                    | $ 1.35       |  | $ 0.67      |  | $ 0.37     







| | F-36 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003














|                                   | Year Ended
      December 31, 2003 | Year Ended 
      December 31, 2002 | Year Ended
      December 31, 2001
|---------------------------------- | ---------------------------------- | ----------------------------------- | ----------------------------------
|Net sales:                         |                                    |                                     |                                   
|Doak Dermatologics, Inc.           | $56,617,119                        |                                     | $ 29,680,782                      
|Kenwood Therapeutics               | 18,062,132                         |                                     | 9,988,191                         
|                                   |                                    |                                     |                                   
|                                   | $74,679,251                        |                                     | $ 39,668,973                      
|                                   |                                    |                                     |                                   
|Depreciation and amortization:     |                                    |                                     |                                   
|Doak Dermatologics, Inc.           | $     261,520                      |                                     | $      258,286                    
|Kenwood Therapeutics               | 945,596                            |                                     | 881,245                           
|                                   |                                    |                                     |                                   
|                                   | $  1,207,116                       |                                     | $   1,139,531                     
|                                   |                                    |                                     |                                   
|Income before income tax:          |                                    |                                     |                                   
|Doak Dermatologics, Inc.           | $25,301,965                        |                                     | $ 10,449,839                      
|Kenwood Therapeutics               | 2,278,751                          |                                     | 1,930,637                         
|                                   |                                    |                                     |                                   
|                                   | $27,580,716                        |                                     | $ 12,380,475                      
|                                   |                                    |                                     |                                   
|Income tax expense (benefit):      |                                    |                                     |                                   
|Doak Dermatologics, Inc.           | $  9,867,000                       |                                     | $   4,007,000                     
|Kenwood Therapeutics               | 889,000                            |                                     | 739,000                           
|                                   |                                    |                                     |                                   
|                                   | $10,756,000                        |                                     | $   4,746,000                     
|                                   |                                    |                                     |                                   
|Net income:                        |                                    |                                     |                                   
|Doak Dermatologics, Inc.           | $15,434,965                        |                                     | $   6,442,839                     
|Kenwood Therapeutics               | 1,389,751                          |                                     | 1,191,637                         
|                                   |                                    |                                     |                                   
|                                   | $16,824,716                        |                                     | $   7,634,476                     
|                                   |                                    |                                     |                                   
|Geographic information (revenues): |                                    |                                     |                                   
|Doak Dermatologics, Inc.           |                                    |                                     |                                   
|United States                      | $55,303,477                        |                                     | $  28,253,878                     
|Other countries                    | 1,313,642                          |                                     | 1,426,904                         
|                                   |                                    |                                     |                                   
|                                   | $56,617,119                        |                                     | $  29,680,782                     
|                                   |                                    |                                     |                                   
|Kenwood Therapeutics               |                                    |                                     |                                   
|United States                      | $17,947,063                        |                                     | $   9,771,068                     
|Other countries                    | 115,069                            |                                     | 217,123                           
|                                   |                                    |                                     |                                   
|                                   | $18,062,132                        |                                     | $   9,988,191                     
|                                   |                                    |                                     |                                   
|Net sales by category:             |                                    |                                     |                                   
|Dermatology and
      Podiatry     | $56,617,119                        |                                     | $29,680,782                       
|Gastrointestinal                   | 8,764,560                          |                                     | 3,156,909                         
|Respiratory                        | 6,397,820                          |                                     | 4,552,057                         
|Nutritional                        | 2,553,659                          |                                     | 2,017,986                         
|Other                              | 346,093                            |                                     | 261,239                           
|                                   |                                    |                                     |                                   
|                                   | $74,679,251                        |                                     | $39,668,973                       
|                                   |                                    |                                     |                                   



| | F-37 | 
| | ---- | 



---





Bradley Pharmaceuticals, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003








NOTE M  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)





|                                                                                                  | Quarter Ended 2003 |  | Quarter Ended 2002
|------------------------------------------------------------------------------------------------- | ------------------ |  | ------------------
|                                                                                                  | March              |  | June              
|Net sales                                                                                         | $14,916            |  | $16,350           
|Cost of sales                                                                                     | 1,295              |  | 1,414             
|                                                                                                  |                    |  |                   
|Gross profit                                                                                      | 13,621             |  | 14,936            
|                                                                                                  |                    |  |                   
|Selling, general and administrative                                                               | 8,733              |  | 9,090             
|Depreciation and amortization                                                                     | 283                |  | 305               
|Interest expense                                                                                  | 7                  |  | 103               
|Interest income                                                                                   | (113)              |  | (99)              
|Losses (gains) on short-term 
        investments                                                 | -                  |  | -                 
|                                                                                                  |                    |  |                   
|                                                                                                  | 8,910              |  | 9,399             
|                                                                                                  |                    |  |                   
|Income beforeincome tax expense                                                                   | 4,711              |  | 5,537             
|Income tax expense                                                                                | 1,837              |  | 2,160             
|                                                                                                  |                    |  |                   
|Net income                                                                                        | 2,874              |  | 3,377             
|                                                                                                  |                    |  |                   
|Basic net income per common 
        share                                                        | $    0.27          |  | $    0.32         
|                                                                                                  |                    |  |                   
|Diluted net income per common 
        share                                                      | $   
      0.25    |  | $    0.29         
|                                                                                                  |                    |  |                   
|Number of shares used in 
        computing basic net income per 
        common 
        share   | 10,520             |  | 10,600            
|                                                                                                  |                    |  |                   
|Number of shares used in 
        computing diluted net income per 
        common 
        share | 11,460             |  | 11,860            
|                                                                                                  |                    |  |                   



| | F-38 | 
| | ---- | 



---





|SCHEDULE II
|-----------



|BRADLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES
|----------------------------------------------



|VALUATION AND QUALIFYING ACCOUNTSYEARS
ENDED DECEMBER 31, 2001, 2002 AND 2003(IN THOUSANDS)
|-------------------------------------------------------------------------------------------

|Classification |  | Balance  
      Beginning of 
      Year                  | Charged to 
      Costs and 
      Expenses | Additions
      (Deductions) | Balance 
      End of 
      Year
|-------------- |  | --------------------------------------------------------- | ------------------------------------------- | ---------------------------- | ---------------------------------
|2001           |  | Allowance for doubtful accounts(1)                        |                                             | 246                          |                                  
|               |  | Allowance for chargebacks, returns,and
      discounts(1) |                                             | 2,452                        |                                  
|               |  | Allowance for rebates(2)                                  |                                             | 372                          |                                  
|               |  |                                                           |                                             |                              |                                  
|2002           |  | Allowance for doubtful accounts(1)                        |                                             | 240                          |                                  
|               |  | Allowance for chargebacks, returns,and
      discounts(1) |                                             | 1,954                        |                                  
|               |  | Allowance for rebates(2)                                  |                                             | 970                          |                                  
|               |  |                                                           |                                             |                              |                                  
|2003           |  | Allowance for doubtful accounts(1)                        |                                             | 196                          |                                  
|               |  | Allowance for chargebacks, returns,and
      discounts(1) |                                             | 1,852                        |                                  
|               |  | Allowance for rebates(2)                                  |                                             | 2,370                        |                                  

|
|

|(1) |  | Shown
as a reduction of accounts receivable
|--- |  | -------------------------------------------

|(2) |  | Included
in accrued expenses
|--- |  | ----------------------------



|Certain reclassifications have been made to the
2002 and 2001 amounts in  order to conform to the current presentation.
|-----------------------------------------------------------------------------------------------------------------------



| |  | 
| |  | 



---





|Exhibit Index
|-------------

|Exhibit
      Number |  | Description
      of Documents                                                                                                                                                                                                                                                            
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1                  |  | Certificate of Incorporation of the Company, as amended
      (incorporated herein by reference from the Companys Proxy Statement
      for the 1998 Annual Meeting)                                                                                                                     
|                     |  |                                                                                                                                                                                                                                                                                           
|3.2                  |  | By-laws of the Company, as amended (incorporated herein
      by reference from the Companys Proxy Statement for the 1998 Annual
      Meeting)                                                                                                                                          
|                     |  |                                                                                                                                                                                                                                                                                           
|4.1                  |  | Bradley Pharmaceuticals, Inc. 401(k) Savings Plan (incorporated
      herein by reference to Exhibit 4.1 to the Companys Form S-8 filed
      on February 3, 2004)                                                                                                                       
|                     |  |                                                                                                                                                                                                                                                                                           
|4.2                  |  | Indenture, dated as of June 11, 2003, between the Company
      and American Stock Transfer and Trust Company, as Trustee (incorporated
      herein by reference to Exhibit 4.1 of the Companys Quarterly Report
      on Form 10-Q for the period ended June 30, 2003)                 
|                     |  |                                                                                                                                                                                                                                                                                           
|4.3                  |  | First Supplemental Indenture, dated as of July 24, 2003,
      between the Company and American Stock Transfer and Trust Company, as Trustee
      (incorporated herein by reference to Exhibit 4.1.1 of Companys Quarterly
      Report on Form 10-Q for the period ended June 30, 2003)
|                     |  |                                                                                                                                                                                                                                                                                           
|4.4                  |  | Form of 4% Convertible Senior Subordinated Note due 2013
      (incorporated herein by reference to Exhibit 4.2 of the Companys Quarterly
      Report on Form 10-Q for the period ended June 30, 2003)                                                                                  

|     |  |                                                                                                                                                                                                                                                                                                 
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5  |  | Registration Rights Agreement, dated as of
      June 11, 2003, among the Company, UBS Securities LLC and Raymond James &
      Associates, Inc. (incorporated herein by reference to Exhibit 4.3 of the
      Companys Quarterly Report on Form 10-Q for the period ended June 30,
      2003)
|     |  |                                                                                                                                                                                                                                                                                                 
|4.6  |  | Registration Rights Agreement dated as of July
      24, 2003 among the Company, UBS Securities LLC and Raymond James & Associates,
      Inc. (incorporated herein by reference to Exhibit 4.4 of the Companys
      Quarterly Report on Form 10-Q for the period ended June 30, 2003)        
|     |  |                                                                                                                                                                                                                                                                                                 
|10.1 |  | 1990 Stock Option Plan, as amended (incorporated
      herein by reference to Exhibit 10.1 to the Companys Annual Report
      on Form 10-KSB for the year ended December 31, 1996)*                                                                                                           
|     |  |                                                                                                                                                                                                                                                                                                 
|10.2 |  | Loan and Security Agreement with Wachovia Bank
      dated November 20, 2002 (incorporated herein by reference to Exhibit 10.28
      to the Companys Form 8-K filed on December 12, 2002)                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                 
|10.3 |  | 1999 Incentive and Non-Qualified Stock Option
      Plan, as amended (incorporated herein by reference from the Companys
      Proxy Statement for the 1998 Annual Meeting)*                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                                                 
|21   |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                 
|23.1 |  | Consent of Grant Thornton, LLP                                                                                                                                                                                                                                                                  
|     |  |                                                                                                                                                                                                                                                                                                 
|24.1 |  | Power of Attorney (included on the signature
      page to this report)                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                 
|31.1 |  | Rule 13a-14(a) Certification of Chief Executive
      Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                 
|31.2 |  | Rule 13a-14(a) Certification of Chief Financial
      Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                 
|32.1 |  | Certification pursuant to 18 U.S.C. Section
      1350 by the Chief Executive Officer, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                 
|32.2 |  | Certification pursuant to 18 U.S.C. Section
      1350 by the Chief Financial Officer, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002                                                                                                                               

|
|

|* |  | Management contracts or compensatory plans
      or arrangements.
|- |  | -----------------------------------------------------------------



| |  | 
| |  |