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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


(Mark One)

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

For
the fiscal year ended December 31, 2002



|  |                                                                                               
|- | ----------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 
     OF THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period
from                                                 to                               .

Commission file number 0-26487



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Women First HealthCare, Inc.

(Name of Registrant as Specified in its
Charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Delaware                                                           |  | 13-3919601                          
|(State or Other Jurisdiction of Incorporation
    or Organization) |  | (I.R.S. Employer Identification No.)

12220 El Camino Real, Suite 400, San
Diego, California 92130

(Address of Principal Executive Offices) (Zip
Code)

(858) 509-1171

(Registrants Telephone Number, Including
Area Code)



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Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $.001 par value


(Title of Class)




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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 o     NO þ

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

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

As of June 30, 2002, the aggregate market
value of the registrants common stock held by
non-affiliates of the registrant was approximately
$111.4 million based on the closing price of the
registrants common stock on the NASDAQ National Market on
June 30, 2002 of $7.80 per share.

As of March 31, 2003, 22,971,255 shares of
registrants common stock, $.001 par value, were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Companys definitive Proxy
Statement to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal
year are incorporated by reference into Part III of this
report.



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TABLE OF CONTENTS



|              |                                                                                                         |  |  |  |  |  |  | 
|------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                                       
|              | Item 2. Properties                                                                                     
|              | Item 3. Legal Proceedings                                                                              
|              | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholders Matters                         
|              | Item 6. Selected Consolidated Financial Information                                                    
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    
|              | Item 8. Financial Statements and Supplementary Data                                                    
|              | Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure           
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant                                            
|              | Item 11. Executive Compensation                                                                        
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|              | Item 13. Certain Relationships and Related Transactions                                                
|              | Item 14. Controls and Procedures                                                                       
|PART IV      
|              | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|EXHIBIT 10.24
|EXHIBIT 10.40
|EXHIBIT 21.1 
|EXHIBIT 23.1 



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TABLE OF CONTENTS

|                     |  |                                                                                                    |     |      |    | 
|-------------------- |  | -------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                     |  |                                                                                                    |     | Page
|                     |  |                                                                                                    |     |     
|                     |  | PART I                                                                                             |     |      |    | 
|Item 1.              |  | Business                                                                                           |     |      | 1  | 
|Item 2.              |  | Properties                                                                                         |     |      | 22 | 
|Item 3.              |  | Legal Proceedings                                                                                  |     |      | 22 | 
|Item 4.              |  | Submission of Matters to a Vote of Security
    Holders                                            |     |      | 23 | 
|                     |  | PART II                                                                                            |     |      |    | 
|Item 5.              |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |     |      | 23 | 
|Item 6.              |  | Selected Consolidated Financial Information                                                        |     |      | 23 | 
|Item 7.              |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |     |      | 24 | 
|Item 7A.             |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |     |      | 39 | 
|Item 8.              |  | Financial Statements and Supplementary Data                                                        |     |      | 39 | 
|Item 9.              |  | Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure           |     |      | 39 | 
|                     |  | PART III                                                                                           |     |      |    | 
|Item 10.             |  | Directors and Executive Officers of the Registrant                                                 |     |      | 39 | 
|Item 11.             |  | Executive Compensation                                                                             |     |      | 39 | 
|Item 12.             |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |     |      | 39 | 
|Item 13.             |  | Certain Relationships and Related Transactions                                                     |     |      | 39 | 
|Item 14.             |  | Controls and Procedures                                                                            |     |      | 39 | 
|                     |  | PART IV                                                                                            |     |      |    | 
|Item 15.             |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |     |      | 40 | 
|Signatures           |  |                                                                                                    | 44  |     
|Certifications       |  |                                                                                                    | 45  |     
|Financial Statements |  |                                                                                                    | F-1 |     
|Exhibit Index        |  |                                                                                                    |     |     



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PART I

Forward-Looking Statements

This Annual Report on Form 10-K contains
certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
which provides a safe harbor for these types of
statements. To the extent statements in this Annual Report
involve, without limitation, our expectations for growth,
estimates of future revenue, expenses, profit, cash flow,
balance sheet items or any other guidance on future periods,
these statements are forward-looking statements. These
statements are often, but not always, made through the use of
words or phrases such as believe, will,
expect, anticipate,
estimate, intend, plan and
would. The forward-looking statements contained in
this Annual Report are subject to various risks and
uncertainties, including those identified in Item 1 below
under the heading Risks and Uncertainties and other
risks identified from time to time in our filings with the
Securities and Exchange Commission, press releases and other
communications. We undertake no obligation to release publicly
the results of any revisions to these forward-looking statements
or to reflect events or circumstances arising after the date of
this report.






|        |         
|------- | --------
|Item 1. | Business

Overview

Women First is a specialty pharmaceutical company
dedicated to improving the health and well-being of midlife
women. Our mission is to help midlife women make informed
choices about their physical and emotional health and to provide
pharmaceutical products and self-care products to help these
women improve the quality of their lives. We market these
products in the United States through a number of channels
including our dedicated sales force, our contract sales
dermatology force, our direct-to-consumer marketing programs
through our Internet sites, womenfirst.com,
aswechange.comand vaniqa.comand through our
As We Change® national mail order catalog.

As of March 31, 2003, we offered the
following products for sale:



| |                                                      
| | -----------------------------------------------------
| | Pharmaceutical Products 
    Womens Health Division



| |   |                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ortho-Est®
    Tablets, an oral estrogen product that we acquired from
    Ortho-McNeil Pharmaceutical in January 2001, and                                                                                                                                                                                            
|
| |  | EsclimTM,
    an estrogen patch system for which we have the exclusive right
    (subject to exceptions) to market, use, distribute and sell in
    various dosages in the United States and Puerto Rico pursuant to
    a distribution and license agreement with Laboratoires Fournier
    S.A., effective July 1999.



| |                                                 
| | ------------------------------------------------
| | Pharmaceutical Products  Skin Care
    Division



| |   |                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Vaniqa® Cream
    (eflornithine hydrochloride), 13.9%, a topical cream clinically
    proven to slow the growth of unwanted facial hair in women for
    which we acquired exclusive worldwide rights in June 2002 from a
    joint venture formed by Bristol-Myers Squibb Company and The
    Gillette Company.



| |                                          
| | -----------------------------------------
| | Non-Strategic Pharmaceutical
    Products

In March 2003, we announced plans to consider the
sale of product rights to those pharmaceutical products that are
non-strategic and do not relate to our core mission of improving
the health and well-being of midlife women.



| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Midrin®, a
    prescription headache management product for which we acquired
    exclusive U.S. rights and title from Élan Pharma
    International Ltd. and Élan Corporation plc in June 2001,          
|
| |  | BactrimTM,
    an antibacterial product line used primarily in the treatment of
    certain urinary tract infections for which we acquired exclusive
    U.S. rights from Hoffman-LaRoche in October 2001,

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| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Equagesic®
    Tablets, a pain management product for which we acquired all
    rights in the U.S. and Puerto Rico from American Home
    Products Corporation (now known as Wyeth) in November 2001, and
|
| |  | Synalgos®-DC Capsules
    and painpak, a pain management product for
    which we acquired all rights in the U.S. and Puerto Rico
    from Wyeth in November 2001.                                     



| |                                           
| | ------------------------------------------
| | Self-Care Products  Consumer
    Division



| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our self-care products include a broad array of
    nutritional, skin, beauty, herbal, exercise, libido, wellness
    and other products that we sell through our national mail-order
    catalog, As We Change®.

Industry Trends

We believe that the markets for pharmaceutical
and self-care products for midlife women are growing because of
the following trends:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | a significant and expanding population of midlife
    women as the baby boom generation ages,                                              
|
| |  | the expanding roles of obstetricians,
    gynecologists, nurse practitioners and physicians
    assistants focused on womens health, and   
|
| |  | an increasing awareness of the conditions and
    diseases that affect midlife women and the development of new
    products to address them.

The U.S. Census Bureau projects that there
will be approximately 67 million women in the United States
over age 40 in 2003. That number is expected to grow to
76 million women by the year 2013. IMS Health reports that
U.S. prescription pharmaceutical sales were approximately
$148 billion for the twelve months ending January 2003, and
that approximately 58% of prescription drugs are used by women.

As women transition through menopause, their
bodies begin to reduce the production of the steroid hormones,
estrogen and progesterone. Studies have shown that with the
significant loss of estrogen and progesterone production after
menopause, the long-term health care needs of women change
significantly. Among other things, women experience changes in
their cardiovascular, skeletal, neurological, urologic and
reproductive systems and may experience changes in their sexual
and emotional needs. Studies have shown that estrogen
replenishment therapy alleviates the symptoms commonly
associated with menopause. According to IMS Health,
pharmaceutical sales for estrogen replenishment therapy in the
United States were approximately $2.5 billion in 2001.
Recent studies conducted by the National Cancer Institute found
that women on estrogen replenishment therapy after menopause run
a higher risk of ovarian cancer after ten years of use. Another
study of combination estrogen/ progestin hormone replacement
therapy, by the National Institutes of Health, was stopped
prematurely during 2002 because of an increased risk of invasive
breast cancer, heart attacks, strokes and blood clots. There
remains a great deal of confusion in the market place concerning
estrogen replenishment therapy and combination estrogen/
progestin replacement therapy, and we believe this has had an
adverse effect on our sales of EsclimTM and
Ortho-Est® Tablets®.

The estrogen in our Ortho-Est®
Tablets is approved by the Food and Drug Administration for the
prevention and/or treatment of osteoporosis in postmenopausal
women. The National Osteoporosis Foundation estimates that the
number of women age 50 and older who have osteoporosis, or
are at risk for developing the disease, will increase from
almost 30 million in 2002, to over 35 million in 2010,
and to approximately 41 million in 2020.

Strategy

Our objective is to become a premier marketer of
health care products  both pharmaceutical and
self-care  focused primarily on midlife women. We are
focused on reaching our target market of 67 million midlife
women through our sales and marketing programs to obstetricians
and gynecologists, dermatologists, nurse practitioners and
physicians assistants focused on womens health and
our direct-to-consumer Internet

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and catalog marketing programs. We are
implementing the following strategies in 2003 in order to
achieve our goal:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Refocus and Redirect our Womens Health
    Franchise.We have refocused this
    division exclusively on the top performing obstetricians and
    gynecologists sales territories. Our product line-up consists of
    EsclimTM in the primary position, and
    Vaniqa® Cream as a secondary offering. We expect to
    have a new dosage strength of our Ortho-Est®
    Tablets, to be named O-EstTM, approved by the
    Food and Drug Administration in the fourth quarter of 2003, at
    which time it will join EsclimTM in the
    primary position.                                                                                                                                            
|
| |  | Build our
    Vaniqa®Cream Franchise.We have formed a new division in our pharmaceutical
    segment  Women First Skin Care  to focus
    its energies on promoting Vaniqa® Cream as its
    flagship product. We have hired a senior executive to run this
    division and have charged him with (1) managing our
    relationship with Ventiv Health U.S. Sales, L.L.C., our
    contract sales dermatology force, (2) managing our
    relationship with our investment banker for the licensing of our
    international rights to Vaniqa® Cream,
    (3) expanding into direct-to-physician programs and
    (4) initiating and managing clinical studies to support
    Vaniqa® Creams growth.
|
| |  | Sell Non-Pharmaceutical Products.We intend to focus our efforts on the
    physical and emotional needs of midlife women, rather than on
    supporting our non-core products. Therefore, we are attempting
    to sell the rights to our pharmaceutical products that do not
    fit this niche, using the proceeds to reduce our debt and, where
    possible, fund current operations. We have hired a third party
    to assist us in this effort and will be required to pay a fee
    only if successful.                                                                                                                                                                                         
|
| |  | Grow As We
    Change®. We plan to increase the
    revenue in our mail order catalog by continuing to change the
    product line-up to take advantage of current trends and by
    focusing on Internet commerce. We expect the catalogs
    access to women to support Vaniqa® Cream
    prescriptions and, to a lesser extent,
    EsclimTM prescriptions.                                                                                                                                                                                                                                                                                                                                         

Products and Product Agreements



| |                                                      
| | -----------------------------------------------------
| | Pharmaceutical Products 
    Womens Health Division

Ortho-Est®Tablets.We began selling and distributing
Ortho-Est® Tablets (estropipate), a soybean-derived
estrogen product, through wholesale and retail channels pursuant
to an exclusive distribution agreement with Ortho-McNeil
Pharmaceutical in July 1998. Ortho-Est® Tablets are
available on the market in the United States in two strengths,
..625mg and 1.25mg and replenish declining estrogen levels in
midlife women with estrone, the principal type of estrogen that
the body makes following menopause. The distribution agreement
required us to make minimum aggregate payments totaling
$47.5 million to Ortho-McNeil Pharmaceutical over the life
of the contract regardless of the actual sales performance of
the product. We terminated the distribution agreement effective
September 30, 2000 and entered into an asset transfer and
supply agreement pursuant to which Ortho-McNeil Pharmaceutical
transferred to us all of its right, title and interest in
Ortho-Est® Tablets effective January 1, 2001
and granted to us an exclusive license to use the
Ortho-Est® Tablets trademark from January 1,
2001 until June 1, 2008. This agreement reduced the minimum
payment in 2000 from $5.4 million to $4.7 million. No
further payments are required under the new agreement. In
February 2002, we hired Pharmaceutics International Inc. to
assume the commercial manufacturing responsibilities for
Ortho-Est® Tablets and recently received approval
from the Food and Drug Administration to commence sales of the
Ortho-Est® Tablets manufactured by Pharmaceutics
International. Ortho-Est® Tablets is on formulary at
Medco Plan Sponsors.

EsclimTM.
In July 1999, we entered into a distribution and license
agreement with Laboratoires Fournier S.A. under which we were
granted the exclusive right (subject to exceptions) to market,
use, distribute and sell the EsclimTM
estradiol transdermal system in various dosages in the United
States and Puerto Rico through 2007. In November 1999, we
initiated sales and distribution of the
EsclimTM product, an estrogen patch system
that releases small amounts of 17 Beta-estradiol, the main
estrogen produced in the ovaries, through the skin on a
continuous basis. EsclimTM replenishes
declining levels of estradiol using a patented matrix
technology. The product, a patch that is changed twice a week,
is available in a range of five dosage

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strengths including 0.025, 0.0375, 0.05, 0.075
and 1.0 milligrams. The EsclimTM product,
which received Food and Drug Administration approval in August
1998, is a leading transdermal estrogen product in France and
has been launched in a number of European countries and Canada.
The distribution and license agreement required us to pay
Fournier a non-refundable license fee of $1.1 million, of
which $0.75 million was paid in 1999 and $0.35 million
was paid in November 2001. The agreement provides that Fournier
is solely responsible for the manufacture of the product and for
quality assurance, quality control and other aspects of
manufacturing the product. Fournier has transferred to us
responsibility for the New Drug Application filed with the Food
and Drug Administration with respect to the product. We are
solely responsible for U.S. customs clearance, sales,
marketing, advertising and distribution of the product and for
handling product complaints. In January 2002,
EsclimTM was added to the highest priority
formulary listing with the United States largest
prescription benefit manager, AdvancePCS. In March 2002,
EsclimTM was added to formularies at two
additional large prescription benefit managers: Caremarks
Preferred and Primary Drug Lists and Express Scripts®
Expanded Formulary.




| |                                                 
| | ------------------------------------------------
| | Pharmaceutical Products  Skin Care
    Division

Vaniqa®Cream.In June 2002, we acquired exclusive worldwide
rights and title to Vaniqa® Cream (eflornithine
hydrochloride), 13.9%, from a joint venture formed by
Bristol-Myers Squibb and Gillette. Vaniqa® Cream is
a topical cream clinically proven to slow the growth of unwanted
facial hair in women. Vaniqa® Cream was approved for
marketing by the Food and Drug Administration in July 2000 and
is the only prescription pharmaceutical available for this
prevalent condition. Vaniqa® Cream also has been
granted regulatory approval in 25 international markets
including the European Union, Canada and major Latin American
countries. We paid $40.0 million in cash and assumed
$3.7 million in liabilities for product returns for the
Vaniqa® Cream product, including all related product
rights, inventory, regulatory filings and patent rights. We also
secured the right to pursue an over-the-counter strategy and to
develop enhanced formulations of Vaniqa® Cream. We
entered into an asset purchase agreement and license agreement
with Bristol-Myers Squibb and Gillette to provide for the sale
or license of all of the joint venture parties
Vaniqa® Cream assets. We did not acquire any
facilities, equipment or personnel in the transaction. We also
entered into a related supply agreement with Bristol-Myers
Squibb, whereby it will continue to manufacture
Vaniqa® Cream for three years following the
acquisition. We are currently in discussions with Bristol-Myers
Squibb to extend the term of the manufacturing agreement through
June 2007.

We financed the acquisition through the issuance
of $28.0 million of senior secured notes,
$13.0 million of convertible redeemable preferred stock and
$0.8 million in cash. The senior secured notes mature in
September 2005 and bear interest at the initial rate of 11% per
annum, which increases to 12.5% in December 2003, and 13% per
annum in June 2004. Interest on the senior secured notes is
required to be paid in cash except that we may pay interest
amounts in excess of 11% per annum in cash or through the
issuance of additional senior secured notes. We may redeem the
senior secured notes at any time at a redemption price of 108%
of the aggregate principal amount outstanding plus accrued and
unpaid interest. Our obligations under the terms of the senior
secured notes are secured by a pledge of our interest in the
Vaniqa® Cream-related assets. The convertible
redeemable preferred stock has an aggregate initial stated value
of $13.0 million, which accretes at a rate of 10% per
annum, calculated quarterly, which increases to 11.5% per annum
in December 2003 and 12.5% per annum in June 2004. The
convertible redeemable preferred stock is convertible at any
time at the option of the holders into shares of our common
stock at a rate equal to the accreted stated value divided by
$6.35, subject to certain antidilution adjustments. Unless
previously converted, we will be required to redeem the
convertible redeemable preferred stock for cash at its accreted
stated value plus accreted unpaid dividends, if any, in June
2006.

Both the senior secured notes and the convertible
redeemable preferred stock are required to be redeemed with 100%
of the proceeds of future loans and sales of debt securities and
75% of the proceeds of future sales of equity securities,
subject to various exceptions. In addition, the holders of the
senior secured notes have the right to require us to redeem the
senior secured notes at a price of 108% of the aggregate
principal amount outstanding upon certain changes in control of
us. We must also generally use 75% of our excess cash
flow

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as defined in the governing documents, to redeem
the senior secured notes and, subject to the rights of the
senior secured notes, the convertible redeemable preferred stock.


The financing was provided by affiliates of CIBC
Capital Partners and Whitney & Co., LLC. Among other
affirmative covenants, we agreed that the holders of the senior
secured notes and the convertible redeemable preferred stock are
entitled to appoint together a single non-voting observer to
attend meetings of our Board of Directors until the amount of
outstanding senior secured notes and convertible redeemable
preferred stock decreases below 10% of the principal or stated
value of senior secured notes and convertible redeemable
preferred stock issued by us at the closing.

At December 31, 2002, we were in default
under our senior secured notes. Our recent financial performance
caused us to fall out of compliance with the covenants and other
requirements of the senior secured notes, which require, among
other things, minimum earnings, minimum fixed charge coverage
ratio and minimum net worth measured as of December 31,
2002 and the four quarters then ended and limited capital
expenditures during 2002. We are also out of compliance with the
same covenants for the period ended March 31, 2003.

In April 2003, we entered into a binding term
sheet with the holders of the senior secured notes to remedy
these defaults by, among other things, restructuring selected
financial covenants in the senior secured notes, pledging
additional assets to secure our obligations under the senior
secured notes, amending selected terms of our convertible
redeemable preferred stock, issuing new warrants to purchase
common stock to the holders of the senior secured notes, and
obtaining equity financing from an investor group led by
Edward F. Calesa, our President, Chief Executive Officer
and Chairman of the Board. The provisions of this term sheet and
our preliminary agreement with the holders of the senior secured
notes are described in more detail in this report under
Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources. Our default under the senior secured notes
permits the note holders to accelerate our indebtedness under
the notes and foreclose on the collateral pledged to secure our
indebtedness. While we believe we have reached an agreement in
principle with the note holders to remedy the defaults in a
manner satisfactory to all parties, we have not yet completed
definitive documents to implement the terms of the term sheet
and obtain a formal waiver from the note holders of our
noncompliance with the senior secured note covenants. In
addition, any future default by us under the senior secured
notes would allow the note holders to accelerate our
indebtedness under the senior secured notes.



| |                                          
| | -----------------------------------------
| | Non-Strategic Pharmaceutical
    Products

Midrin®. In
June 2001, we acquired exclusive U.S. rights and title to
Midrin®, a prescription headache management product,
from Élan. Midrin® is indicated for relief of
symptoms of tension-type, migraine and migraine variant
headaches and its active ingredients are isometheptene,
dichloralphenazone and acetaminophen. We financed the
acquisition in part through the issuance to Élan of an
$11.0 million convertible secured promissory note. The
convertible promissory note payable to Élan is due in June
2008 unless converted earlier into common stock. This note is
convertible at the option of the holder into common stock based
on a conversion price of $11.96 per share, subject to certain
adjustments. Interest is compounded semi-annually and added to
principal until June 2003. Thereafter interest is paid quarterly
in cash. Interest, which has been added to principal, totaled
$1.2 million at December 31, 2002. The
Midrin® product rights and accounts receivable
relating to Midrin® sales secure this note. In
addition, we issued Élan an aggregate of .4 million
shares of our common stock which were valued at
$4.0 million ($9.47 per share) for purposes of the
agreement. In August 2001, Midrin® was scheduled by
the Drug Enforcement Agency, requiring that, effective May 2002,
the product have tamper resistant packaging and disclosure about
the products potential for abuse. This action has not had
a material effect on Midrin® sales.
Midrin® is on formulary at Caremark, Express Scripts
and Medco Plan Sponsors. We are considering the sale of this
product because it does not relate to our core mission of
improving the health and well-being of midlife women.

BactrimTM.
In October 2001, we acquired exclusive U.S. rights to the
BactrimTM family of antibacterial products
from Hoffman-LaRoche. BactrimTM and
BactrimTM DS are commonly used to treat
urinary tract infections, acute otitis media, acute
exacerbations of chronic bronchitis in adults and
travelers diarrhea.

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##### Table of Contents



Additionally, Hoffman-LaRoche granted to us a
sole and exclusive royalty-free license to use the
BactrimTM trademark in the U.S. Subject to the
terms of the agreement, we will be able to extend this
royalty-free license in the U.S. to new delivery forms,
reformulations and other modified forms of
BactrimTM. We paid $6.0 million in cash
to acquire all existing U.S. inventory and rights to the
New Drug Applications for BactrimTM DS
Tablets, BactrimTM Tablets, Pediatric
Suspension and Intravenous Infusion. The active ingredients in
BactrimTM are trimethoprim and
sulfamethoxazole. We are considering the sale of our rights to
this product because it does not relate to our core mission of
improving the health and well-being of midlife women.


Equagesic®and Synalgos®. In November 2001, we acquired all
rights in the U.S. and Puerto Rico to
Equagesic® and Synalgos®, products used
in the treatment of pain, from American Home Products
Corporation (now known as Wyeth). The acquisition included
relevant trademarks and the Abbreviated New Drug Application and
New Drug Application for Equagesic®, a Drug
Enforcement Agency schedule IV drug, and
Synalgos®-DC, a Drug Enforcement Agency
Schedule III drug. Equagesic® is indicated for
short-term treatment of pain accompanied by tension and/or
anxiety in patients with musculoskeletal disease.
Synalgos®-DC is indicated for relief of moderate to
moderately severe pain. We agreed to pay $17.3 million to
acquire these products, with $7.5 million paid at closing
and the remaining $9.75 million payable under a secured
promissory note in three equal installments commencing November
2002. Pursuant to an amended agreement with Wyeth, the November
2002 payment was subsequently reduced to $3.0 million. The
current principal outstanding under the secured promissory note
is $6.5 million. To secure our obligations under the note,
we granted Wyeth a security interest in Equagesic®
and Synalgos®. Since September 2002, we have
marketed Synalgos® in a blister package of
12 capsules, called the painpak to
address the concerns of many physicians that the drug is
susceptible to abuse. During the latter part of the third
quarter of 2002, we engaged a contract sales organization, PDI
Shared Sales, Inc., to market Synalgos® to dentists
and oral surgeons. This arrangement proved unsatisfactory and we
terminated PDIs services in February 2003. We are
considering the sale of our rights to these products because
they do not relate to our core mission of improving the health
and well-being of midlife women.



| |                   
| | ------------------
| | Self-Care Products

We offer a variety of self-care products to
midlife women through our subsidiary, As We Change, LLC, a
national mail order catalog and Internet retailer directed at
midlife women, and through our Internet site,
aswechange.com. The As We Change® catalog
offers women a wide range of products designed to offer product
solutions to meet the needs of women at midlife.

Marketing and Sales



| |                        
| | -----------------------
| | Pharmaceutical Products

In January 2003, there were approximately 54,000
board certified obstetricians and gynecologists in the United
States. Following a downsizing of our sales force in a March
2003, we have 29 highly trained sales representatives to market
EsclimTM and Vaniqa® Cream to
those obstetrician/gynecologist practices that historically have
written the most prescriptions for our products. In addition,
our four national account managers focus on placing our products
on formulary at managed care organizations. We intend to hire
additional sales representatives only when warranted by the
growth of our business. We also maintain a staff to support the
field sales force, including a marketing and regulatory
department, customer service representatives, sales trainer and
sales and contract administrators.

From time to time, we engage the services of
third-party contract sales forces to promote our products.
Currently, we have contracted with Ventiv, an outsourced
pharmaceutical sales company with established dermatology
marketing teams, to promote Vaniqa® Cream to
dermatologists on our behalf. We have committed to spending
$2.0 million in support of this product and we compensate
Ventiv for prescriptions generated in excess of a baseline. Our
agreement with Ventiv expires in December 2005. Under the terms
of the agreement, we may elect to terminate Ventivs
services early if Ventiv fails to make minimum sales calls or
achieve minimum prescriptions from dermatologists or upon other
specified events. Ventiv may terminate the

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agreement early if the monthly supply of
Vaniqa® Cream product available to fill
prescriptions falls below specified amounts. In addition, either
party may terminate the agreement early upon 90 days notice.




| |                   
| | ------------------
| | Self-Care Products

As We Change offers a broad array of self-care
products including nutritional, skin, beauty, herbal, exercise,
libido, wellness, clothing and personal care products. The As
We Change® catalog features private label products that
are tailored to meet the individual lifestyle needs of women. As
We Change has developed a sophisticated infrastructure including
a call center with telephone and Internet customer support
capability, warehouse and shipping, new product screening and
sourcing, catalog design and production, database and
circulation management and e-commerce. Through our
aswechange.comand womenfirst.comsites, we
provide access to all of the products sold through our catalog,
As We Change®.

Manufacturing and Logistics

We have entered into manufacturing and supply
agreements with third-party manufacturers to provide us with the
pharmaceutical products we offer. The third-party manufacturers
generally are responsible for receipt and storage of raw
materials, productions, packaging, labeling and shipping of
finished goods. In each case, we are dependant on single sources
of supply for the pharmaceutical products we offer. The
following companies are currently our sole suppliers for the
indicated products:



| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pharmaceutics International, Inc. supplies
    Ortho-Est® Tablets to us under an agreement with a
    four-year term, expiring in June 2005.                                                                                                                                            
|
| |  | Laboratoires Fournier S.A., a French company,
    acts as our exclusive supplier of EsclimTM
    under an agreement with a seven-year term, expiring in January
    2007.                                                                                                               
|
| |  | Bristol-Myers Squibb Company acts as our
    exclusive supplier of Vaniqa® Cream under an
    agreement with a three-year term, expiring in June 2005. We are
    currently in discussions with Bristol-Myers Squibb to extend the
    term of the manufacturing agreement to June 2007.
|
| |  | Mallinckrodt Inc. supplies Midrin® to
    us pursuant to purchase orders. We do not have a formal
    agreement with Mallinckrodt concerning the terms of supply of
    Midrin®.                                                                                                        
|
| |  | Mutual Pharmaceutical Company, Inc. acts as our
    exclusive supplier of BactrimTM under an
    agreement with a five-year term, expiring in January 2007.                                                                                                                             
|
| |  | Wyeth, as successor to American Home Products
    Corporation, acts as our exclusive supplier of
    Equagesic® Tablets and Synalgos®-DC
    capsules under an agreement expiring in November 2004.                                                                                     

In general, our agreements with our suppliers
allow either party to terminate the agreement early if the other
party is in default of any of its material obligations under the
agreement and fails to cure the default after notice. In
addition, our supply agreements typically permit either party to
terminate the agreement early in the event of the other
partys liquidation, bankruptcy or insolvency or, in the
case of our agreement with Laboratoires Fournier concerning
EsclimTM, if the other party undergoes
specified changes of control.

We have engaged UPS Supply Chain Management, Inc.
for the storage and distribution of pharmaceutical products to
our customers, including wholesalers, pharmacies and hospitals,
and to provide physical distribution and logistics management
for the pharmaceutical products we distribute. Our agreement
with UPS Supply Chain Management can be terminated at any time
upon 90 days notice.

Competition

The health care industry is highly competitive.
Most of our competitors are large, well-known pharmaceutical,
life science and health care companies that have considerably
greater financial, sales, marketing and technical resources than
we have. Additionally, these competitors have research and
development capabilities that may allow them to develop new or
improved products that may compete with

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product lines we market and distribute. The
pharmaceutical industry is characterized by continuous product
development and technological change.




| |                        
| | -----------------------
| | Pharmaceutical Products

The pharmaceutical products we offer face
significant competition. Ortho-Est® Tablets compete
in the estrogen replenishment therapy market, a market dominated
by PremarinTM, a product manufactured by
Wyeth-Ayerst Laboratories, Inc., a division of Wyeth. The
EsclimTM estradiol transdermal system competes
in the estrogen replenishment therapy market against products
made by Berlex Laboratories, Watson Laboratories, Inc., Novogyne
Pharmaceuticals and Novartis Pharmaceutical. The estrogen
replenishment therapy products we market also compete with
combination estrogen/progestin hormonal replenishment therapy
products marketed by Wyeth, Parke-Davis, a division of Pfizer,
Solvay Pharmaceuticals, Inc., Barr Laboratories, Inc., Pharmacia
Corporation and others, as well as generic hormonal
replenishment therapy products. EsclimTM is
not available generically but there is a generic estrogen
replenishment therapy patch available. Ortho-Est®
Tablets face significant generic competition. The estrogen
replenishment therapy products we market also compete with
non-hormonal replenishment therapy products marketed by
Merck & Co., Inc. and Eli Lilly & Company.
Each of these competitors has substantially greater marketing,
sales and financial resources than we do.

Midrin®
competes against a class of drugs called triptans as well as
against generic competitors. Several companies manufacture
triptans, including GlaxoSmithKline (Imitrex®),
Merck & Co. (Maxalt®) and AstraZeneca
Pharmaceuticals LP (Zomig®). BactrimTM
competes in the antibacterial market against CotrimTM
marketed by Teva Pharmaceuticals, Septra®, manufactured by
Monarch, a division of King Pharmaceuticals, and generic
products made by High Tech Pharmaceutical Co., United Research
Laboratories and Mutual Pharmaceutical Co., among others.
Equagesic® competes against Flexeril®,
manufactured by Merck & Co., and Valium®,
manufactured by Roche Labs, as well as against generic
cyclobenzaprine and generic diazepam. Synalgos®
competes against hydrocodone products such as Vicodin® from
Abbott Laboratories and codeine products such as Tylenol®
with Codeine, manufactured by McNeil Consumer Healthcare, a
subsidiary of Johnson & Johnson.

Vaniqa® Cream
(eflornithine hydrochloride), 13.9%, competes in the
womens facial hair removal market against a variety of
depilatory products, electrolysis, laser hair removal and other
hair retardant and hair removal products. Although
Vaniqa® Cream is not available generically, it has
been on the market only a short period of time and our sales
force, as well as our contract dermatology sales force supplied
by Ventiv, have only recently begun to market the product. The
competitive products for the removal of unwanted facial hair in
women have substantially greater market presence than does
Vaniqa® Cream. In addition, because
Vaniqa® Cream is a prescription hair removal product
that is generally not covered by pharmaceutical reimbursement
plans, we may have difficulty competing against products that
are more readily available to consumers in over-the-counter form.



| |                   
| | ------------------
| | Self-Care Products

Competition for the self-care products we offer
is significant. Our subsidiary, As We Change, competes with a
number of catalog companies and Internet retailers focusing on
self-care products. Luminesence, SelfCare®,
HarmonyTM, InnerBalance and InteliHealth Family
MedsTM market and sell general lifestyle and personal
care products.

Intellectual Property

The protection of patents, copyrights, trademarks
and other proprietary rights that we own or license is material
to our success and competitive position. We rely on a
combination of laws and contractual restrictions such as
confidentiality agreements to establish and protect our
proprietary rights. Laws and contractual restrictions, however,
may not be sufficient to prevent misappropriation of our
technology or other proprietary rights or deter others from
independently developing products that are substantially
equivalent or superior.

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Patents.Due to the
length of time and expense associated with bringing new
pharmaceutical products to market, we recognize the considerable
benefits associated with acquiring or licensing products that
are protected by existing patents or for which patent protection
can be obtained. However, only two of our products,
Vaniqa® Cream and EsclimTM, are
subject to patent protection. Vaniqa® Cream has
broad patent coverage in many countries worldwide, and is
covered by patents related to the formulation of the product as
well as patents related to the method of using eflornithine
hydrochloride. We have licensed these patent rights from
Gillete, and therefore, rely on a third party to maintain and
protect against infringement of the patents relating to
Vaniqa® Cream. Additionally, we acquired two patent
applications covering new formulations of Vaniqa®
Cream and improved manufacturing processes. We have filed these
applications on a worldwide basis. EsclimTM,
for which we have an exclusive license (subject to exceptions),
is also patent protected through 2008. Our other pharmaceutical
products, and most of our self-care products, are not protected
by patents. We intend to take the actions that we believe are
necessary to protect our patent rights, but we may not be
successful in doing so on commercially reasonable terms, if at
all. In addition, parties that license their proprietary rights
to us may face challenges to their patents and other proprietary
rights and may not prevail in any litigation regarding those
rights.

Copyrights.We have
received copyright registration for the Women First HealthCare
logo. Copyrights for the source code of the womenfirst.comInternet site that we created with SF Interactive Inc. have
been assigned to us.

Trademarks and Domain
Names.Our subsidiary As We Change
owns the registered U.S. trademark As We Change®. In
addition, we own several trademark registrations, including for
our key name and mark Women First®.We have also applied to register several other marks,
including the key marks Women First
HealthCareTMand Women
FirstTM,for additional goods that
are presently covered by our existing registrations. Some of our
agreements also include rights to use the manufacturers
trademarks, such as the Ortho-Est® Tablets and
EsclimTM trademarks during the term of these
agreements. We also own the rights to the Vaniqa®
Cream trademark and the Vaniqa® Cream design
trademark. These trademarks have been registered in several key
markets worldwide and additional applications are pending. We
intend to introduce new trademarks, service marks and brand
names, as warranted, and to maintain registrations on trademarks
that remain valuable to the business.

We currently hold the Internet domain names
womenfirsthealthcare.comand womenfirst.com, and
As We Change holds the Internet domain name
aswechange.com. Domain names are regulated by Internet
regulatory bodies while trademarks are enforceable under local
country law. As a result, while we may be able to maintain our
existing .com domain names, we may not be able to acquire
corresponding domain names in other top-level domains. Also, we
may be unable to prevent third parties from acquiring domain
names that infringe or otherwise decrease the value of our
domain names or trademarks.

Government Regulation

The manufacturing, processing, formulation,
clinical investigation, packaging, labeling, storage, promotion,
distribution and advertising of the products we offer are
subject to extensive regulation by one or more federal agencies
including the Food and Drug Administration, Drug Enforcement
Agency, Environmental Protection Agency, Federal Trade
Commission, Occupational Safety and Health Administration,
Consumer Product Safety Commission, the United States Customs
Service and the United States Postal Service. These activities
are also regulated by various agencies of the states and
localities in which our products are sold. For both currently
marketed and future products, failure to comply with applicable
regulatory requirements could limit our ability to market and
distribute such products and would harm our business.

Pharmaceuticals.All
pharmaceutical firms, including manufacturers, are subject to
regulation by the Food and Drug Administration. Any restriction
or prohibition applicable to sales of products we market could
materially adversely affect our business.

All of the prescription drug products that we
market have been approved by the Food and Drug Administration,
except Midrin®. Midrin® is a
grandfathered product that was introduced prior to
1962. The Food and Drug Administration has the authority to
revoke existing approvals or to review the status of

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currently exempt pharmaceuticals and require
application and approval of prescription drugs if new
information reveals that they are not safe or effective. The
Food and Drug Administration also regulates the promotion,
including advertising, of prescription drugs. Drugs that contain
ingredients that are considered to be controlled substances are
also regulated by the Drug Enforcement Agency.
Midrin®, Equagesic® and
Synalgos® contain such ingredients. As a result,
packaging for these drugs must be clearly labeled, and these
drugs must be packaged in tamper-resistant packages. In
addition, we are required to maintain a Drug Enforcement Agency
license to distribute the products and, because the active
ingredient in Synalgos® is strictly controlled by
the Drug Enforcement Agency, the quantity of
Synalgos® that we may have manufactured is limited.


Drug products must be manufactured, packaged, and
labeled in accordance with their approvals and in conformity
with standards known as current Good Manufacturing Practices and
other requirements. Drug manufacturing facilities must be
registered with and approved by Food and Drug Administration and
must list with the Food and Drug Administration the drug
products they intend to distribute. The manufacturer is subject
to inspections by the Food and Drug Administration and periodic
inspections by other regulatory agencies. The Food and Drug
Administration has extensive enforcement powers over the
activities of pharmaceutical manufacturers, including authority
to seize and prohibit the sale of unapproved or non-complying
products, and to halt manufacturing operations that are not in
compliance with current Good Manufacturing Practices. Also, the
Food and Drug Administration regulates the distribution of
samples of drugs. Both Food and Drug Administration and Drug
Enforcement Agency may impose criminal penalties arising from
non-compliance with applicable regulations.

Cosmetics
Regulations.We market cosmetic
products through our As We Change® catalog and
aswechange.comand womenfirst.comInternet sites.
The Food and Drug Administration regulates the labeling on
cosmetic products but does not require cosmetics to be approved
before products are released to the marketplace. The Food and
Drug Administration does not have the authority to require
manufacturers to register their cosmetic establishments, file
data on ingredients or report cosmetic-related injuries. The
Food and Drug Administration maintains a voluntary data
collection program, however, and companies wishing to
participate in the program may do so. The Food and Drug
Administration may inspect cosmetics manufacturing facilities,
collect samples for examination and take action to remove
adulterated and misbranded cosmetics from the market.

Employees

As of April 1, 2003, we employed
101 full-time people. As part of our restructuring and
downsizing in March 2003, we terminated 56 employees,
mainly in the marketing and sales area. None of our employees
are represented by a labor union, and we consider our relations
with our employees to be good. Our ability to achieve our
financial and operational objectives depends in large part upon
the continued service of our senior management and key personnel
and our continuing ability to attract and retain highly
qualified managerial personnel. Competition for such qualified
personnel in the pharmaceutical and health care industry is
intense.

Seasonality

Sales of our pharmaceutical products do not tend
to be seasonal. However, we have found that sales of our
self-care products are subject to seasonality. Sales of our
self-care products typically are higher in the first two
calendar quarters, perhaps due to our customers focus on
wellness and lifestyle issues at the beginning of each new
calendar year, perhaps because of New Years resolutions.
We have also found that the sales of our merchandise related to
fashion and exercise typically are higher in the spring months,
reflecting our customers focus on outdoor activities and
physical fitness in that portion of the calendar year.
Typically, our customers do not use the catalog for gift buying,
making the last calendar quarter the weakest. We anticipate that
these trends will continue.

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Website Access to Reports

On our website, womenfirst.com, we make
our periodic and current reports available, free of charge, as
soon as reasonably practicable after such material is
electronically filed with, or furnished to, the Securities and
Exchange Commission.

Risks and Uncertainties

Risks related to our business

As of December 31, 2002, we were in
default under our senior secured notes because of our failure to
comply with financial covenants. Our inability to remedy these
defaults or any future defaults under the senior secured notes
would allow the holders to accelerate the indebtedness under the
senior secured notes and would materially harm our business and,
in turn, an investment in our common stock.

As of December 31, 2002 and March 31,
2003, we were in default under our senior secured notes having a
principal balance of $28.0 million. Our recent financial
performance caused us to fall out of compliance with the
covenants and other requirements of the senior secured notes,
which require, among other things, minimum earnings, minimum
fixed charge coverage ratio and minimum net worth measured as of
December 31, 2002 and the four quarters then ended and
limited capital expenditures during 2002. All of our
Vaniqa® Cream-related assets have been pledged to
the note holders to secure our obligations under the senior
secured notes. Because we were in default, the note holders were
entitled to terminate their commitments to us, declare the
existing loans to be immediately due and payable, and to
foreclose on the assets that have been pledged to secure these
outstanding loans.

In April 2003, we entered into a binding term
sheet with the holders of the senior secured notes to remedy
these defaults by, among other things, restructuring selected
financial covenants in the senior secured notes, pledging
additional assets to secure our obligations under the senior
secured notes, amending selected terms of our convertible
redeemable preferred stock, issuing new warrants to purchase
common stock to the holders of the senior secured notes and
obtaining equity financing from an investor group led by Edward
F. Calesa, our President and Chief Executive Officer. The
provisions of this term sheet and our preliminary agreement with
the holders of the senior secured notes are described in more
detail in this report under Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity
and Capital Resources. Our default under the senior
secured notes permits the note holders to accelerate our
indebtedness under the notes and foreclose on the collateral
pledged to secure our indebtedness under the notes. While we
have entered into a binding term sheet with the note holders to
remedy the defaults, we have not yet completed definitive
documents to implement the terms of the term sheet and the
closing of the restructuring is subject to conditions. In
addition, any future default by us under the senior secured
notes would allow the note holders to accelerate our
indebtedness under the senior secured notes. Given our cash on
hand of $10.9 million as of March 31, 2003, and our
projections for the remainder of 2003, if the note holders
sought to exercise their remedies against us, including
immediate acceleration of the senior secured notes, we would
likely file for protection under Chapter 11 of the federal
bankruptcy laws which would have a material adverse effect on
our business and, in turn, any investment in our common stock.

Significant differences between actual and
estimated demand for our products could adversely affect us. If
we overestimate demand, we may be required to write off
inventories and/or increase our reserves for product returns in
future periods. If we underestimate demand, we might not be able
to fulfill orders for our products, which would lead to lost
opportunities to generate revenues and could adversely affect
our relationships with our customers.

We continuously monitor the quantity of our
products in the distribution channel and the demand for our
pharmaceutical products through the number of prescriptions
written. Our pharmaceutical products have expiration dates that
range from 18 to 60 months from date of manufacture. We
purchase data regarding quantities in the distribution channel
and prescription activity from nationally recognized providers
of this information. In addition, we obtain inventory
information from key customers in order to provide more

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detailed information regarding the channel
inventory at specific customer locations. We will generally
accept for credit or exchange pharmaceutical products that have
become unusable due to passage of the expiration date, drug
recall or discontinuance. We establish reserves for these
credits and exchanges at the time of sale. There can be no
assurance we will be able to accurately forecast the reserve
requirement that will be needed in the future. Although our
estimates are reviewed quarterly for reasonableness, our product
return, rebate or chargeback activity could differ significantly
from our estimates because our analysis of product shipments,
prescription trends and the amount of product in the
distribution channel may not be accurate. Judgment is required
in estimating these reserves. The actual amounts could be
different from the estimates and differences are accounted for
in the period in which they become known.


We also establish reserves for potentially
excess, dated or otherwise impaired inventory. Reserves for
excess inventory are based on an analysis of expected future
sales that will occur before the inventory on hand or under a
firm commitment will expire. The analysis is based on the total
amounts of inventory on hand or under a firm commitment, channel
inventory data and prescription activity, which are purchased
from nationally recognized providers of channel inventory data
and prescription data. Judgment is required in estimating
reserves for excess inventories. The actual amounts could be
different from the estimates and differences are accounted for
in the period in which they become known.

If demand for specific products increases beyond
what we forecast, our suppliers and third-party manufacturers
may not be able to increase production rapidly enough to meet
the demand. Our failure to meet market demand could lead to
missed opportunities to increase our revenues, harm our
relationships with our customers and negatively affect your
investment in our common stock.

To recognize revenue under generally accepted
accounting principles, we must be able to reasonably estimate
the amount of future product returns. If we are unable to do so,
we may be precluded from recognizing revenue until our products
are pulled through from the wholesale level to the
retail level.

We defer recognition of revenue if we determine
that there is excess channel inventory for our products. Excess
channel inventory exists if our wholesale customers
inventory of our products exceeds our estimates of demand for
our products at the retail level, after considering factors such
as product shelf life. We determine whether excess channel
inventory exists based on an analysis of the amount of each
product in the channel inventory and prescription activity and
trends. In addition, we obtain inventory information from key
customers in order to provide more detailed information
regarding the channel inventory at specific customer locations.
We defer sales, net of the related product cost we pay to our
suppliers, associated with our estimated excess channel
inventory. Therefore, we may be forced to defer product sales to
our wholesale customers if we are not able to generate
sufficient demand for those products at the retail level. As of
December 31, 2002, we had deferred revenue of
$4.2 million related to excess channel inventory, which is
included in the accompanying consolidated balance sheets. The
deferral of revenue arose from slower than anticipated
prescription growth for our products during the fourth quarter
of 2002. There can be no certainty that we will be able to
recognize this revenue in the future. Judgment is required in
estimating the amounts of excess channel inventory. The actual
amounts could be different from the estimates and differences
are accounted for in the period in which they become known. Our
inability to recognize revenue related to excess channel
inventory may cause us to fail to meet the expectations of
investors and, in turn, cause the price of our common stock to
decline.

We believe we will have adequate cash to meet
our operating and capital needs during 2003. If our assumptions
about cash generation and usage are incorrect, we may be forced
to withhold payment to suppliers, debt holders and others and to
file for bankruptcy protection, which could diminish completely
the value of an investment in our common stock.

We have estimated the timing and amounts of cash
receipts and disbursements during 2003 and we believe we will
have adequate cash to meet our operating and capital needs
through December 31, 2003. However, our assumptions may be
wrong. In particular, we have assumed that we will be successful
in our efforts to raise funds through additional private
placement of equity securities. If we are forced to seek

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bankruptcy protection because of our inability to
make required payments, our common stock may become worthless
and an investment in our common stock would be lost.


We have been in business a short time and have
experienced significant losses since our inception.

We have incurred significant losses since we were
founded in November 1996, accumulating a deficit of
$74.6 million through December 31, 2002. We have not
achieved profitability in any complete fiscal year since our
inception. Small, relatively new companies such as ours
frequently encounter problems, delays and expenses that may be
beyond their control. These include, but are not limited to,
unanticipated problems and additional costs related to
marketing, competition, manufacturing and product acquisitions
and development. These problems could cause significant losses
and/or volatility in our profitability which could adversely
affect your investment in our common stock.

We have incurred significant debt obligations
and issued other securities that will require us to make debt
service and similar payments in the future.

As of December 31, 2002, we had outstanding
debt obligations of $46.3 million, the proceeds of which were
used to finance the acquisitions of Midrin®,
Equagesic®, Synalgos® and
Vaniqa® Cream. We issued an $11.0 million
convertible promissory note payable to Élan to acquire the
product rights for Midrin®. The note bears interest
at 7% and the interest accretes to the principal of the note for
the first two years. Beginning in the third quarter of 2003, we
are required to make quarterly interest payments in cash. The
principal plus unpaid interest under our note to Élan is
due in June 2008. We issued a promissory note to Wyeth to
acquire the product rights for Equagesic® and
Synalgos®, of which $6.5 million remains
outstanding. Under our note to Wyeth, we are required to make a
cash payment of $3.25 million on each of November 28,
2003 and November 30, 2004.

In June 2002, we financed the acquisition of
Vaniqa® Cream through the issuance of
$28.0 million of senior secured notes and
$13.0 million of convertible redeemable preferred stock.
The senior secured notes mature in September 2005 and bear
interest at the initial rate of 11% per annum, which increases
to 12.5% in December 2003, and 13% per annum in June 2004.
Interest on the senior secured notes is required to be paid in
cash except that we may pay interest amounts in excess of 11%
per annum in cash or through the issuance of additional senior
secured notes. The convertible redeemable preferred stock has an
aggregate initial stated value of $13.0 million, which
accretes at a rate of 10% per annum, calculated quarterly, which
increase to 11.5% per annum in December 2003 and 12.5% per annum
in June 2004. Unless previously converted, we will be required
to redeem the convertible redeemable preferred stock for cash at
its accreted stated value plus accreted unpaid dividends, if
any, in June 2006.

We have pledged our Vaniqa®
Cream-related assets to secure our obligations under the senior
secured notes and convertible redeemable preferred stock. We
have also pledged assets related to Midrin®,
Equagesic® and Synalgos® as security for
the repayment of debt obligations incurred to finance the
purchases of those assets. If we fail to make payment on these
instruments as required, we may be declared in default and lose
our rights to the products that secure their repayment.

Our senior secured notes and convertible
redeemable preferred stock contain provisions and requirements
that could limit our ability to secure additional financing and
respond to changing business and economic conditions.

The restrictions contained in the senior secured
notes and convertible redeemable preferred stock that we issued
to finance the acquisition of Vaniqa® Cream in June
2002 may limit our ability to implement our business plan,
finance future operations, respond to changing business and
economic conditions, secure additional financing, and acquire
additional pharmaceutical products. Both our senior secured
notes and our convertible redeemable preferred stock restrict
our ability to incur additional indebtedness and require us to
offer to use proceeds from additional indebtedness or the sale
of other securities to repay the senior secured notes and redeem
the convertible redeemable preferred stock, subject in each case
to limited exceptions. Our senior secured notes, among other
things, restrict our ability to create liens, make capital
expenditures and sell

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assets, subject to limited exceptions. In
addition, our senior secured notes initially required us to
maintain a minimum:




| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | earnings before interest, taxes, depreciation and
    amortization,
|
| |  | net worth, and                                                     
|
| |  | fixed charge coverage ratio.                                       

As noted above, as of December 31, 2002 and
March 31, 2003, we were in default under our senior secured
notes. Our recent financial performance caused us to fall out of
compliance with the covenants and other requirements of the
senior secured notes. In April 2003, we entered into a binding
term sheet with the holders of the senior secured notes to
remedy these defaults by, among other things, restructuring
selected financial covenants in the senior secured notes,
pledging additional assets to secure our obligations under the
senior secured notes, amending selected terms of our convertible
redeemable preferred stock, issuing new warrants to purchase
common stock to the holders of the senior secured notes and
obtaining equity financing from an investor group led by Edward
F. Calesa, our President, Chief Executive Officer and Chairman
of the Board. The provisions of this term sheet and our
preliminary agreement with the holders of the senior secured
notes are described in more detail in this report under
Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations 
Liquidity and Capital Resources.

If we fail to satisfy any of the covenants in the
senior secured notes in the future, we could again be in default
under our senior secured notes. In addition, if we fail to
comply with the covenants governing our indebtedness, we may
need additional financing in order to service or extinguish our
indebtedness. We may not be able to obtain financing or
refinancing on terms that are acceptable to us, or at all.

If our products do not achieve and maintain
market acceptance, we will be unable to realize our operating
objectives.

Our estrogen replenishment therapy products may
not maintain market acceptance. EsclimTM and
our Ortho-Est® Tablets compete in the estrogen
replenishment therapy market. EsclimTM
accounted for 20.4% and 21.1% of our total revenues for the
years ended December 31, 2002 and 2001, respectively.
Ortho-Est® Tablets accounted for 7.7% and 33.1% of
our total revenues for the years ended December 31, 2002
and 2001, respectively. In a study published in the Journal of
the American Medical Association in July 2002, researchers
affiliated with the National Cancer Institute reported that
women on estrogen replenishment therapy after menopause ran a
higher risk of ovarian cancer after ten years of use. This study
and others could decrease the demand for our
EsclimTM and Ortho-Est® Tablets
products. These products also compete with combination
estrogen/progestin hormonal replenishment therapy products. In
another study published in the Journal of the American Medical
Association in July 2002, researchers affiliated with the
National Institutes of Health announced that its National Heart,
Lung and Blood Institute had stopped the clinical trial of
combination estrogen replenishment therapy in healthy menopausal
women because of an increased risk of invasive breast cancer,
heart attacks, strokes and blood clots. While this study noted
no increased risk of breast cancer, heart attacks, strokes or
blood clots for women on estrogen replenishment therapy, the
perception of such a risk could decrease the demand for our
EsclimTM and Ortho-Est® Tablets
products and result in litigation from patients who used these
products similar to that faced by some manufacturers of
estrogen/progestin hormonal replenishment therapy products.

Other products we have acquired, such as
Midrin®, BactrimTM,
Equagesic®, Synalgos® and
Vaniqa® Cream, and those products we may acquire in
the future, if any, likewise may not achieve or maintain market
acceptance. The market acceptance of all of our products will
depend on, among other factors:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | their advantages over existing competing products,                       
|
| |  | their perceived efficacy, safety and cost,                               
|
| |  | the extent to which they are substituted
    generically by the pharmacy,

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| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | the actual or perceived side effect profile of
    our products, and    
|
| |  | the reimbursement policies of the government and
    third-party payers.

Our business model assumes that our marketing
programs and strategies and the growth in our target market will
result in increased revenues. If our marketing programs and
strategies do not succeed in generating increased revenues, we
will be unable to realize our operating objectives. If the
clinicians we target do not recommend and prescribe the products
we offer or if their patients do not regularly use these
products, we will experience losses in the future that could, in
turn, adversely affect the trading price of our common stock and
the value of your investment.

We have announced plans to consider the sale
of product rights for those pharmaceutical products that are
non-strategic and do not relate to our core mission of improving
the health and well being of midlife women. We may sell these
product rights for less than their book value, thereby
increasing the size of our net loss in 2003.

Part of our strategy for reaching our objective
to become a premier marketer of health care products for midlife
women is to focus our energies on those products 
pharmaceutical and self-care  that directly target
this audience. Other products in our portfolio,
Midrin®, BactrimTM,
Equagesic® and Synalgos®, do not meet this
criteria, and we have announced plans to attempt to sell these
non-strategic products. In the event we are successful, we will
use any proceeds we receive to pay down our debt and where
possible, increase our working capital. We do not know whether
the products will be sold in a group or individually, or at all,
but it is possible that we will sell some or all of them at a
price less than our book value. A sale of some or all of the
products would improve our debt position and may increase our
cash position (assuming we sell products for greater than the
associated debt). However, selling products below their book
value would increase our net loss beyond the loss we have
projected for 2003. This may disappoint investors and further
depress the price of our common stock and the value of an
investment in our common stock.

Our business model requires the development
and profitability of our pharmaceutical division and consumer
division. If we fail to implement key elements of our business
plan, we may not succeed.

We have embarked on an ambitious plan to provide
prescription and non-prescription products to midlife women. As
part of our plan, we have acquired rights to specialty
pharmaceutical products that we believe are well suited to
midlife women. We may seek to acquire additional product rights
in the future. We also offer products through our consumer
division. To promote our products, we will seek to persuade
obstetricians, gynecologists, dermatologists, nurse
practitioners and physicians assistants focused on
womens health to prescribe and recommend the products we
offer. However, there is a limited market awareness of our
company and the products and services we offer. If we do not
generate sufficient demand for our current or future products or
if general economic conditions cause a drop off in discretionary
spending, our business may not succeed and our
stockholders investments in us may suffer.

Our quarterly and annual financial results may
fail to meet or exceed the expectations of investors, which
could cause the price of our stock to remain
depressed.

Our quarterly and annual operating results may
fail to meet or exceed the expectations of securities analysts
or investors because of a number of factors, including the
following:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | changes in the acceptance or availability of the
    products we offer,                                      
|
| |  | the timing of new product offerings, acquisitions
    or other significant events by us or our competitors,  
|
| |  | regulatory approvals and legislative changes
    affecting the products we offer or those of our competitors,
|
| |  | research studies and news reports concerning the
    safety or efficacy of our products or similar products, 
|
| |  | the productivity of our sales force,                                                                         

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| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reserves we may need to record and revenues we
    may need to defer due to an excess supply of our pharmaceutical
    products in the distribution channel,
|
| |  | return of excess inventory from our customers
    that exceed the reserves we have established, and                                                         
|
| |  | general economic and market conditions and
    conditions specific to the health care industry.                                                             

Failure to meet or exceed the expectations of
securities analysts or investors could negatively affect our
stock price and your investment.

We are dependent on a single source of supply
for each of the pharmaceutical products we offer. If one of our
suppliers fails to supply adequate amounts of a product we
offer, our sales may suffer.

We are dependent on single sources of supply for
the pharmaceutical products we offer. The following companies
are currently our sole suppliers for the indicated products:



| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pharmaceutics International, Inc. supplies
    Ortho-Est® Tablets to us under an agreement with a
    four-year term, expiring in June 2005.                                                                                                                                            
|
| |  | Laboratoires Fournier S.A., a French company,
    acts as our exclusive supplier of EsclimTM
    under an agreement with a seven-year term, expiring in January
    2007.                                                                                                               
|
| |  | Bristol-Myers Squib Company acts as our exclusive
    supplier of Vaniqa® Cream under an agreement with a
    three- year term, expiring in June 2005. We are currently in
    discussions with Bristol-Myers Squibb to extend the term of the
    manufacturing agreement to June 2007.
|
| |  | Mallinckrodt Inc. supplies Midrin® to
    us pursuant to purchase orders. We do not have a formal
    agreement with Mallinckrodt concerning the terms of supply of
    Midrin®.                                                                                                        
|
| |  | Mutual Pharmaceutical Company, Inc. acts as our
    exclusive supplier of BactrimTM under an
    agreement with a five-year term, expiring in January 2007.                                                                                                                             
|
| |  | Wyeth, as successor to American Home Products
    Corporation, acts as our exclusive supplier of
    Equagesic® Tablets and Synalgos®-DC
    Capsules under an agreement expiring in November 2004.                                                                                     

In general, our agreements with our suppliers
allow either party to terminate the agreement early if the other
party is in default of any of its material obligations under the
agreement and fails to cure the default after notice. In
addition, our supply agreements typically permit either party to
terminate the agreement early in the event of the other
partys liquidation, bankruptcy or insolvency or, in the
case of our agreement with Fournier concerning
EsclimTM, if the other party undergoes
specified changes of control.

With respect to our products and the ingredients
contained in these products, we cannot guarantee that these
third parties will be able to provide adequate supplies of
products or materials in a timely fashion. These third parties
may pursue the manufacture and supply of their own
pharmaceutical products in preference to those being
manufactured for us. In addition, our third-party suppliers may
terminate their agreements with us earlier than we expect, and
as a result we may be unable to continue to market and sell the
related pharmaceutical products on an exclusive basis or at all.
We also face the risk that one of our suppliers could lose its
production facilities in a disaster, be unable to comply with
applicable government regulations or lose the governmental
permits necessary to manufacture the products it supplies to us.
If a third-party supplier cannot meet our needs for a product,
we may not be able to obtain an alternative source of supply in
a timely manner. In these circumstances, we may be unable to
continue to fill customers orders as planned.

Because we depend on a small number of
customers for a significant portion of our revenues, the loss of
any of these customers, any cancellation or delay of a large
purchase by any of these customers or the return of unsold
product in excess of reserves we have established could
significantly reduce our revenues.

Historically, a limited number of customers has
accounted for a significant portion of our total revenues. Four
customers, McKesson Drug Operations, QK Healthcare, Inc.,
Cardinal Health, Inc. and AmerisourceBergen Corp., each
individually accounted for greater than 10% of our total
revenues for the year

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ended December 31, 2002. Together, these
customers accounted for approximately 88% and 60% of our total
revenues for the years ended December 31, 2002 and 2001,
respectively. We have no long-term commitments from these
customers or any other customers to purchase products from us.
We anticipate that our operating results will continue to depend
to a significant extent upon revenues from a small number of
customers. The loss of any of our key customers, or a
significant reduction in sales to those customers, could
significantly reduce our revenues. In addition, because these
key customers purchase such a relatively large percentage of our
products, we may be particularly susceptible to risks of
cancellation of product orders or returns of unsold products
from these large wholesalers.


We have recently reduced our sales force, and
cannot be certain the remaining sales force will continue to
achieve desired sales levels.

In March 2003, we announced that we had not
generated sufficient demand to meet our internal projections for
prescription growth. As a result, we reduced the size of our
sales force by 60% to eliminate those territories that have not
been profitable. Our smaller sales force may not be successful
in generating sufficient awareness or demand for our products,
which could significantly reduce our revenues, harm our
financial results and depress the price of our common stock.
Further, in those sales territories that we have terminated
sales personnel, our competitors may be able to encroach on our
business which could also reduce our revenues, harm our
financial results and depress the price of our common stock.

In some cases, we rely on third-party sales
organizations to promote our products and cannot be sure their
efforts will lead to adequate sales of our products.

For selected products, we hire outside
organizations to conduct sales and marketing projects to promote
awareness of these products to targeted physicians. In December
2002, we hired Ventiv to market Vaniqa® Cream to
dermatologists. In April 2003, Ventiv will begin to market
Synalgos® to dentists and oral surgeons on a test
basis. As a result of our reliance on third-party sales
organizations, some of the variables that may affect our
revenues, cash flows and operating results are not exclusively
within our control. Third-party sales organizations may not
devote adequate attention to the promotion and marketing of our
products, which could result in our failure to realize the full
sales potential of our products. Even if the third parties that
market our products are initially successful, they may not
continue to be successful. We may not be able to renew these
third-party arrangements successfully in the future, and new
outside sales arrangements may not continue to be available on
commercially reasonable terms.

Our inability to obtain new proprietary rights
or to protect and retain our existing rights could impair our
competitive position and adversely affect our sales.

We believe that the patents, trademarks,
copyrights and other proprietary rights that we own or license,
or that we will own or license in the future, will continue to
be important to our potential success and competitive position.
If we fail to maintain our existing rights or cannot acquire
additional rights in the future, our competitive position may be
harmed. Due to the length of time and expense associated with
bringing new pharmaceutical products to market, there are
benefits associated with acquiring or licensing products that
are protected by existing patents or for which patent protection
can be obtained. While the EsclimTM estradiol
transdermal system and our Vaniqa® Cream incorporate
patented technology, the other pharmaceutical products and most
of the self-care products we sell are not protected by patents.
We have applied for registration of a number of key trademarks
and intend to introduce new trademarks, service marks and brand
names as warranted. We intend to take the actions that we
believe are necessary to protect our proprietary rights, but we
may not be successful in doing so on commercially reasonable
terms, if at all. In addition, parties that license their
proprietary rights to us may face challenges to their patents
and other proprietary rights and may not prevail in any
litigation regarding those rights. Under the terms of a license
agreement, we rely on Gillette to maintain and protect against
infringement of the patents relating to our Vaniqa®
Cream. Moreover, our trademarks and the products we offer may
conflict with or infringe upon the proprietary rights of third
parties. If any such conflicts or infringements should arise, we
would have to defend ourselves against such challenges. We also
may have to obtain a license to use those proprietary rights or
possibly cease using

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those rights altogether. Any of these events
could harm our business and your investment in our common stock.


Potential future impairments under Financial
Accounting Standards Board Statement of Financial Accounting
Standard No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets could adversely affect
our future results of operations and financial
position.

In accordance with Financial Accounting Standards
Board Statement of Financial Accounting Standard No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, we review our long-lived assets, including product
rights, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. An impairment loss would be measured and
recognized if the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset. If the
carrying amount of the asset were determined to be impaired, an
impairment loss to write-down the carrying value of the asset to
fair value by using quoted market prices when available, would
be required. When a quoted market price is not available, an
estimated fair value would be determined through other valuation
techniques. We have used projected cash flows discounted to
reflect the expected technical, commercial, competitive and
other factors related to acquired technologies or products, and
comparisons to similar asset sales and valuations by others, to
estimate the fair value of our intangible assets. These future
tests may result in a determination that these assets have been
impaired. If at any time we determine that an impairment has
occurred, we will be required to reflect the impaired value as a
charge, resulting in a reduction in earnings in the quarter such
impairment is identified and a corresponding reduction in our
net asset value. A material reduction in earnings resulting from
such a charge could cause us to fail to be profitable in the
period in which the charge is taken or otherwise to fail to meet
the expectations of investors and securities analysts, which
could cause the price of our stock to decline.

In addition, under the Financial Accounting
Standards Board Statement of Financial Accounting Standard
No. 142, Goodwill and Other Intangible Assets,
goodwill and intangible assets deemed to have indefinite lives
are not amortized but instead are subject to annual impairment
tests in accordance with the statement. As of December 31,
2002, we had goodwill and intangible assets recorded at
approximately $2.8 million, net of accumulated
amortization, primarily associated with our acquisition of As We
Change. During the second quarter of 2002, we performed the
first of the required impairment tests of goodwill and
indefinite life intangible assets to determine if a transition
impairment charge should be recognized under SFAS 142. The tests
showed that no impairment charge should be recognized. We will
test for impairment at least annually.

Our failure to retain the principal members of
our management team and sales force or to hire additional
qualified employees would adversely affect our ability to
implement our business plan.

Our success depends upon the retention of the
principal members of our management team and our technical,
marketing and sales staffs. In particular, the loss of the
services of Edward F. Calesa, our President, Chief Executive
Officer and Chairman of the Board, or other key members of our
management team might significantly delay or prevent the
achievement of our development and strategic objectives. We have
entered into an employment contract with Mr. Calesa. We are
the beneficiary of a life insurance policy on the life of
Mr. Calesa in the amount of $2.0 million. If
Mr. Calesa ceases to serve as our Chief Executive Officer,
we may be required to redeem the senior secured notes and
convertible redeemable preferred stock. We do not have life
insurance policies on the lives of any other members of our
management team. In March 2003, we reduced the size of our sales
force by 60% to eliminate those territories that have not been
profitable. While we have given incentives to the remaining
sales force with pay raises and stock options, we cannot be
certain that our sales personnel will continue their employment
with us, or continue to be productive. If we are unable to
retain this smaller group of highly trained sales
representatives, demand for our products may be negatively
impacted and our revenues may decline. Our success also depends
on our ability to attract additional qualified employees. Our
inability to retain our existing personnel or to hire additional
qualified employees would have a material adverse effect on our
company and an investment in our common stock.

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Our management and existing stockholders have
substantial control over our voting stock and can make decisions
that could adversely affect our business and our stock
price.

As of March 31, 2003, Edward F. Calesa and
his family members jointly beneficially owned approximately
33.5% of our common stock. Also as of the same date, our present
directors and executive officers, their family and affiliates as
a group beneficially owned approximately 37.7% of our
outstanding common stock. Accordingly, if all or certain of
these stockholders were to act together, they would be able to
exercise significant influence over or control the election of
our board of directors, the management and policies of Women
First and the outcome of certain corporate transactions or other
matters submitted to our stockholders for approval, including
mergers, consolidations and the sale of all or substantially all
of our assets.

Our directors and management, acting together,
may be able to prevent or effect a change in control of Women
First and are able to amend certain provisions of our
certificate of incorporation and bylaws at any time. The
interests of this group may conflict with the interests of our
other holders of common stock, and this concentration of
ownership may discourage others from initiating potential
mergers, takeovers or other change in control transactions.

Our stock price has recently suffered
significant declines and remains volatile.

The market price of our common stock declined
significantly in March 2003 and may continue to decline in the
future. From January 1, 2000 to March 31, 2003, our
stock has ranged from a high sales price of $11.84 to a low
sales price of $0.44. The market prices and trading volumes for
securities of emerging companies, like Women First, historically
have been highly volatile and have experienced significant
fluctuations both related and unrelated to the operating
performance of those companies. Factors beyond our control such
as fluctuations in our operating results, stockholders
reactions to our public announcements, our restructuring
efforts, sales of substantial amounts of shares by large
stockholders, concern as to safety of drugs, and general market
conditions, can have an adverse effect on the market price of
our securities. Shortfalls in our revenues, earnings, customer
growth or other business metrics in any given period relative to
the levels and schedule expected by securities analysts, could
immediately, significantly and adversely affect the trading
price of our common stock. In the past, following periods of
volatility in the market price of a companys securities,
class action litigation has often been instituted against the
subject company. Litigation of this type could result in
substantial costs and a diversion of our managements
attention and resources which could, in turn, have a material
adverse effect on our business, financial condition and results
of operations. We have directors and officers insurance for this
type of action but may be unable to buy such coverage in the
future because of our results and expected increase in cost.

We face possible delisting from the NASDAQ
National Market, which would result in a limited public market
for our common stock.

There are several requirements for the continued
listing of our common stock on the NASDAQ National Market
including, but not limited to, a minimum stock bid price of
$1.00 per share. The NASDAQ National Market has adopted a pilot
program that allows for a 180 day grace period for
compliance with the minimum bid price requirement and an
additional 180 day grace period for those NASDAQ National
Market issuers able to demonstrate compliance with the core
NASDAQ National Market initial listing criteria. On various
dates from March 20, 2003 through the date of this report,
the bid prices for shares of our common stock on the NASDAQ
National Market have been below this minimum threshold of $1.00.
Although we believe we are currently in compliance with the
other core NASDAQ National Market initial listing criteria, if
we are unable to satisfy the $1.00 minimum bid price requirement
by the expiration of the grace period, our common stock may be
subject to delisting by NASDAQ, which would result in a very
limited public market for our common stock.

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We have implemented anti-takeover provisions
that could delay or prevent a change of control of our company
and prevent an acquisition at a premium price.

Provisions of our Fourth Amended and Restated
Certificate of Incorporation, as amended, and Second Amended and
Restated Bylaws may discourage, delay or prevent a merger or
other change of control that stockholders may consider favorable
or may impede the ability of the holders of our common stock to
change our management. These include provisions classifying our
board of directors, prohibiting stockholder action by written
consent and requiring advance notice for nomination of directors
and stockholders proposals. In addition, Section 203
of the Delaware General Corporation Law also imposes
restrictions on mergers and other business combinations between
our company and any holders of 15% or more of our common stock.
Moreover, our certificate of incorporation allows our board of
directors to issue, without further stockholder approval,
preferred stock that could have the effect of delaying,
deferring or preventing a change in control. The issuance of
preferred stock also could adversely affect the voting power of
the holders of our common stock, including the loss of voting
control to others. In 2001, we adopted a Change in Control/
Severance Policy that may have the effect of discouraging a
third-party from attempting to acquire us. Our option plans
provide that unvested options will become fully vested and
exercisable upon a change in control of Women First. The
provisions of our certificate of incorporation and bylaws, our
option plans, as well as certain provisions of Delaware law, may
have the effect of discouraging or preventing an acquisition, or
disposition, of our business. These provisions also may diminish
the opportunities for a stockholder to participate in certain
tender offers, including tender offers at prices above the
then-current fair market value of our common stock. Some of our
key contracts contain provisions that would allow the other
party to the agreement to terminate the agreement upon a change
in control.

Risks related to the health care and
pharmaceutical industry

The health care industry and the markets for
the products we offer are very competitive. We may not be able
to compete effectively, especially against established industry
competitors with significantly greater financial
resources.

The health care industry is highly competitive.
Most of our competitors are large, well-known pharmaceutical,
life science and health care companies that have considerably
greater financial, sales, marketing and technical resources than
we have. Additionally, these competitors have research and
development capabilities that may allow them to develop new or
improved products that may compete with product lines we market
and distribute. The pharmaceutical industry is characterized by
continuous product development and technological change.

The pharmaceutical products we offer face
significant competition. Ortho-Est® Tablets compete
in the estrogen replenishment therapy market, a market dominated
by PremarinTM, a product manufactured by
Wyeth-Ayerst Laboratories, Inc., a division of Wyeth. The
EsclimTM estradiol transdermal system competes
in the estrogen replenishment therapy market against products
made by Berlex Laboratories, Watson Laboratories, Inc., Novogyne
Pharmaceuticals and Novartis Pharmaceutical. The estrogen
replenishment therapy products we market also compete with
combination estrogen/progestin hormonal replenishment therapy
products marketed Wyeth, Parke-Davis, a division of Pfizer,
Solvay Pharmaceuticals, Inc., Barr Laboratories, Inc., Pharmacia
Corporation and others, as well as generic hormonal
replenishment therapy products. EsclimTM is
not available generically but there is a generic estrogen
replenishment therapy patch available. Ortho-Est®
Tablets face significant generic competition. The estrogen
replenishment therapy products we market also compete with
non-hormonal replenishment therapy products marketed by Merck
& Co., Inc. and Eli Lilly & Company. Each of these
competitors has substantially greater marketing, sales and
financial resources than we do.

Midrin®
competes against a class of drugs called triptans as well as
against generic competitors. Several companies manufacture
Triptans, including GlaxoSmithKline (Imitrex®), Merck &
Co. (Maxalt®) and AstraZeneca Pharmaceuticals LP
(Zomig®). BactrimTM competes in the
antibacterial market against CotrimTM marketed by
Teva Pharmaceuticals, Septra®, manufactured by Monarch, a
division of King Pharmaceuticals, and generic products made by
High Tech Pharmaceutical Co., United Research Laborato-

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ries and Mutual Pharmaceutical Co., among others.
Equagesic® competes against Flexeril®,
manufactured by Merck & Co., and Valium®, manufactured
by Roche Labs, as well as against generic cyclobenzaprine and
generic diazepam. Synalgos® competes against
hydrocodone products such as Vicodin® from Abbott
Laboratories and codeine products such as Tylenol® with
Codeine, manufactured by McNeil Consumer Healthcare, a
subsidiary of Johnson & Johnson.


Vaniqa®Cream (eflornithine hydrochloride), 13.9%, competes in the
womens facial hair removal market against a variety of
depilatory products, electrolysis, laser hair removal and other
hair retardant and hair removal products. Although
Vaniqa® Cream is not available generically,
it has been on the market only a short period of time and our
sales force and our third-party sales provider have only
recently begun to market the product. The competitive products
for the removal of unwanted facial hair in women have
substantially greater market presence than does
Vaniqa® Cream. In addition, because
Vaniqa® Cream is a prescription hair removal
product, we may have difficulty competing against products that
are more readily available to consumers in over-the-counter form.

Competition for the self-care products we offer
is significant. Our subsidiary, As We Change, LLC competes with
a number of catalog companies and Internet retailers focusing on
self-care products. Luminesence, SelfCare®,
HarmonyTM, Inner Balance and InteliHealth
HealthyHomeTM market and sell general lifestyle and
personal care products.

Our failure to adequately respond to the
competitive challenges faced by the products we offer could have
a material adverse effect on our business, financial condition
and results of operations which could, in turn, cause our common
stock price to decline.

Patients may not be able to obtain
reimbursement for the pharmaceutical products we offer. This is
the case for Vaniqa®Cream, the sale of which generally is not reimbursed to
patients by their private health insurers. Any failure to obtain
reimbursement could limit the sales of our products and could
harm our results of operations.

Our ability to market new and existing
pharmaceutical products depends in part on whether health care
payers, including government authorities, private health
insurers, health maintenance organizations and managed care
organizations, will provide sufficient reimbursement for the
products we offer. Third-party payers are increasingly
challenging the prices of pharmaceutical products and demanding
data to justify the inclusion of new or existing products in
their formularies. Significant uncertainty exists regarding the
reimbursement status of pharmaceutical products, and we cannot
predict whether additional legislation or regulation affecting
third-party coverage and reimbursement will be enacted in the
future, or what effect such legislation or regulation would have
on our business. Reimbursement may not be available for the
products we offer and reimbursement granted may not be
maintained. In particular, 95% of patients using our
Vaniqa® Cream do not receive reimbursement from any
government authorities, private health insurers, health
maintenance organizations or managed care organizations. In
addition, sales of Ortho-Est® Tablets,
BactrimTM and Midrin® may be
adversely affected by formularies that require substitution of
generics on prescriptions written for these products unless the
physician indicates dispense as written on the
prescription. Moreover, limits on reimbursement available from
third-party payers may reduce the demand for, or adversely
affect the price of, the products we offer.

We may be exposed to product liability claims
not covered by insurance that would harm our business.

We currently carry product liability insurance
with an aggregate limit of $15.0 million with respect to
our products other than Vaniqa® Cream. Our
product liability insurance with respect to
Vaniqa® Cream has an aggregate limit of
$20.0 million. Although we intend to continue to maintain
product liability insurance, we cannot guarantee that this
insurance will be sufficient to cover all possible liabilities
or that such insurance will continue to be available in the
future at acceptable costs. A successful suit against us could
require us to pay significant damages and could affect our
ability to market our products, among other negative effects on
our business. If the amounts involved in these product liability
suits are material, our common stock price could suffer.

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Much of our business is subject to regulation.
Regulatory bodies could impair or eliminate our ability to
conduct portions of our business.

Many of our activities are subject to extensive
regulation by one or more federal, state or local agencies. In
general, regulations pertain to the manufacture, purchase, safe
storage and distribution of pharmaceuticals and controlled
substances that are monitored through periodic site inspections
conducted by the Food and Drug Administration and the Drug
Enforcement Agency. Failure to comply with these requirements
and regulations or to respond to changes in these requirements
and regulations could result in modifications to our products,
manufacturing delays, penalties or fines or a temporary or
permanent closure of our manufacturers facilities. For
example, our EsclimTM 25mg patch did not meet
Food and Drug Administration specifications at its 24-month
testing, which resulted in an 18 month expiration date on
that size of EsclimTM patch. Also, the
manufacturer for the aspirin active ingredient in our
Synalgos® product has closed its United States site
which will require us to qualify material from a new site in
order to comply with applicable regulatory requirements. In
addition, an active ingredient in our Synalgos®
product is subject to a Drug Enforcement Agency quota limiting
the amount that may be produced in any given year. Accordingly,
the amount of Synalgos® that can be manufactured is
strictly controlled by the Drug Enforcement Agency. If we are
unable to increase production of dehydrocodein (the controlled
ingredient in Synalgos®) beyond the amount currently
approved by the Drug Enforcement Agency, we would be unable to
increase production of Synalgos® and might therefore
be unable to meet our future projections for sales of the
product.

Regulatory bodies such as the Food and Drug
Administration and the Drug Enforcement Agency may also require
us or our third-party manufacturers and suppliers to recall
products, the cost of which could be substantial. We and our
third-party manufacturers and suppliers may also choose to
voluntarily recall products for health and safety reasons,
including product stability issues. The regulations applicable
to our existing and future products may change and could
increase our costs of compliance and cause our stock price to
decline.

The Food and Drug Administration has recently
requested changes in the labeling of estrogen products that may
negatively impact our revenues by suggesting a link between
estrogen and various health risks, most notably cancer. If this
change takes effect, our sales of EsclimTM and
Ortho-Est® Tablets may decline.




Item 2.Properties

We are headquartered in facilities consisting of
approximately 13,392 square feet in San Diego, California,
pursuant to a lease expiring in August 2003. As We Change, is
headquartered in facilities consisting of approximately 14,880
square feet in San Diego, pursuant to a lease expiring in
September 2003. We are currently exploring options to either
renew our existing leases or relocate to other locations in the
San Diego area.




Item 3.Legal
Proceedings

From time to time we are involved in routine
litigation and proceedings in the ordinary course of our
business. We are currently involved in litigation entitled
Andres Lopez Sandoval, et. al. v. Kern Medical Center, et.
al., brought against Hoffman-LaRoche in February 2003 in the
Superior Court of the State of California, County of Kern. We
have agreed to indemnify Hoffman-LaRoche for any claims related
to BactrimTM that occur after the date we
acquired the product, which would include the Sandoval
claim. Hoffman-LaRoche was named as a defendant in this
litigation which alleges damages against the deceaseds
physician, hospital, ambulance provider and a number of other
care givers as well as other pharmaceutical companies that
manufactured products prescribed to the deceased in connection
with his illnesses. The claim seeks a judgment of
$10 million from each defendant in addition to punitive
damages for medical malpractice, fraud, personal injury,
negligence, breach of implied warranty, misrepresentation,
wrongful death, loss of consortium, intentional infliction of
emotional distress, negligent infliction of emotional distress,
general negligence and intentional tort. We believe we have
meritorious defenses to this lawsuit and will contest these
claims vigorously. However, the ultimate resolution of these
matters could have a material adverse effect on our financial
condition and results of operations. Even if we prevail, the
litigation could be expensive to defend

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and could require significant amounts of
management time and the diversion of significant operational
resources.


We are not currently involved in any other
pending litigation matters that we believe would have a material
adverse effect on us.




Item 4.Submission
of Matters to a Vote of Security Holders

Not applicable.




PART II




Item 5.Market
for Registrants Common Equity and Related Stockholders
Matters

Our common stock, $.001 par value per share, has
traded on the NASDAQ National Market under the symbol WFHC since
June 29, 1999. The following table sets forth the high and
low sales price for the common stock as reported by the NASDAQ
National Market during the periods indicated:

|                   |  |      |       |     |  |   |      | 
|------------------ |  | ---- | ----- | --- |  | - | ---- | 
|Quarter ending     |  | High |       | Low
|                   |  |      |       |    
|March 31, 2001     |  | $    | 4.12  |     |  | $ | 2.06 | 
|June 30, 2001      |  | $    | 9.23  |     |  | $ | 2.62 | 
|September 30, 2001 |  | $    | 11.84 |     |  | $ | 7.00 | 
|December 31, 2001  |  | $    | 10.00 |     |  | $ | 5.61 | 
|March 31, 2002     |  | $    | 11.40 |     |  | $ | 9.10 | 
|June 30, 2002      |  | $    | 10.51 |     |  | $ | 6.40 | 
|September 30, 2002 |  | $    | 8.20  |     |  | $ | 2.86 | 
|December 31, 2002  |  | $    | 6.18  |     |  | $ | 4.08 | 

As of March 31, 2003, there were 22,971,255
shares of common stock outstanding held by approximately 57
holders of record.

We have not paid any cash dividends on our common
stock since inception and do not anticipate paying cash
dividends in the foreseeable future.




Item 6.Selected
Consolidated Financial Information

The selected financial information set forth
below with respect to our consolidated financial statements has
been derived from our audited financial statements. The
information set forth below should be read in conjunction with
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operationsand our
consolidated financial statements and the related notes included
elsewhere in this report.

Consolidated Statement of Operations
Data:

|                                     |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       |  
|------------------------------------ |  | ------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ----- | -
|                                     |  | 2002                                  |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                     |  |                                       |        |      |  |      |        |      |  |     
|                                     |  |                                      
|                                     |  | (In thousands, except per share data)
|Net revenue                          |  | $                                     | 48,618 |      |  | $    | 28,407 |      |  | $    | 27,085 |   |  | $ | 22,502 |   |  | $ | 4,834 |  
|Cost of sales                        |  |                                       | 17,685 |      |  |      | 8,238  |      |  |      | 10,529 |   |  |   | 12,327 |   |  |   | 2,648 |  
|                                     |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       |  
|Gross margin                         |  |                                       | 30,933 |      |  |      | 20,169 |      |  |      | 16,556 |   |  |   | 10,175 |   |  |   | 2,186 |  
|Gross margin %                       |  |                                       | 63.6   | %    |  |      | 71.0   | %    |  |      | 61.1   | % |  |   | 45.2   | % |  |   | 45.2  | %
|Marketing and sales expenses         |  |                                       | 24,383 |      |  |      | 16,113 |      |  |      | 31,765 |   |  |   | 26,827 |   |  |   | 5,478 |  
|General and administrative expenses  |  |                                       | 6,238  |      |  |      | 7,539  |      |  |      | 7,541  |   |  |   | 10,793 |   |  |   | 5,912 |  
|Regulatory, research and development |  |                                       | 568    |      |  |      | 465    |      |  |      | 539    |   |  |   | 1,697  |   |  |   | 573   |  

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|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |        | 
|------------------------------------------------------------------------------------------------ | ------------------------ | ------------------------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------ | ------ | 
|                                                                                                 |                          | 2002                                  |        | 2001   |  | 2000 |        | 1999   |  | 1998
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |     
|                                                                                                 |                          |                                      
|                                                                                                 |                          | (In thousands, except per share data)
|Write-down of assets and other charges                                                           |                          |                                       |       |        |  |      |       |        |  |      |        |        |  |   | 1,639   |        |  |   |       |       
|Restructuring charges                                                                            |                          |                                       |       |        |  |      |       |        |  |      | 735     |        |  |   |        |        |  |   |       |       
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |       
|                                                                                                 | Total operating expenses |                                       |        | 31,189 |  |      |        | 24,117 |  |      |         | 40,580 |  |   |         | 40,956 |  |   |        | 11,963 | 
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |       
|Loss from operations                                                                             |                          |                                       | (256   | )      |  |      | (3,948 | )      |  |      | (24,024 | )      |  |   | (30,781 | )      |  |   | (9,777 | )     
|Interest and other income                                                                        |                          |                                       | 204    |        |  |      | 972    |        |  |      | 1,458   |        |  |   | 646     |        |  |   | 395    |       
|Interest expense                                                                                 |                          |                                       | (3,906 | )      |  |      | (465   | )      |  |      |        |        |  |   |        |        |  |   |       |       
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |       
|Net loss                                                                                         |                          |                                       | (3,958 | )      |  |      | (3,441 | )      |  |      | (22,566 | )      |  |   | (30,135 | )      |  |   | (9,382 | )     
|Accretion of beneficial conversion feature
    related to convertible redeemable preferred stock |                          |                                       | (1,024 | )      |  |      |       |        |  |      |        |        |  |   | (3,362  | )      |  |   |       |       
|Accretion of stated value of convertible
    redeemable preferred stock                          |                          |                                       | (682   | )      |  |      |       |        |  |      |        |        |  |   |        |        |  |   |       |       
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |       
|Net loss available to common stockholders                                                        |                          | $                                     | (5,664 | )      |  | $    | (3,441 | )      |  | $    | (22,566 | )      |  | $ | (33,497 | )      |  | $ | (9,382 | )     
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |       
|Net loss per share available to common
    stockholders (basic and diluted)                      |                          | $                                     | (0.25  | )      |  | $    | (0.17  | )      |  | $    | (1.29   | )      |  | $ | (2.67   | )      |  | $ | (1.22  | )     
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |       
|Weighted average shares used in computing net
    loss per share (basic and diluted)             |                          |                                       | 22,851 |        |  |      | 19,707 |        |  |      | 17,468  |        |  |   | 12,547  |        |  |   | 7,686  |       
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |       
|Equity compensation included in general and
    administrative expenses                          |                          | $                                     | 87     |        |  | $    | 104    |        |  | $    | 446     |        |  | $ | 1,160   |        |  | $ | 112    |       
|                                                                                                 |                          |                                       |        |        |  |      |        |        |  |      |         |        |  |   |         |        |  |   |        |       

Consolidated Balance Sheet Data:

|                                              |  |                |         |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|--------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                              |  | 2002           |         | 2001 |  | 2000 |        | 1999 |  | 1998
|                                              |  |                |         |      |  |      |        |      |  |     
|                                              |  |               
|                                              |  | (In thousands)
|Cash and cash equivalents                     |  | $              | 9,079   |      |  | $    | 19,378 |      |  | $    | 9,508  |  |  | $ | 32,719 |  |  | $ | 4,438  | 
|Working capital                               |  |                | 13,603  |      |  |      | 21,401 |      |  |      | 9,535  |  |  |   | 30,499 |  |  |   | 3,364  | 
|Total assets                                  |  |                | 117,237 |      |  |      | 72,755 |      |  |      | 20,044 |  |  |   | 43,648 |  |  |   | 12,504 | 
|Long term debt, excluding current             |  |                | 39,839  |      |  |      | 17,267 |      |  |      |       |  |  |   |       |  |  |   |       | 
|Senior convertible redeemable preferred stock |  |                | 13,682  |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|Total stockholders equity                    |  |                | 45,858  |      |  |      | 45,720 |      |  |      | 15,035 |  |  |   | 36,719 |  |  |   | 8,436  | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

You should read the following discussion of
our financial condition and results of operations with our
consolidated financial statements and related notes included
elsewhere in this Annual Report. This discussion contains
forward-looking statements and involves numerous risks and
uncertainties, including, but not limited to, those described in
Item 1 of this Annual Report under the heading Risks
and Uncertainties. Our actual results may differ
materially from those contained in any forward-looking
statements.

Overview

Women First is a specialty pharmaceutical company
dedicated to improving the health and well-being of midlife
women. Our mission is to help midlife women make informed
choices about their physical and emotional health and to provide
pharmaceutical products and self-care products to help these
women improve the quality of their lives. We market these
products in the United States through a number of channels,
including our dedicated sales force, our contract sales
dermatology force, our direct-to-consumer marketing

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programs through our Internet sites,
womenfirst.com, aswechange.comand vaniqa.comand
through our As We Change® national mail order
catalog.


As of March 31, 2003, we offered the
following products for sale:



| |                                                      
| | -----------------------------------------------------
| | Pharmaceutical Products 
    Womens Health Division



| |   |                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ortho-Est®
    Tablets, an oral estrogen product that we acquired from
    Ortho-McNeil Pharmaceutical in January 2001, and                                                                                                                                                                                            
|
| |  | EsclimTM,
    an estrogen patch system for which we have the exclusive right
    (subject to exceptions) to market, use, distribute and sell in
    various dosages in the United States and Puerto Rico pursuant to
    a distribution and license agreement with Laboratoires Fournier
    S.A., effective July 1999.



| |                                                 
| | ------------------------------------------------
| | Pharmaceutical Products  Skin Care
    Division



| |   |                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Vaniqa® Cream
    (eflornithine hydrochloride), 13.9%, a topical cream clinically
    proven to slow the growth of unwanted facial hair in women for
    which we acquired exclusive worldwide rights in June 2002 from a
    joint venture formed by Bristol-Myers Squibb Company and The
    Gillette Company.



| |                       
| | ----------------------
| | Non-Strategic Products

In March 2003, we announced plans to consider the
sale of product rights to those pharmaceutical products that are
non-strategic and do not relate to our core mission of improving
the health and well-being of midlife women. As of March 31,
2003, we offered the following products for sale:



| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Midrin®, a
    prescription headache management product for which we acquired
    exclusive U.S. rights and title from Élan Pharma
    International Ltd. and Élan Corporation plc in June 2001,          
|
| |  | BactrimTM,
    an antibacterial product line used primarily in the treatment of
    certain urinary tract infections for which we acquired exclusive
    U.S. rights from Hoffman-LaRoche in October 2001,
|
| |  | Equagesic®
    Tablets, a pain management product for which we acquired all
    rights in the U.S. and Puerto Rico from American Home Products
    Corporation (now known as Wyeth) in November 2001, and 
|
| |  | Synalgos®-DC
    Capsules and painpak, a pain management product for
    which we acquired all rights in the U.S. and Puerto Rico from
    Wyeth in November 2001.                                      



| |                   
| | ------------------
| | Self-Care Products



| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our self-care products include a broad array of
    nutritional, skin, beauty, herbal, exercise, libido, wellness
    and other products that we sell through our national mail-order
    catalog, As We Change® and our Internet retailers,
    womenfirst.comand aswechange.com.

Results of Operations

We have incurred significant losses since we were
founded in November 1996, accumulating a deficit of
$74.6 million through December 31, 2002. We have not
achieved profitability in any complete fiscal year since our
inception. Small, relatively new companies such as ours
frequently encounter problems, delays and expenses that may be
beyond our control. These include, but are not limited to,
unanticipated problems and additional costs related to
marketing, competition, manufacturing and product acquisitions
and development.

Years Ended December 31, 2002 and
2001

Net revenue.Net
revenues for 2002 were $48.6 million, a 71.1% increase over
our net revenue in 2001 of $28.4 million. Net revenues for
2002 and 2001 were derived from sales of pharmaceutical and
self-care products. Net revenues from our pharmaceutical
division were $41.0 million, a 95% increase from 2001 net

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revenues of $21.0 million. Fifty-six percent
of our net revenues in 2002 were derived from products acquired
during 2001 or 2002, compared to 19% during 2001.


Revenues by product for each of the two years
ending December 31 2002, grouped by strategy are shown
below:

|                            |                        |                |        |        |  |   |        |       | 
|--------------------------- | ---------------------- | -------------- | ------ | ------ |  | - | ------ | ----- | 
|                            |                        | 2002           |        | 2001  
|                            |                        |                |        |       
|                            |                        |               
|                            |                        | (In thousands)
|Pharmaceutical revenues:    |                        |                |        |        |  |   |        |      
|Womens health:             |                        |                |        |        |  |   |        |      
|                            | EsclimTM               |                | $      | 9,896  |  |   | $      | 5,984 | 
|                            | Ortho-Est®
    Tablets |                |        | 3,761  |  |   |        | 9,402 | 
|                            |                        |                |        |        |  |   |        |      
|                            |                        |                | 13,657 |        |  |   | 15,386 |      
|                            |                        |                |        |        |  |   |        |      
|Skin care:                  |                        |                |        |        |  |   |        |      
|                            | Vaniqa®Cream           |                |        | 14,391 |  |   |        |      | 
|                            |                        |                |        |        |  |   |        |      
|Non-strategic:              |                        |                |        |        |  |   |        |      
|                            | Midrin®                |                |        | 3,254  |  |   |        | 831   | 
|                            | BactrimTM              |                |        | 1,499  |  |   |        | 3,520 | 
|                            | Equagesic®             |                |        | 2,136  |  |   |        | 515   | 
|                            | Synalgos®              |                |        | 5,456  |  |   |        | 634   | 
|                            |                        |                |        |        |  |   |        |      
|                            |                        |                | 12,345 |        |  |   | 5,500  |      
|Other                       |                        |                | 645    |        |  |   | 133    |      
|                            |                        |                |        |        |  |   |        |      
|Net pharmaceutical revenues |                        |                | 41,038 |        |  |   | 21,019 |      
|Self care products          |                        |                | 7,580  |        |  |   | 7,344  |      
|                            |                        |                |        |        |  |   |        |      
|Total net revenues          |                        | $              | 48,618 |        |  | $ | 28,363 |      
|                            |                        |                |        |        |  |   |        |      

As described below under the heading
Critical Accounting Policies, in arriving at net
revenues, we deduct reserves for product returns, exchanges,
rebates and chargebacks and we exclude deferred revenue.

Cost of Sales.Cost
of sales consists primarily of amounts we pay to suppliers for
products, distribution costs, royalties, amortization of product
rights and reserves for excess, dated and obsolete inventory.
Cost of sales for 2002 was $17.6 million, or 36.4% of net
revenue, an increase of 7.4% from $8.2 million, or 29.0% of
net revenue in 2001. The dollar increase was attributed to the
volume increase in revenues shown above. The increase in cost as
a percentage of net revenues was due primarily to the
amortization of product rights included in cost of sales and the
reserve for excess, dated and obsolete inventory. Amortization
of product rights was 8.5% of net revenue in 2002 versus 2.6% of
net revenue in 2001. The current years amortization
included $2.5 million for the full-year effect of products
acquired in 2001 and $1.5 million for Vaniqa®
Cream, which was acquired in June 2002. Reserves for excess
inventory are based on an analysis of expected future sales that
will occur before the inventory on hand or under a firm
commitment will expire. Reserves added during 2002 were
$1.7 million, or 3.5% of net revenue. Reserves added during
2001 were $0.1 million, or less than 1% of net revenue.
These two increases in cost of sales were partially offset by
lower product costs, which were $9.8 million, or 20.2% of
net revenue in 2002 and $6.7 million, or 23.9% of net
revenue in 2001. The reason for the lower product cost was, as
noted in the revenue table above, all of our revenue growth for
2002 stemmed from our pharmaceutical products, on which we
normally realize higher margins than on our self-care products.

Sales and Marketing Expenses.Sales and marketing expenses increased
to $24.4 million in 2002 from $16.1 million in 2001.
However, as a percent of sales, sales and marketing expenses
fell from 56.7% in 2001 to 50.1% in 2002. The dollar increase
reflects a larger sales force (added in late 2001 initially to
support EsclimTM, and also utilized in 2002 to
support Vaniqa® Cream and Synalgos®-DC
painpak), the addition of a third-party sales force to promote
Synalgos®-DC painpak, increased use of
telesales, higher commissions, increased

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marketing spending in support of
EsclimTM and our two new products,
Vaniqa® Cream and Synalgos®-DC painpak,
expenses for marketing programs in support of our products
formulary listings with Advanced PCS, Caremark and Express
Scripts, and an increase in allocations of corporate expenses.


General and Administrative Expenses.General and administrative expenses
were $6.2 million in 2002 and $7.5 million in 2001.
The 17.3% reduction was primarily the result of lower bad debt
expenses of $0.2 million, reduced travel of
$0.1 million and supplies and a $0.7 million increase
in allocations to sales and marketing expenses.

Regulatory, Research and Development Expenses.Regulatory, research and development
expenses increased $0.1 million to $0.6 million in
2002 from $0.5 million in 2001. Regulatory, research and
development expense consists primarily of salaries and
regulatory costs associated with our pharmaceutical products.

Loss from Operations.The loss from operations was
$0.3 million for the year ended December 31, 2002, a
$3.6 million improvement from the loss of $3.9 million
in 2001. The improvement was driven by the 71.1% increase in
revenue during the year, attributed primarily to our recently
acquired pharmaceutical products.

Interest and Other
Income.Interest and other income was
$0.2 million in 2002 compared to $1.0 million in 2001.
In 2002, interest and other income consisted entirely of
earnings on our cash and cash equivalents. In 2001, other income
also included non-recurring income related to early termination
of a co-promotion agreement with Essentia Pharmaceuticals B.V.
and amortization of a non-compete provision of a contract
amendment with Ortho-McNeil Pharmaceutical, Inc.

Interest Expense.Interest expense was $3.9 million
and $0.5 million in the years ended December 31, 2002
and 2001, respectively. Interest expense on our outstanding debt
includes the amortization of original issue discount related to
the senior secured notes issued to finance the acquisition of
Vaniqa® Cream. The $3.5 million increase
in interest expense in 2002 is due to the six-month effect of
interest on the debt to finance the acquisition of
Vaniqa® Cream in June 2002 and the full-year effects
of interest on the debt to finance the acquisitions of
Midrin® (acquired in June 2001) and of
Equagesic® and Synalgos® (acquired in
November 2001). The cash interest paid in 2002 was
$1.6 million; no interest was paid in 2001.

Income Taxes.As of
December 31, 2002, we had federal and state tax net
operating loss carryforwards of approximately $66.4 million
and $53.8 million, respectively. The federal and California
tax loss carryforwards will begin to expire in 2019 and 2007,
respectively, unless previously utilized. We also have federal
and state research and development tax credit carryforwards of
approximately $0.2 million and $0.1 million,
respectively, which will begin to expire in 2020 unless
previously utilized. We have recognized a valuation allowance
for the deferred tax asset because we are uncertain of our
ability to utilize these losses in the future.

Net Loss.Our net
loss for 2002 increased to $4.0 million from
$3.4 million in 2001. The $3.7 million improvement in
loss from operations discussed above was offset by the
$3.5 million increase in interest expense and the
$0.8 million reduction in interest and other income.

Accretion of Beneficial Conversion Feature
Related to Convertible Redeemable Preferred Stock.In June 2002, we recorded a one-time,
non-cash charge of $1.0 million for the beneficial
conversion feature of the convertible redeemable preferred stock
issued to finance the acquisition of Vaniqa® Cream.
At the time of issuance, the $6.35 per share conversion price of
the stock was less than the market price of our common stock.

Accretion of Stated Value of Convertible
Redeemable Preferred Stock.For the
year ended December 31, 2002, we recognized a charge of
$0.7 million which represented the amount by which the
stated value of the convertible redeemable preferred stock
issued to finance the Vaniqa® Cream acquisition
accreted in accordance with the terms of the convertible
redeemable preferred stock.

Net Loss Available to Common Stockholders.In 2002, the $4.0 million net
loss was increased by $1.7 million for charges related to
the convertible redeemable preferred stock issued to finance the
acquisition of Vaniqa® Cream, discussed above,
resulting in a net loss available to common stockholders of
$5.7 million. In 2001, net loss and net loss available to
common stockholders were identical.

27



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##### Table of Contents



Years Ended December 31, 2001 and
2000

Net Revenue.For
2001, total net revenue was $28.4 million compared to
$27.1 million in 2000, an increase of 4.9%. Revenue for
2001 was derived from sales of pharmaceutical and self-care
products. In 2000, in addition to the sales of pharmaceutical
and self care products we received 45.5% of our net revenue
from, Ortho-McNeil Pharmaceutical, Inc., a related party, for
our co-promotion efforts on behalf of Ortho-Prefest®
and Ortho Tri-Cyclen®.

Cost of Sales.Cost
of sales was $8.2 million in 2001, a 21.8% decrease from
$10.5 million in 2000. The decrease in cost of sales is
primarily due to differences in the revenue mix, inventory
adjustments, and amortization of product rights. In 2000, we
recorded reserves of $1.4 million to state inventory at the
lower of cost or market and recorded reserves of
$0.2 million for excess and obsolete inventory. No such
reserves were recorded in 2001. The 2001 amount includes
$0.7 million for amortization of product rights acquired
since June of 2001. We had no product rights amortization in
2000.

Marketing and Sales Expenses.Total marketing and sales expenses
were $16.1 million in 2001 compared to $31.8 million
for the prior year, a decrease of $15.7 million or 49.3%.
The decrease is the result of higher spending levels in 2000 to
support the infrastructure and sales force required under our
Ortho-Prefest® co-promotion agreement. That
agreement was terminated on December 31, 2000 and we took
steps in June 2000 to reduce these expenses by implementing cost
reduction activities and reducing the sales organization. We
reduced our sales force in June 2000 by approximately 50%, or 75
field sales representatives, and incurred charges of
$0.7 million related primarily to reductions in staff.
Based on a detailed cost/benefit analysis, we further reduced
the sales force to 60 field sales representatives later in 2000.
This reduction in the sales force remained in effect until
November 2001. In November 2001, AdvancePCS, a leader in
establishing markets for pharmaceutical products, added our
product, EsclimTM to their highest priority
listing. In order to respond to an anticipated increased
awareness and need for more information about this product, we
increased our sales force, at that time, from 60 to
75 representatives.

General and Administrative
Expenses.General and administrative
expenses were $7.5 million for 2001, which was essentially
unchanged from the 2000 level.

Regulatory, Research and Development
Expenses.Regulatory, research and
development expenses were $0.5 million in 2001, which was
essentially unchanged from the 2000 level.

Restructuring Costs.We recorded restructuring charges of $0.7 million in 2000.
No similar charges were incurred in 2001. These charges reflect
our efforts to increase effectiveness and efficiency by
restructuring Women First into three operating divisions and
aligning our expense structure with revenue expectations. The
charges pertain primarily to the termination or resignation of
approximately 65 management and sales employees. All
payments were made on or before December 31, 2000.

Loss from
Operations.The loss from operations
decreased $20.1 million to $3.9 million in 2001 from
$24.0 million in 2000, primarily as a result of a reduction
in costs and expenses resulting from cost reduction activities
undertaken as part of our restructuring in June 2000.

Interest and Other
Income.Interest and other income was
$1.0 million in 2001 compared to $1.5 million in 2000.
Interest and other income in 2001 consists primarily of earnings
on our cash and cash equivalents, non-recurring income related
to early termination of a co-promotion agreement with Essentia
Pharmaceuticals B.V. and amortization of a non-compete provision
of a contract amendment with Ortho-McNeil Pharmaceutical, Inc.
The 2000 amount was comprised primarily of interest earned on
cash and amortization of the non-compete provision with
Ortho-McNeil Pharmaceutical, Inc.

Interest Expense.Interest expense was $0.5 million
in 2001, comprised of interest on our convertible debt to
Élan Pharma International Ltd. and Élan Corporation
plc that commenced in June 2001 and imputed interest on our note
to Wyeth that commenced in November 2001. There was no debt or
interest expense in 2000.

28



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##### Table of Contents



Net Loss.Our loss
for 2001 was $3.4 million, a significant improvement from
the $22.6 million loss recorded in 2000. As discussed
above, the improvement was primarily the result of the cost
reduction activities undertaken as past of our restructuring in
June 2000.

Quarterly Comparisons

The following table sets forth the consolidated
statements of operations for each of our last eight quarters.
This quarterly information is unaudited and has been prepared on
the same basis as the annual consolidated financial statements.
In our opinion, this quarterly information reflects all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.

|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |       | 
|------------------------------------------------------------------------------------- | ------------------------ | ----------------------------------------------------- | ------ | ---------------------------- |  | -- | ------ | ----- |  | -- | ------ | ----- |  | -- | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                                      |                          |                                                       |        |                             
|                                                                                      |                          | Year ended December 31, 2002                          |        | Year ended December 31, 2001
|                                                                                      |                          |                                                       |        |                             
|                                                                                      |                          | Q1                                                    |        | Q2                           |  | Q3 |        | Q4    |  | Q1 |        | Q2    |  | Q3 |        | Q4   
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |      
|                                                                                      |                          |                                                      
|                                                                                      |                          | (In thousands, except per share data and percentages)
|Net revenue                                                                           |                          | $                                                     | 9,464  |                              |  | $  | 12,085 |       |  | $  | 15,517 |       |  | $  | 11,552 |       |  | $ | 7,108  |       |  | $ | 5,557  |       |  | $ | 5,890  |       |  | $ | 9,852  |      
|                                                                                      | Cost of sales            |                                                       |        | 2,746                        |  |    |        | 3,265 |  |    |        | 4,769 |  |    |        | 6,905 |  |   |        | 2,458 |  |   |        | 1,309 |  |   |        | 1,739 |  |   |        | 2,732 | 
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Gross margin                                                                          |                          |                                                       | 6,718  |                              |  |    | 8,820  |       |  |    | 10,748 |       |  |    | 4,647  |       |  |   | 4,650  |       |  |   | 4,248  |       |  |   | 4,151  |       |  |   | 7,120  |      
|Gross margin %                                                                        |                          |                                                       | 71.0   | %                            |  |    | 73.0   | %     |  |    | 69.3   | %     |  |    | 40.2   | %     |  |   | 65.4   | %     |  |   | 76.4   | %     |  |   | 70.5   | %     |  |   | 72.3   | %    
|Marketing and sales                                                                   |                          |                                                       | 4,676  |                              |  |    | 5,747  |       |  |    | 6,338  |       |  |    | 7,622  |       |  |   | 4,236  |       |  |   | 3,327  |       |  |   | 3,588  |       |  |   | 4,962  |      
|General and administrative                                                            |                          |                                                       | 1,352  |                              |  |    | 1,495  |       |  |    | 1,588  |       |  |    | 1,803  |       |  |   | 1,602  |       |  |   | 2,361  |       |  |   | 1,704  |       |  |   | 1,872  |      
|Regulatory, research and development                                                  |                          |                                                       | 123    |                              |  |    | 138    |       |  |    | 172    |       |  |    | 135    |       |  |   | 124    |       |  |   | 102    |       |  |   | 111    |       |  |   | 128    |      
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                                                      | Total operating expenses |                                                       |        | 6,151                        |  |    |        | 7,380 |  |    |        | 8,098 |  |    |        | 9,560 |  |   |        | 5,962 |  |   |        | 5,790 |  |   |        | 5,403 |  |   |        | 6,962 | 
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Income (loss) from operations                                                         |                          |                                                       | 567    |                              |  |    | 1,440  |       |  |    | 2,650  |       |  |    | (4,913 | )     |  |   | (1,312 | )     |  |   | (1,542 | )     |  |   | (1,252 | )     |  |   | 158    |      
|Interest and other income                                                             |                          |                                                       | 23     |                              |  |    | 86     |       |  |    | 51     |       |  |    | 44     |       |  |   | 355    |       |  |   | 88     |       |  |   | 364    |       |  |   | 165    |      
|Interest expense                                                                      |                          |                                                       | (346   | )                            |  |    | (423   | )     |  |    | (1,550 | )     |  |    | (1,587 | )     |  |   |       |       |  |   |       |       |  |   | (193   | )     |  |   | (272   | )    
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Net income (loss)                                                                     |                          |                                                       | 244    |                              |  |    | 1,103  |       |  |    | 1,151  |       |  |    | (6,456 | )     |  |   | (957   | )     |  |   | (1,454 | )     |  |   | (1,081 | )     |  |   | 51     |      
|Accretion of beneficial feature related to
    convertible redeemable preferred stock |                          |                                                       |       |                              |  |    | (1,024 | )     |  |    |       |       |  |    |       |       |  |   |       |       |  |   |       |       |  |   |       |       |  |   |       |      
|Accretion of stated value of convertible
    redeemable preferred stock               |                          |                                                       |       |                              |  |    | (18    | )     |  |    | (325   | )     |  |    | (339   | )     |  |   |       |       |  |   |       |       |  |   |       |       |  |   |       |      
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Net income (loss) available to common stockholders                                    |                          | $                                                     | 244    |                              |  | $  | 61     |       |  | $  | 826    |       |  | $  | (6,795 | )     |  | $ | (957   | )     |  | $ | (1,454 | )     |  | $ | (1,081 | )     |  | $ | 51     |      
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Net income (loss) available to common
    shareholders per share  basic and diluted  |                          | $                                                     | 0.01   |                              |  | $  | 0.00   |       |  | $  | 0.04   |       |  | $  | (0.30  | )     |  | $ | (0.05  | )     |  | $ | (0.08  | )     |  | $ | (0.05  | )     |  | $ | 0.00   |      
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Weighted average shares used to calculate net
    income (loss)  basic               |                          |                                                       | 22,637 |                              |  |    | 22,865 |       |  |    | 22,941 |       |  |    | 22,950 |       |  |   | 17,610 |       |  |   | 17,760 |       |  |   | 20,924 |       |  |   | 23,697 |      
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Weighted average shares used to calculate net
    income (loss)  diluted             |                          |                                                       | 23,972 |                              |  |    | 23,885 |       |  |    | 23,536 |       |  |    | 22,950 |       |  |   | 17,610 |       |  |   | 17,760 |       |  |   | 20,924 |       |  |   | 23,698 |      
|                                                                                      |                          |                                                       |        |                              |  |    |        |       |  |    |        |       |  |    |        |       |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      

Our 2002 fourth quarter operating results
included a deferral of $4.2 million in shipments, a
$3.7 million increase to our reserves for returns and
exchanges that reduced revenues and a $1.1 million increase
to our reserves for excess, dated and impaired inventory that
increased cost of sales.

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##### Table of Contents



Business
Segments

The following tables present operating
information by business segment, including corporate support,
for the years ended December 31, 2002, 2001 and 2000.

|                              |                   |                          |        |        |  |      |        |        |  |   |         |        | 
|----------------------------- | ----------------- | ------------------------ | ------ | ------ |  | ---- | ------ | ------ |  | - | ------- | ------ | 
|                              |                   |                         
|                              |                   | Years ended December 31,
|                              |                   |                         
|                              |                   | 2002                     |        | 2001   |  | 2000
|                              |                   |                          |        |        |  |     
|                              |                   |                         
|                              |                   | (In thousands)          
|Pharmaceutical:               |                   |                          |        |        |  |      |        |        |  |   |         |       
|Net product revenue           |                   | $                        | 41,038 |        |  | $    | 21,019 |        |  | $ | 5,732   |       
|Net service revenue           |                   |                          |       |        |  |      | 44     |        |  |   | 8,488   |       
|                              |                   |                          |        |        |  |      |        |        |  |   |         |       
|                              | Total net revenue |                          |        | 41,038 |  |      |        | 21,063 |  |   |         | 14,220 | 
|Cost of sales  products      |                   |                          | 14,443 |        |  |      | 5,023  |        |  |   | 6,440   |       
|                              |                   |                          |        |        |  |      |        |        |  |   |         |       
|Gross margin                  |                   |                          | 26,595 |        |  |      | 16,040 |        |  |   | 7,780   |       
|Gross margin percent          |                   |                          | 64.8   | %      |  |      | 76.2   | %      |  |   | 54.7    | %     
|Operating expenses            |                   |                          | 21,334 |        |  |      | 12,962 |        |  |   | 22,421  |       
|                              |                   |                          |        |        |  |      |        |        |  |   |         |       
|Income (loss) from operations |                   | $                        | 5,261  |        |  | $    | 3,078  |        |  | $ | (14,641 | )     
|                              |                   |                          |        |        |  |      |        |        |  |   |         |       

In March 2003, we announced plans to consider the
sale of product rights to those pharmaceutical products that are
non-strategic and do not relate to our core mission of improving
the health and well-being of midlife women. Revenues by product
for each of the three years ending December 31, 2002 are
shown below:

|                                          |                   |      |        |        |  |      |        |       |  |   |       |       | 
|----------------------------------------- | ----------------- | ---- | ------ | ------ |  | ---- | ------ | ----- |  | - | ----- | ----- | 
|                                          |                   | 2002 |        | 2001   |  | 2000
|                                          |                   |      |        |        |  |     
|Womens health:                           |                   |      |        |        |  |      |        |       |  |   |       |      
|                                          | EsclimTM          |      | $      | 9,896  |  |      | $      | 5,984 |  |   | $     | 389   | 
|                                          | Ortho-Est®Tablets |      |        | 3,761  |  |      |        | 9,402 |  |   |       | 5,211 | 
|                                          |                   |      |        |        |  |      |        |       |  |   |       |      
|                                          |                   |      | 13,657 |        |  |      | 15,386 |       |  |   | 5,600 |      
|                                          |                   |      |        |        |  |      |        |       |  |   |       |      
|Skin care:                                |                   |      |        |        |  |      |        |       |  |   |       |      
|                                          | Vaniqa®Cream      |      |        | 14,391 |  |      |        |      |  |   |       |      | 
|                                          |                   |      |        |        |  |      |        |       |  |   |       |      
|Non-strategic:                            |                   |      |        |        |  |      |        |       |  |   |       |      
|                                          | Midrin®           |      |        | 3,254  |  |      |        | 831   |  |   |       |      | 
|                                          | BactrimTM         |      |        | 1,499  |  |      |        | 3,520 |  |   |       |      | 
|                                          | Equagesic®        |      |        | 2,136  |  |      |        | 515   |  |   |       |      | 
|                                          | Synalgos®         |      |        | 5,456  |  |      |        | 634   |  |   |       |      | 
|                                          |                   |      |        |        |  |      |        |       |  |   |       |      
|                                          |                   |      | 12,345 |        |  |      | 5,500  |       |  |   |      |      
|                                          |                   |      |        |        |  |      |        |       |  |   |       |      
|Other                                     |                   |      | 645    |        |  |      | 133    |       |  |   | 132   |      
|                                          |                   |      |        |        |  |      |        |       |  |   |       |      
|Total net pharmaceutical product revenues |                   | $    | 41,038 |        |  | $    | 21,019 |       |  | $ | 5,732 |      
|                                          |                   |      |        |        |  |      |        |       |  |   |       |      

Cost of sales of products consists primarily of
amounts we pay to suppliers for products, distribution costs,
royalties, amortization of product rights and reserves for
excess, dated and impaired inventory. Cost of sales of products
as a percent of product revenue amounted to 35.2%, 23.8% and
112.4% in the years ended December 31, 2002, 2001 and 2000,
respectively. The increase of $9.4 million between 2002 and
2001 was due primarily to the amortization of product rights and
the reserve for excess, dated and impaired inventory, partially
offset by lower product costs as discussed above. The reduction
in cost of sales as a percent of product revenue between 2001
and 2000 is due to the termination in November 2000 of a
distribution agreement, in effect in 2000, for
Ortho-Est® Tablets which required us to make fixed
payments for product regardless of sales level. In addition,
$1.7 million was recorded in inventory reserves in 2000
whereas no reserves were recorded in 2001. In 2000, there was no
cost of sales associated with the service revenue.

30



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##### Table of Contents



Operating expenses, consisting primarily of sales
and marketing expenses, increased $8.4 million in 2002 over
2001 and decreased $9.5 million in 2001 from 2000. As a
percent of net revenue, operating expenses were 52.0%, 61.5% and
157.7% in the years ended December 31, 2002, 2001 and 2000,
respectively. The reasons for the changes in sales and marketing
expenses are discussed above.

|                         |  |                          |       |      |  |      |       |   |  |   |        |  
|------------------------ |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|                         |  |                         
|                         |  | Years ended December 31,
|                         |  |                         
|                         |  | 2002                     |       | 2001 |  | 2000
|                         |  |                          |       |      |  |     
|                         |  |                         
|                         |  | (In thousands)          
|Consumer Business:       |  |                          |       |      |  |      |       |   |  |   |        |  
|Net revenue              |  | $                        | 7,580 |      |  | $    | 7,344 |   |  | $ | 8,539  |  
|Cost of sales  products |  |                          | 3,242 |      |  |      | 3,215 |   |  |   | 4,089  |  
|                         |  |                          |       |      |  |      |       |   |  |   |        |  
|Gross margin             |  |                          | 4,338 |      |  |      | 4,129 |   |  |   | 4,450  |  
|Gross margin percent     |  |                          | 57.2  | %    |  |      | 56.2  | % |  |   | 52.1   | %
|Operating expenses       |  |                          | 4,401 |      |  |      | 4,511 |   |  |   | 6,377  |  
|                         |  |                          |       |      |  |      |       |   |  |   |        |  
|Operating loss           |  | $                        | (63   | )    |  | $    | (382  | ) |  | $ | (1,927 | )
|                         |  |                          |       |      |  |      |       |   |  |   |        |  

Prior to 2001, we managed the consumer business
for growth. In 2001, we made a strategic decision to reduce the
losses incurred in this division and to strive for breakeven.
Consumer business revenue declined by $1.2 million in 2001
from 2000, or 14.0%, as we narrowed the circulation of the
catalog. Revenue grew at a modest 3.2% in 2002 over 2001. In
2002, we mailed 4.4 million catalogs, a 7.3% increase over
2001. We mailed 4.1 million catalogs in 2001, down 45.3%
from 7.5 million catalogs in 2000. The gross margin
percentage increased 1.0% in 2002 from 2001 due to the mix of
products sold. The gross margin percentage improved 4.1% in 2001
from 2000 as a result of our efforts to reduce the cost of
products acquired for sale.

Operating expenses, primarily sales and marketing
expenses, consist of catalog production and mailing costs, call
center and fulfillment expenses, as well as purchasing and
marketing expenses. As a percentage of sales, operating expenses
were 58.1%, 56.2% and 74.7% in 2002, 2001 and 2000,
respectively. The 2001 strategy to narrow the circulation and
reduce the loss is reflected in the decrease of
$1.9 million in operating expenses in 2001. Operating
expenses were approximately the same in 2002 and 2001. Operating
expenses were higher in 2000 than 2001 because we incurred
higher catalog costs by distributing to a larger population of
potential customers as discussed above. Since 2000, we have
reduced the distribution list and corresponding mailing and
catalog expenses.

|                      |               |                          |   |      |  |      |      |   |  |   |       |       | 
|--------------------- | ------------- | ------------------------ | - | ---- |  | ---- | ---- | - |  | - | ----- | ----- | 
|                      |               |                         
|                      |               | Years ended December 31,
|                      |               |                         
|                      |               | 2002                     |   | 2001 |  | 2000
|                      |               |                          |   |      |  |     
|                      |               |                         
|                      |               | (In thousands)          
|TrialogueTM:          |               |                          |   |      |  |      |      |   |  |   |       |      
|Net revenue           |               | $                        |  |      |  | $    |     |   |  | $ | 477   |      
|Related party revenue |               |                          |  |      |  |      |     |   |  |   | 3,849 |      
|                      |               |                          |   |      |  |      |      |   |  |   |       |      
|                      | Total revenue |                          |   |     |  |      |      |  |  |   |       | 4,326 | 
|Operating expenses    |               |                          |  |      |  |      | 258  |   |  |   | 4,789 |      
|                      |               |                          |   |      |  |      |      |   |  |   |       |      
|Operating loss        |               | $                        |  |      |  | $    | (258 | ) |  | $ | (463  | )    
|                      |               |                          |   |      |  |      |      |   |  |   |       |      

TrialogueTM was phased out in 2001 to
permit us to concentrate efforts on our pharmaceutical division.
Revenues in 2000 were derived from educational grants from
pharmaceutical companies to fund the development of educational
programs with an independent provider of continuing education
programs. Related party revenues in 2000 were from Ortho-McNeil
Pharmaceutical, Inc. for development of hormone replenishment
education programs. There was no cost of sales associated with
educational revenue in this segment.

Operating expenses were comprised primarily of
educational costs to assist the Companys related party
promotional efforts and employee related expenses. Programs were
priced at cost plus a modest management fee. Employee related
expenses were for those employees charged with generating new
business opportunities and maintaining the content of our
Internet site, womenfirst.com.

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|                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|----------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                    |  |                         
|                                    |  | Years ended December 31,
|                                    |  |                         
|                                    |  | 2002                     |        | 2001 |  | 2000
|                                    |  |                          |        |      |  |     
|                                    |  |                         
|                                    |  | (In thousands)          
|Corporate:                          |  |                          |        |      |  |      |        |   |  |   |        |  
|General and administrative expenses |  | $                        | 5,454  |      |  | $    | 6,644  |   |  | $ | 6,258  |  
|Restructuring charges               |  |                          |       |      |  |      |       |   |  |   | 735    |  
|                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|Operating expenses                  |  |                          | 5,454  |      |  |      | 6,644  |   |  |   | 6,993  |  
|                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|Operating loss                      |  |                          | (5,454 | )    |  |      | (6,644 | ) |  |   | (6,993 | )
|Interest and other income           |  |                          | 204    |      |  |      | 972    |   |  |   | 1,458  |  
|Interest expense                    |  |                          | (3,906 | )    |  |      | (465   | ) |  |   |       |  
|                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|Net loss                            |  | $                        | (9,156 | )    |  | $    | (6,137 | ) |  | $ | (5,535 | )
|                                    |  |                          |        |      |  |      |        |   |  |   |        |  

Corporate general and administrative expenses
decreased 17.9% in 2002 from 2001. The reduction was the result
of lower bad debt expenses, reduced travel and supplies and an
increase in allocations to sales and marketing expense. General
and administrative expenses increased moderately in 2001 from
2000. As previously discussed, the restructuring charges in 2000
reflected our efforts to increase effectiveness and efficiency
by restructuring Women First into three operating divisions and
aligning our expense structure with revenue expectations.

The changes in interest and other income and in
interest expense are discussed above.

Critical Accounting Policies and
Estimates

Our discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
U.S. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates, including those relating to
revenue recognition. We base our estimates on historical
experience and on various other assumptions that we believe to
be reasonable, the results of which, form the basis for making
judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.

We believe the following critical accounting
policies affect the significant judgments and estimates used in
the preparation of our consolidated financial statements (see
Note 1 to our consolidated financial statements included
with this report).



| |                    
| | -------------------
| | Revenue Recognition

We recognize revenue when all four of the
following criteria are met: (1) persuasive evidence that an
arrangement exists; (2) delivery of the products or
services has occurred; (3) the selling price is fixed or
determinable; and (4) collectibility is reasonably assured.
In addition, we follow the provisions of the Securities and
Exchange Commissions Staff Accounting Bulletin
No. 101 (SAB 101), Revenue Recognition, which
sets forth guidelines in the timing of revenue recognition based
on factors such as passage of title, installation, payments and
customer acceptance.



| |                    
| | -------------------
| | Deferral of Revenue

We defer recognition of revenue if we determine
that there is excess channel inventory for our products. Excess
channel inventory exists if our wholesale customers
inventory of our products exceeds our estimates of demand for
our products at the retail level, after considering factors such
as product shelf-life. Our pharmaceutical products have
expiration dates that range from 18 to 60 months from date
of manufacture. We determine whether excess channel inventory
exists based on an analysis of the amount of each product in the
channel inventory and prescription activity and trends. We
obtain information for this analysis by purchasing

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data from nationally recognized providers of this
information. In addition, we obtain inventory information from
key customers in order to provide more detailed information
regarding the channel inventory at specific customer locations.
We defer sales, net of the related product cost we pay to our
suppliers, associated with our estimated excess channel
inventory. As of December 31, 2002, we had deferred revenue
of $4.2 million related to excess channel inventory, which
is included in the accompanying consolidated balance sheets. The
deferral of revenue arose from slower than anticipated
prescription growth for our products during the fourth quarter
of 2002. Judgment is required in estimating the amount of excess
channel inventory. The actual amounts could be different from
the estimates and differences are accounted for in the period in
which they become known.




| |                                                                    
| | -------------------------------------------------------------------
| | Reserve for Product Returns, Exchanges,
    Rebates and Chargebacks

We continuously monitor the quantity of our
products in the distribution channel and the demand for our
pharmaceutical products through the number of prescriptions
written. Our pharmaceutical products have expiration dates that
range from 18 to 60 months from the date of manufacture. We
purchase data regarding quantities in the distribution channel
and prescription activity from nationally recognized providers
of this information. In addition, we obtain inventory
information from key customers in order to provide more detailed
information regarding the channel inventory at specific customer
locations. We will generally accept for exchange or credit
pharmaceutical products that have become unusable due to passage
of the expiration date, drug recall or discontinuance. We
establish reserves for these credits and exchanges at the time
of sale. We recorded reserves, which reduced reported net
revenue by $4.3 million, $2.1 million and
$1.5 million during 2002, 2001 and 2000, respectively.
Actual returns, exchanges, chargebacks and rebates incurred
during these periods amounted to $3.1 million,
$1.0 million and $1.4 million, respectively. Return
activity increased during 2002 as a result of a large return of
BactrimTM. During 2002, we started
manufacturing BactrimTM utilizing the National
Drug Code, assigned to us by the Food and Drug Administration.
Because the databases used by our customers reference drugs by
their National Drug Code, the supply of
BactrimTM in the distribution channel became
impossible to sell when the new National Drug Code was assigned.
As a result, one customer returned product under the old NDC
number with a sales value of $3.1 million that we replaced
with new product. The balance in the reserve for product
returns, exchanges, rebates and chargebacks was
$2.9 million and $1.7 million as of December 31,
2002 and 2001, respectively. Judgment is required in estimating
these reserves. The actual returns, exchanges, rebates and
chargebacks may be different from the estimates, and differences
are accounted for in the period in which they become known.



| |                                                          
| | ---------------------------------------------------------
| | Reserve for Potentially Excess and Obsolete
    Inventory

We provide reserves for potentially excess, dated
or otherwise impaired inventory. Reserves for excess inventory
are based on an analysis of expected future sales that will
occur before the inventory on hand or under a firm commitment
will expire. The analysis is based on the total amounts of
inventory on hand or under a firm commitment, channel inventory
data, and prescription activity, and key customers
inventory as mentioned above. We recorded inventory reserves,
which are charged to cost of sales, of $1.7 million,
$0.1 million and $1.7 million during 2002, 2001 and
2000, respectively. Judgment is required in estimating the
amounts of inventory reserves. The actual amounts could be
different from the estimates and differences are accounted for
in the period in which they become known.



| |                               
| | ------------------------------
| | Amortization of Product Rights

We amortize the acquired rights for
pharmaceutical products over the estimated economic useful life
of 15 years. We assess the useful life based on the
estimated marketability and future sales volume, which are
dependent on a variety of factors, including the introduction of
new products by competitors and continued use of existing
product. In practice, pharmaceutical prescription products are
long lived because doctors continue to prescribe drugs that they
have grown comfortable with and where the product risk profile
is well known. Judgment is required in estimating the useful
lives of product rights. Actual useful lives could be different
from the estimated lives and differences are accounted for in
the period in which they become known.

In accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standard
(SFAS) 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, we review the long-

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lived assets, including product rights, for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. An
impairment loss would be measured and recognized if the sum of
the expected future undiscounted cash flows is less than the
carrying amount of the asset. If the carrying amount of the
asset were determined to be impaired, an impairment loss would
be recorded to write-down the carrying value of the asset to
fair value by using quoted market prices when available. When a
quoted market price is not available, an estimated fair value
would be determined through other valuation techniques. We have
used projected cash flows discounted to reflect the expected
technical, commercial, competitive and other factors related to
acquired technologies or products, and comparisons to similar
asset sales and valuations by others, to estimate the fair value
of our intangible assets.




| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets

In 2002, we adopted SFAS 142, Goodwill
and Other Intangible Assets(SFAS 142). Under these
rules, goodwill and intangible assets deemed to have indefinite
lives are not amortized but subject to annual impairment tests.
As of December 31, 2002, we had goodwill and intangible
assets valued at approximately $2.8 million, net of
accumulated amortization, primarily associated with our
acquisition of As We Change. During the second quarter of
2002, we performed the first of the required impairment tests of
goodwill and indefinite lived intangible assets at
December 31, 2001 to determine if a transition impairment
charge should be recognized under SFAS 142. The tests
showed that no impairment charge should be recognized. Absent
any other indicators of impairment, we will hereafter at least
annually test for impairment.



| |                         
| | ------------------------
| | Stock-Based Compensation

We account for stock option plans in accordance
with the provisions of Accounting Principles Board Opinion
No. 25 (APB 25), Accounting for Stock Issued to
Employees, and related interpretations which recognizes
compensation expense on the grant date if the current market
price of the stock exceeds the exercise price.

SFAS No. 123, Accounting for Stock-Based
Compensation(SFAS 123), as amended in December 2002 by
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure(SFAS 148), together establish the use of the fair
value based method of accounting for stock-based compensation
arrangements, under which compensation cost is determined using
the fair value of stock-based compensation determined as of the
grant date, and is recognized over the periods in which the
related services are rendered. SFAS 123 and SFAS 148
permit companies to elect to continue using the intrinsic value
accounting method specified in APB 25 to account for
stock-based compensation related to option grants to employees.
We have elected to retain the implicit value based method for
such grants. Options or stock awards issued to non-employees
have been determined in accordance with SFAS 123,
SFAS 148 and Emerging Issues Task Force Abstract
No. 96-18, Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling Goods or Services(EITF 96-18). Deferred
charges for options granted to non-employees are periodically
remeasured as the options vest.

We record deferred compensation for the
difference between the exercise price of stock options granted
and the deemed fair value for financial statement presentation
purposes of our common stock at the date of grant. The deferred
compensation is amortized over the vesting period of the related
options, which is generally four years. We recorded no deferred
compensation during the years ended December 31, 2002 and
2001, and recorded deferred compensation during the year ended
December 31, 2000 of $0.1 million. We recorded related
amortization expense of $0.1 million, $0.1 million and
$0.4 million in 2002, 2001 and 2000, respectively.

Recent Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities
and nullifies EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring).The principal difference

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between SFAS 146 and EITF 94-3 relates
to the requirements under SFAS 146 for recognition of a
liability for a cost associated with an exit or disposal
activity. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when
the liability is incurred. Under EITF 94-3, a liability for
an exit cost as generally defined in Issue 94-3 was
recognized at the date of an entitys commitment to an exit
plan. The provisions of SFAS 146 are effective for exit or
disposal activities that are initiated after December 31,
2002, with early application encouraged. In March 2003, we
announced restructuring plans in order to improve our operating
results and terminated 56 employees (35% of our work force),
primarily sales and marketing personnel in the pharmaceutical
division. Under the provisions of SFAS 146, we will report
approximately $0.7 million in costs relating to this
restructuring in the first quarter of 2003, and we estimate that
we will incur $0.1 million in expenses in subsequent
quarters during 2003. The costs consist of severance pay and
related benefits of $0.3 million (paid in March and April
2003) and an estimated $0.4 million in equipment and early
termination fees on automobiles leases for vehicles used by
terminated employees (to be paid in the second quarter of 2003).


In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS 148 amends
SFAS 123, Accounting for Stock-Based Compensation,
to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148
amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. The disclosure provisions of SFAS 148 are
effective for financial statements for the year ended
December 31, 2002. SFAS 148 did not have a material
impact on our consolidated financial statements because the
adoption of this standard did not require us to change, and we
do not plan to change, to the fair value based method of
accounting for stock-based compensation.

Factors Affecting Results of
Operations

We incurred net losses of $4.0 million,
$3.4 million and $22.6 million in the years ended
December 31, 2002, 2001 and 2000, respectively. To a large
extent, our revenue is dependent on our ability to pull
pharmaceutical products through the inventory channel to the
retail level. We have not been as successful at this as we
projected. Many of our expenses, are fixed, especially in the
short term. Because of this, our results of operations have
varied during our short operating history and we expect that
they will continue to fluctuate, perhaps significantly, in the
future. In addition, other factors may cause fluctuations in our
revenue and results of operations in the future, including the
following:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | the success or failure of our national account
    team in distributing our current product line,                                          
|
| |  | the success or failure in the markets
    acceptance of our products,                                                                     
|
| |  | the success or failure of our sales force in
    generating prescriptions for the products we offer,                                       
|
| |  | excessive and unexpected generic competition to
    the products we offer,                                                                 
|
| |  | manufacturing problems that limit our ability to
    acquire salable product on time and at reasonable terms,                              
|
| |  | earlier than expected termination of our supply
    and/or license agreements,                                                             
|
| |  | our ability to acquire new products,                                                                                                       
|
| |  | legislative changes that affect our products and
    the way we market them and our ability to comply with new or
    existing regulations,
|
| |  | the amount and timing of expenditures for the
    expansion of our operations,                                                             
|
| |  | research studies and news reports concerning the
    safety or efficacy of our products or similar products,                               
|
| |  | competitive products and/or companies that target
    our market niche and are successful in reaching our market,                          

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| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in the competitive environment that could
    cause us to change our pricing or marketing strategy,                                                                                                    
|
| |  | the timing and amount of possible future
    write-downs or write-offs of product rights and other long-lived
    assets as well as write-offs of impaired goodwill and indefinite
    lived intangible assets,
|
| |  | return of excess inventory from our customers
    that exceed the reserves we have established, and                                                                                                            
|
| |  | changes in the economic and market environment
    generally or in the health care industry.                                                                                                                   

To the extent that our revenue does not cover our
expenses, we may be unable to reduce spending commitments in a
timely manner to compensate for any unexpected revenue shortfall
and may experience unanticipated losses. As a result of these
factors, our operating results in one or more future periods may
fail to meet the expectations of investors.

Liquidity and Capital Resources

As of December 31, 2002, our working capital
was $13.6 million, down $7.8 million from
$21.4 million at December 31, 2001. Cash and cash
equivalents were $9.1 million as of December 31, 2002
compared to $19.4 million as of December 31, 2001. As
of March 31, 2003, cash and cash equivalents totaled
$10.9 million.

Since the inception of our operations in 1997, we
have had the following primary sources of funds 
(1) $131.4 million in revenues from product sales and
services, (2) $122.0 million from offerings of common
and preferred stock and (3) $47.6 million from debt to
finance the acquisition of the rights to market the
pharmaceutical products we sell. In addition to operating
expenses, funding working capital requirements and debt service,
our primary use of funds has been to obtain the rights to market
and distribute pharmaceutical products and to fund capital
expenditures. We have no current plans to acquire additional
pharmaceutical products.

Net cash used in operating activities in 2002 was
$3.5 million and resulted from the negative effects of the
net loss of $4.0 million, offset by $14.4 million of
non-cash items included in the net loss (primarily deferred
revenue and various reserves), and a $13.9 million decrease
in net operating assets and liabilities (primarily accounts
receivable, inventory, prepaid expenses and reserves for product
returns, exchanges, rebates and chargebacks).

Accounts receivable increased by
$7.6 million from 2001 to 2002 as a result of increased
sales. Inventory increased by $3.5 million, the result of
increasing the supply of our products to cover anticipated
prescription growth. Prepaid expenses increased by
$2.2 million, primarily the result of an increase in
samples that will be used to promote prescription growth.
Reserves for product returns, chargebacks and rebates increased
$3.1 million, attributable to an increase in volume and
corresponding reserve requirements. Net cash used in operating
activities was $5.7 million and $23.0 million for the
years ended December 31, 2001 and 2000, respectively. The
2001 usage was primarily due to the net loss of
$3.4 million and changes in various elements of working
capital, most notably accounts receivable. The increase in
accounts receivable was the result of a conscious decision to
extend our terms of trade in the latter part of 2001 to give us
a competitive advantage with our customers at little cost. In
2000, the cash used in operating activities was roughly
equivalent to that years net loss.

Net cash used in investing activities was
$43.6 million, $14.4 million and $0.4 million for
2002, 2001 and 2000, respectively. Investing activities
consisted of the acquisition of the Vaniqa® Cream
product rights in 2002 for $40.0 million and the
acquisition of the product rights for
BactrimTM, Midrin®,
Equagesic® and Synalgos® for
$14.2 million in 2001. Investing activities in 2002 also
included $2.6 million related to the transfer of
manufacturing rights to produce BactrimTM and
Ortho-Est® Tablets. Other investments included
$0.5 million in loans to our officers in 2002, and
purchases of property and equipment of $0.2 million,
$0.2 million and $0.4 million in 2002, 2001 and 2000,
respectively.

Net cash provided by financing activities was
$36.8 million, $30.0 million and $0.2 million,
respectively, for the same periods. In 2002, net cash provided
by financing activities consisted of $26.2 million in net
proceeds from the issuance of the senior secured notes and
$13.0 million from the convertible redeemable

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preferred stock issued in connection with the
Vaniqa® Cream acquisition and $0.6 million in
proceeds from the exercise of stock options. Offsetting the
proceeds was a $3.0 million payment on the debt to acquire
Equagesic® and Synalgos®. In 2001, cash
provided from financing activities consisted of a
$29.2 million in proceeds from a private placement of
common stock and $0.8 million from stock option exercises.
In 2000, cash provided from financing activities consisted of
$0.2 million in proceeds from the exercise of stock options.


The senior secured notes prohibit additional
indebtedness, subject to exceptions, and contain a variety of
financial and other covenants. Our 2002 results caused us to
fall out of compliance with all of the financial covenants,
which required us to maintain a minimum level of earnings before
interest, depreciation, taxes and amortization, a minimum fixed
charge coverage ratio and a minimum net worth measured as of
December 31, 2002 and the four quarters then ended and to
limit our capital expenditures during 2002. We are also out of
compliance with the same covenants for the period ended
March 31, 2003.

In April 2003, we entered into a binding term
sheet with the holders of the senior secured notes to remedy
these defaults by agreeing to implement the following material
terms:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the financial covenants governing the senior
    secured notes will be revised to include only requirements for
    minimum cash revenue, maximum cash expenditures and minimum cash
    balances, to be tested periodically through December 31,
    2004, after which time more customary financial covenants will
    be implemented;                                                                                  
|
| |  | in addition to the Vaniqa® Cream
    assets that we have already pledged to secure our performance
    under the senior secured notes, we will grant the note holders a
    security interest in all of our other assets, other than our
    rights to EsclimTM and Midrin® products;                                                                                                                                     
|
| |  | we will grant warrants to the note holders to
    purchase 2.0 million shares of common stock at an average
    market price to be determined based on closing market prices
    leading up to the public announcement of our agreement in
    principle and simultaneously cancel the existing warrants to
    purchase 1.7 million shares of our common stock at $5.50
    per share currently held by the note holders;
|
| |  | we will apply an agreed-upon portion of the
    proceeds from any asset sales and the license or sale of our
    international rights to Vaniqa® Cream to offer to
    repay the convertible preferred stock and the senior secured
    notes at stated optional redemption prices;                                                                                                                                       
|
| |  | we will modify the terms of the convertible
    redeemable preferred stock to reduce the optional redemption
    price to 108% of accreted stated value through November 30,
    2003, at which time the redemption price would increase based on
    a formula that takes into account the number of shares redeemed
    before November 30, 2003; and                                                                   
|
| |  | as a condition to the restructuring, we will be
    required to have at least $2.5 million of additional
    capital. Our President, Chief Executive Officer and Chairman of
    the Board, Edward F. Calesa, has committed to provide
    $1.0 million of this amount and our management has received
    indications of interest for the remaining $1.5 million in
    equity financing.                                

Our default under the senior secured notes
permits the note holders to accelerate the payment of our
indebtedness under the notes and seek to foreclose on the
collateral pledged to secure our indebtedness under the notes.
While we have entered into a binding term sheet with the note
holders to remedy the defaults, we have not yet completed
definitive documents to implement the terms of the term sheet
and the closing of the restructuring is subject to conditions.
In addition, any future default by us under the senior secured
notes would allow the note holders to accelerate our
indebtedness under the senior secured notes.

On January 21, 2003, we entered into a
Revolving Credit and Security Agreement with CapitalSource
Finance LLC, under which CapitalSource agreed to extend us a
line of credit equal to approximately 85% of our eligible
accounts receivable up to a maximum of $5.0 million. On the
same day, we borrowed the minimum amount required under the
agreement, $1.5 million. Because we did not have adequate
accounts receivable to support $1.5 million in borrowing
and because the credit agreement contained a cross-default
provision with the senior secured notes, we also became in
default under the credit agreement. On March 26,

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2003, we agreed with CapitalSource to cancel the
credit agreement, without any penalties, and repaid the
$1.5 million. We may not be able to replace the credit
agreement on terms that are acceptable to us, or at all.


In March 2003, we announced restructuring plans
in order to improve our operating results and terminated 56
employees (35% of our work force), primarily sales and marketing
personnel in the pharmaceutical division. We will report
approximately $0.7 million in costs relating to this
restructuring in the first quarter of 2003, and we estimate that
we will incur $0.1 million in expenses in subsequent
quarters during 2003. The costs consist of severance pay and
related benefits of $0.3 million (paid in March and April
2003) and an estimated $0.4 million in equipment and early
termination fees on automobiles leases for vehicles used by
terminated employees (to be paid in the second quarter of 2003).

We believe that based on our current performance
and future plans, our existing cash balances and our expectation
to raise funds through additional privately placed investment,
we will have sufficient resources to fund our operations, make
planned capital expenditures and meet our debt service
commitments through December 31, 2003. We have announced
our intention to sell our non-strategic assets 
BactrimTM, Midrin®,
Equagesic® and Synalgos®. Proceeds from
these sales will be used to pay down the associated debt (in the
case of Midrin®, Equagesic® and
Synalgos®) with a specified portion of any remaining
proceeds to be used to retire or redeem the convertible
redeemable preferred stock and senior secured notes and a
specified portion of the any remaining proceeds available to us
to fund operations. In addition, we will seek to license and/or
sell our international rights to Vaniqa® Cream,
using a specified portion of the proceeds to retire or redeem
the senior secured notes and convertible redeemable preferred
stock and a specified portion of any remaining proceeds to fund
operations. If cash generated by operations, new capital and
through the sale of non-strategic assets is insufficient to
satisfy our liquidity requirements, we may need to sell
additional equity or debt securities or obtain credit
facilities. The sale of additional equity or convertible debt
securities may result in additional dilution to our
stockholders. We may not be able to raise any such capital, if
needed, on terms acceptable to us or at all. The extent of our
needs for additional liquidity will depend on our future
operating performance, which is itself dependent on a number of
factors, many of which we cannot control, including prevailing
economic conditions, availability of other sources of liquidity,
and financial, business, regulatory and other factors affecting
our business and operations.

On December 10, 2002, we entered into a
sales and marketing agreement with Ventiv Health U.S. Sales
L.L.C., wherein Ventiv will market Vaniqa® Cream to
dermatologists throughout the U.S. The agreement expires in
December 2005, subject to early termination provisions. Ventiv
will be compensated with royalties based on the level of sales
generated in excess of a baseline. Additionally, we made an
initial payment to Ventiv of $0.2 million, in January 2003.
To support Ventivs efforts, we have committed to spend a
minimum of $2.0 million each year in support of
Vaniqa® Cream related activities, which will not be
paid to Ventiv directly.

The following table highlights our contractual
and commercial obligations as of December 31, 2002 and when
they are due:

|                              |  |                |        |           |  |           |       |           |  |               |        |  |  |   |        |  |  |   |   | 
|----------------------------- |  | -------------- | ------ | --------- |  | --------- | ----- | --------- |  | ------------- | ------ |  |  | - | ------ |  |  | - | - | 
|                              |  |                |        | Less than |  |           |       |           |  |              
|Contractual Obligations       |  | Total          |        | 1 year    |  | 1-3 years |       | 4-5 years |  | After 5 years
|                              |  |                |        |           |  |           |       |           |  |              
|                              |  |               
|                              |  | (In thousands)
|Long term debt                |  | $              | 42,250 |           |  | $         |      |           |  | $             | 31,250 |  |  | $ | 11,000 |  |  |   |  | 
|Short term debt               |  |                | 3,250  |           |  |           | 3,250 |           |  |               |       |  |  |   |       |  |  |   |  | 
|Inventory commitments         |  |                | 1,567  |           |  |           | 1,567 |           |  |               |       |  |  |   |       |  |  |   |  | 
|Third-party sales agreement   |  |                | 6,192  |           |  |           | 2,192 |           |  |               | 4,000  |  |  |   |       |  |  |   |  | 
|Operating lease obligations   |  |                | 2,075  |           |  |           | 962   |           |  |               | 1,044  |  |  |   | 69     |  |  |   |  | 
|                              |  |                |        |           |  |           |       |           |  |               |        |  |  |   |        |  |  |   |   | 
|Total contractual obligations |  | $              | 55,334 |           |  | $         | 7,971 |           |  | $             | 36,294 |  |  | $ | 11,069 |  |  | $ |  | 
|                              |  |                |        |           |  |           |       |           |  |               |        |  |  |   |        |  |  |   |   | 

We pay royalties to Fournier and Élan based
on the net sales of EsclimTM and
Midrin®, respectively. There are no minimum
royalty payments. Future royalty payments are excluded from the
above table because the amounts paid will depend on future net
sales.

38



---



##### Table of Contents



We have a number of rebate agreements with
different terms. We provide rebates to our wholesalers or
retailers for reimbursements of discounts they have offered
their customers. We reimburse states for their payments of
customer rebates to consumers for use of our products. We pay
rebates to certain marketing organizations that demonstrate they
have generated sales of our products. These agreements vary
considerably and are dependent on the sales levels generated
through various channels. Estimates of future rebates are
excluded from the above table because the amounts paid will
depend on the future net sales.




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

Our distribution and license agreement with
Fournier requires us to pay for the purchase of the
EsclimTM estradiol transdermal product in
euros. As a result, our operating results for this product are
exposed to changes in exchange rates between the U.S. dollar and
the European euro. We do not believe that this exposure is
material.




Item 8.     Financial
Statements and Supplementary Data

See Index to Consolidated Financial Statements on
page F-1 below for a list of the financial statements being
filed with this report.




Item 9.     Changes
In and Disagreements With Accountants on Accounting and
Financial Disclosure

None.




PART III




Item 10.     Directors
and Executive Officers of the Registrant

The information required by this Item will be set
forth in the section headed Proposal 1 
Election of Directors in our definitive Proxy Statement
for the Annual Meeting of Stockholders of the Company (the
Proxy Statement) which is expected to be filed not
later than 120 days after the end of our fiscal year ended
December 31, 2002, and is incorporated in this report by
reference.




Item 11.     Executive
Compensation

The information required by this Item will be set
forth in the section headed Executive Compensation
in our definitive Proxy Statement and is incorporated in this
report by reference.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The information required by this Item 12
will be set forth in the section headed Ownership of
Certain Beneficial Owners and Management in our definitive
Proxy Statement and is incorporated in this report by reference.




Item 13.Certain
Relationships and Related Transactions

The information required by this Item will be set
forth in the sections headed Certain Relationships and
Related Transactions and Compensation Committee
Interlocks and Insider Participation in our definitive
Proxy Statement and is incorporated in this report by reference.




Item 14.Controls
and Procedures

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our reports pursuant to the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commissions rules and forms, and that such
information is accumulated and communicated to our

39



---



##### Table of Contents



management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.


Within 90 days prior to the date of this
report, we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective. There have
been no significant changes in our internal controls or in other
factors that could significantly affect internal controls
subsequent to the date we completed our evaluation.




PART IV




Item 15.Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a) The following documents are filed as
part of this report:



|   |                     
|-- | --------------------
|1. | Financial Statements

See attached Index to Consolidated Financial
Statements and Schedule.



|   |                             
|-- | ----------------------------
|2. | Financial Statement Schedule

See attached Index to Consolidated Financial
Statements and Schedule. Other financial statement schedules are
omitted because they are not required, are not applicable, or
the information is included in the consolidated financial
statements or notes included in this Form 10-K.



|   |                                                            
|-- | -----------------------------------------------------------
|3. | List of Exhibits required by Item 601
    of Regulation S-K

See part (c) below.

(b) Reports on Form 8-K. Current
Reports filed pursuant to Sections 13(a) or 15(d) of the
Exchange Act on Form 8-K.

None.

(c) Exhibits. The following exhibits
are filed as part of, or incorporated by reference into, this
report:

|        |    |             |  |                                                                                                                                           
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 3  | .1(1)       |  | Fourth Amended and Restated Certificate of
    Incorporation.                                                                             
|        | 3  | .2(2)       |  | Certificate of Designation of Preferences and
    Rights of Senior Convertible Redeemable Preferred Stock,
    Series A.                  
|        | 3  | .3(1)       |  | Second Amended and Restated Bylaws.                                                                                                       
|        | 4  | .1(3)       |  | Form of Specimen Common Stock Certificate.                                                                                                
|        | 10 | .1(4)       |  | Employment Agreement dated January 8, 1998
    by and between Women First HealthCare, Inc. and Edward F. Calesa.                          
|        | 10 | .2(5)       |  | Amended and Restated 1998 Long-Term Incentive
    Plan.                                                                                   
|        | 10 | .3(6)       |  | Management Incentive Compensation Plan.                                                                                                   
|        | 10 | .4(4)       |  | Lease Agreement dated April 3, 1998 by and
    between Women First HealthCare, Inc. and Prentiss Properties
    Acquisition Partners, L.P.
|        | 10 | .5(1)       |  | Distribution and License Agreement dated as of
    July 19, 1999 between Women First HealthCare, Inc. and
    Laboratoires Fournier S.A.* 

40



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                               
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .6(5)       |  | 1999 Non-Qualified Stock Option Plan.                                                                                                                                                                         
|        | 10 | .7(8)       |  | Ortho-Est® Asset Transfer and Supply
    Agreement effective September 30, 2000 between Women First
    HealthCare, Inc. and Ortho-McNeil Pharmaceutical, Inc.                                                
|        | 10 | .8(8)       |  | Ortho-PrefestTMCo-Promotion Agreement
    effective September 30, 2000 between Women First HealthCare,
    Inc. and Ortho-McNeil Pharmaceutical, Inc.                                                         
|        | 10 | .9(9)       |  | Amendment No. 1 to Distribution and License
    Agreement dated November 3, 2000 between Laboratoires Fournier
    S.A. and Women First HealthCare, Inc.*                                                     
|        | 10 | .10(9)      |  | Pharmacy Supplier Agreement between Novation, LLC
    and Women First HealthCare, Inc. dated as of December 20,
    2000.*                                                                                    
|        | 10 | .11(10)     |  | Co-Promotion Agreement dated as of April 6,
    2001 between Women First HealthCare, Inc. and Essentia
    Pharmaceuticals B.V.*                                                                              
|        | 10 | .12(11)     |  | Midrin Asset and Inventory Purchase Agreement
    dated as of June 29, 2001 by and among Women First Health
    Care, Inc., Élan Pharma International Limited and Élan
    Pharmaceuticals, Inc.*             
|        | 10 | .13(11)     |  | Securities Purchase Agreement dated June 29,
    2001 among Women First HealthCare, Inc., Élan International
    Services, Ltd., and Élan Pharma International Limited.                                       
|        | 10 | .14(11)     |  | Convertible Secured Promissory Note dated
    June 29, 2001.                                                                                                                                                  
|        | 10 | .15(12)     |  | Manufacturing Site Transfer Agreement dated as of
    June 22, 2001 between Women First HealthCare, Inc. and
    Pharmaceutics International, Inc.*                                                           
|        | 10 | .16(12)     |  | Securities Purchase Agreement dated as of
    August 8, 2001 by and among Women First HealthCare, Inc.
    and the purchasers listed on Exhibit A thereto.                                                    
|        | 10 | .17(13)     |  | Securities Purchase Agreement dated as of
    August 8, 2001 among Women First HealthCare, Inc. and the
    Purchasers who were signatories thereto.                                                          
|        | 10 | .18(13)     |  | Warrant Agreement by and between Women First
    HealthCare, Inc. and Gruntal & Co., L.L.C. dated as of
    August 8, 2001.                                                                                   
|        | 10 | .19(14)     |  | Agreement between Women First Healthcare, Inc.
    and Hoffmann-La Roche.*                                                                                                                                    
|        | 10 | .20(15)     |  | Asset Purchase Agreement dated November 15,
    2001 by and between American Home Products Corporation and Women
    First Health Care, Inc.*                                                                 
|        | 10 | .21(15)     |  | Manufacturing and Supply Agreement dated
    November 15, 2001 by and between American Home Products
    Corporation and Women First Health Care, Inc.*                                                       
|        | 10 | .22(15)     |  | Trademark License Agreement dated
    November 15, 2001 by and between American Home Products
    Corporation and Women First Health Care, Inc.*                                                              
|        | 10 | .23(15)     |  | Senior Secured Promissory Note dated
    November 15, 2001.*                                                                                                                                                  
|        | 10 | .24(16)     |  | Amendment No. 1 to Senior Secured Promissory
    Note dated November 25, 2002.                                                                                                                                
|        | 10 | .25(15)     |  | Security Agreement dated November 15, 2001
    by and between American Home Products Corporation and Women
    First Health Care, Inc.                                                                        
|        | 10 | .26(17)     |  | Manufacturing and Supply Agreement between Mutual
    Pharmaceutical Company, Inc. and Women First HealthCare, Inc.
    made on January 24, 2002.*                                                            
|        | 10 | .27(17)     |  | Promissory Note Dated February 26, 2002
    between Women First HealthCare, Inc. and Saundra Childs.                                                                                                          
|        | 10 | .28(17)     |  | Promissory Note Dated February 26, 2002
    between Women First HealthCare, Inc. and Charles M. Caporale.                                                                                                     
|        | 10 | .29(2)      |  | Asset Purchase Agreement, dated as of
    June 25, 2002, by and among Westwood-Squibb Colton Holdings
    Partnership, The Gillette Company, Bristol-Myers Squibb Company
    and Women First HealthCare, Inc.
|        | 10 | .30(2)      |  | License Agreement, dated as of June 25,
    2002, by and among The Gillette Company, Bristol-Myers Squibb
    Company and Women First HealthCare, Inc                                                         
|        | 10 | .31(2)      |  | Supply Agreement, dated as of June 25, 2002,
    by and between Bristol-Myers Squibb Company and Women First
    HealthCare, Inc.*                                                                            

41



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                            
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .32(2)      |  | Note and Warrant Purchase Agreement, dated as of
    June 25, 2002, by and among Women First HealthCare, Inc.
    and the Purchasers named therein                                                                                         
|        | 10 | .33(2)      |  | Form of Senior Secured Note dated June 25,
    2002.                                                                                                                                                                                       
|        | 10 | .34(2)      |  | Form of Common Stock Purchase Warrant dated
    June 25, 2002.                                                                                                                                                                             
|        | 10 | .35(2)      |  | Preferred Stock Purchase Agreement, dated
    June 25, 2002, by and among Women First HealthCare, Inc.
    and the Purchasers named therein.                                                                                               
|        | 10 | .36(2)      |  | Registration Rights Agreement, dated
    June 25, 2002, related to the Senior Secured Notes and
    Common Stock Purchase Warrants by and among Women First
    HealthCare, Inc. and the holders of Senior Secured Notes named
    therein.
|        | 10 | .37(2)      |  | Registration Rights Agreement, dated
    June 25, 2002, related to the Convertible Preferred Stock
    by and among Women First HealthCare, Inc. and the holders of
    Convertible Preferred Stock named therein.                         
|        | 10 | .38(2)      |  | Security Agreement, dated as of June 25,
    2002, by and among Women First HealthCare, Inc. and the holders
    of Senior Secured Notes and Convertible Preferred Stock named
    therein.                                                
|        | 10 | .40(16)     |  | Sales and Marketing Agreement, dated
    December 10, 2002, by and between Ventiv Health U.S. Sales
    L.L.C and Women First HealthCare, Inc.                                                                                            
|        | 10 | .41(18)     |  | Professional Promotion Agreement, dated
    September 1, 2002, by and between PDI Shared Sales, Inc.
    and Women First HealthCare, Inc.*                                                                                                 
|        | 21 | .1(16)      |  | Subsidiaries.                                                                                                                                                                                                                              
|        | 23 | .1(14)      |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                              



---



|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 1999 filed August 13, 1999.       
|   
|(2) | Incorporated by reference to the Companys
    Current Report on Form 8-K filed July 2, 2002.                                                     
|   
|(3) | Incorporated by reference to Amendment No. 4
    to the Companys Registration Statement on Form S-1
    filed June 24, 1999.                     
|   
|(4) | Incorporated by reference to the Companys
    Registration Statement on Form S-1 filed March 12,
    1999.                                       
|   
|(5) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 1999 filed March 30, 2000.          
|   
|(6) | Incorporated by reference to Amendment No. 1
    to the Companys Registration Statement on Form S-1
    filed May 24, 1999.                      
|   
|(7) | Incorporated by reference to Amendment No. 2
    to the Companys Registration Statement on Form S-1
    filed June 2, 1999.                      
|   
|(8) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2000 filed November 14, 2000.
|   
|(9) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-K for the year ended
    December 31, 2000 filed March 30, 2001.       



|     |                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001 filed May 15, 2001.         
|    
|(11) | Incorporated by reference to the Companys
    Current Report on Form 8-K filed July 3, 2001.                                                     
|    
|(12) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2001 filed August 13, 2001.       
|    
|(13) | Incorporated by reference to the Companys
    Registration Statement on Form S-3 filed September 4,
    2001.                                    
|    
|(14) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2001 filed November 13, 2001.

42



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##### Table of Contents





|     |                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(15) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 2001 filed March 27, 2002.          
|    
|(16) | Filed herewith.                                                                                                                                   
|    
|(17) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2002 filed May 10, 2002.         
|    
|(18) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2001 filed November 13, 2002.
|    
|*    | Women First has been granted confidential
    treatment with respect to portions of this exhibit.                                                 



|  |                                                                                        
|- | ---------------------------------------------------------------------------------------
| | Confidential treatment has been requested with
    respect to portions of this exhibit.

(d)     Financial
Statement Schedules. See Item 15 (a)(2) above

43



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##### Table of Contents



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 authorized.



| |                             
| | ----------------------------
| | WOMEN FIRST HEALTHCARE, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ EDWARD F. CALESA

| |                                                              
| | -------------------------------------------------------------
| | ______________________________________ 
     Edward F. Calesa
| | Chairman, President and Chief Executive
    Officer          
| | Date: April 15, 2003                                         

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.

|                                           |  |                                                                                                                                             |  |               
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|/s/ EDWARD F. CALESAEdward F. Calesa       |  | Chairman of the Board, President and Chief
    Executive Officer
    (Principal Executive Officer)                                          |  | April 15, 2003
|                                          
|/s/ CHARLES M. CAPORALECharles M. Caporale |  | Vice President, Chief Financial Officer,
    Treasurer and Secretary
    (Principal Financial Officer and
    Principal Accounting Officer) |  | April 15, 2003
|                                          
|/s/ DENNIS M. JONESDennis M. Jones         |  | Director                                                                                                                                    |  | April 15, 2003
|                                          
|/s/ NATHAN KASE, M.D.Nathan Kase, M.D.     |  | Director                                                                                                                                    |  | April 15, 2003
|                                          
|/s/ PATRICIA NASSHORNPatricia Nasshorn     |  | Director                                                                                                                                    |  | April 15, 2003
|                                          
|/s/ RICHARD L. RUBINRichard L. Rubin       |  | Director                                                                                                                                    |  | April 15, 2003

44



---



##### Table of Contents



CERTIFICATIONS

I, Edward F. Calesa, Chairman, President and
Chief Executive Officer of Women First HealthCare, Inc., certify
that:

1.     I have reviewed
this annual report on Form 10-K of Women First HealthCare,
Inc.;

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

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

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



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

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



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

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



| |                                                               
| | --------------------------------------------------------------
| | /s/ EDWARD F. CALESA                                          
| | _______________________________________ 
     Edward F. Calesa
| | Chairman, President and Chief Executive
    Officer           

Date: April 15, 2003

45



---



##### Table of Contents



I, Charles M. Caporale, Vice-President, Chief
Financial Officer, Treasurer and Secretary of Women First
HealthCare, Inc., certify that:

1.     I have reviewed
this annual report on Form 10-K of Women First HealthCare,
Inc.;

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

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

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



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

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



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

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



| |                                                                  
| | -----------------------------------------------------------------
| | /s/ CHARLES M. CAPORALE                                          
| | _______________________________________ 
     Charles M. Caporale
| | Vice President, Chief Financial
    Officer,                     
| | Treasurer and Secretary                                          

Date: April 15, 2003

46



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE

|                                                      |  |  |     | 
|----------------------------------------------------- |  |  | --- | 
|Report of Ernst & Young LLP, Independent
    Auditors |  |  | F-2 | 
|Consolidated Balance Sheets                           |  |  | F-3 | 
|Consolidated Statements of Operations                 |  |  | F-4 | 
|Consolidated Statements of Stockholders
    Equity   |  |  | F-5 | 
|Consolidated Statements of Cash Flows                 |  |  | F-6 | 
|Notes to Consolidated Financial Statements            |  |  | F-7 | 
|Schedule II  Valuation and
    Qualifying Accounts   |  |  | S-1 | 

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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders 
 Women First HealthCare, Inc.

We have audited the accompanying consolidated
balance sheets of Women First HealthCare, Inc. as of
December 31, 2002, and 2001, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2002. Our audits also included the financial
statement schedule listed in the index at Schedule 15(a).
These financial statements are the responsibility of 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.
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 Women First HealthCare, Inc.
at December 31, 2002 and 2001, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 1 to the consolidated
financial statements, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, and accordingly, changed its method of
accounting for goodwill in 2002.

San Diego, California

March 14, 2003


Except for paragraphs one and two of
Note 18, as to which the date is


April 14, 2003


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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share
amounts)


|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |         |         |  |        |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | ------ | ------- | ------- |  | ------ | ------- | ------ | 
|                                                                                                                                                                                             |                                                                                                                                |                                                                                              
|                                                                                                                                                                                             |                                                                                                                                | December 31,                                                                                 
|                                                                                                                                                                                             |                                                                                                                                |                                                                                              
|                                                                                                                                                                                             |                                                                                                                                | 2002                                                                                          |        | 2001   
|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |        
|ASSETS                                                                                                                                                                                      
|Current assets:                                                                                                                                                                              |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|                                                                                                                                                                                             | Cash and cash equivalents                                                                                                      |                                                                                               | $      | 9,079   |         |  | $      | 19,378  |       
|                                                                                                                                                                                             | Accounts receivable, net, 2% pledged in 2002                                                                                   |                                                                                               |        | 15,860  |         |  |        | 9,383   |       
|                                                                                                                                                                                             | Inventory                                                                                                                      |                                                                                               |        | 2,963   |         |  |        | 1,147   |       
|                                                                                                                                                                                             | Prepaid expenses, samples and other current assets                                                                             |                                                                                               |        | 3,559   |         |  |        | 1,261   |       
|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|                                                                                                                                                                                             |                                                                                                                                | Total current assets                                                                          |        |         | 31,461  |  |        |         | 31,169 | 
|Property and equipment, net                                                                                                                                                                  |                                                                                                                                |                                                                                               | 864    |         |         |  | 1,066  |        
|Product rights, net, 93% pledged in 2002                                                                                                                                                     |                                                                                                                                |                                                                                               | 76,339 |         |         |  | 36,205 |        
|Intangible assets, net                                                                                                                                                                       |                                                                                                                                |                                                                                               | 2,813  |         |         |  | 2,809  |        
|Notes receivable from officers                                                                                                                                                               |                                                                                                                                |                                                                                               | 222    |         |         |  |       |        
|Restricted cash                                                                                                                                                                              |                                                                                                                                |                                                                                               | 100    |         |         |  | 100    |        
|Debt issuance costs                                                                                                                                                                          |                                                                                                                                |                                                                                               | 1,503  |         |         |  |       |        
|Other assets                                                                                                                                                                                 |                                                                                                                                |                                                                                               | 3,935  |         |         |  | 1,406  |        
|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|                                                                                                                                                                                             |                                                                                                                                | Total assets                                                                                  |        | $       | 117,237 |  |        | $       | 72,755 | 
|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                                    
|Current liabilities:                                                                                                                                                                         |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|                                                                                                                                                                                             | Accounts payable                                                                                                               |                                                                                               | $      | 3,509   |         |  | $      | 2,139   |       
|                                                                                                                                                                                             | Payable to related party                                                                                                       |                                                                                               |        | 772     |         |  |        | 419     |       
|                                                                                                                                                                                             | Accrued salaries and employee benefits                                                                                         |                                                                                               |        | 638     |         |  |        | 646     |       
|                                                                                                                                                                                             | Accrued payroll taxes                                                                                                          |                                                                                               |        | 13      |         |  |        | 1,350   |       
|                                                                                                                                                                                             | Other accrued liabilities                                                                                                      |                                                                                               |        | 2,778   |         |  |        | 769     |       
|                                                                                                                                                                                             | Reserve for product returns, exchanges, rebates
    and chargebacks                                                            |                                                                                               |        | 2,926   |         |  |        | 1,717   |       
|                                                                                                                                                                                             | Deferred revenue                                                                                                               |                                                                                               |        | 4,204   |         |  |        |        |       
|                                                                                                                                                                                             | Current portion of long-term debt                                                                                              |                                                                                               |        | 3,018   |         |  |        | 2,728   |       
|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|                                                                                                                                                                                             |                                                                                                                                | Total current liabilities                                                                     |        |         | 17,858  |  |        |         | 9,768  | 
|Long-term debt, excluding current portion                                                                                                                                                    |                                                                                                                                |                                                                                               | 39,839 |         |         |  | 17,267 |        
|Senior convertible redeemable preferred stock,
    $1,052 per share accreted stated value; 13 shares
    authorized, issued and outstanding, in 2002; total liquidation
    value of $13,682 |                                                                                                                                |                                                                                               | 13,682 |         |         |  |       |        
|Commitments and contingencies                                                                                                                                                                |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|Stockholders equity:                                                                                                                                                                        |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|                                                                                                                                                                                             | Preferred stock, $.001 par value; 5,000 shares
    authorized                                                                  |                                                                                               |        |        |         |  |        |        |       
|                                                                                                                                                                                             | Common stock, $.001 par value; 40,000 shares
    authorized; 23,296 and 22,833 shares issued and outstanding,
    respectively |                                                                                               |        | 22      |         |  |        | 22      |       
|                                                                                                                                                                                             | Treasury stock at cost, 340 shares                                                                                             |                                                                                               |        | (100    | )       |  |        | (100    | )     
|                                                                                                                                                                                             | Additional paid-in capital                                                                                                     |                                                                                               |        | 120,486 |         |  |        | 114,771 |       
|                                                                                                                                                                                             | Deferred compensation                                                                                                          |                                                                                               |        |        |         |  |        | (87     | )     
|                                                                                                                                                                                             | Accumulated deficit                                                                                                            |                                                                                               |        | (74,550 | )       |  |        | (68,886 | )     
|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|                                                                                                                                                                                             |                                                                                                                                | Total stockholders equity                                                                    |        |         | 45,858  |  |        |         | 45,720 | 
|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |         |         |  |        |        
|                                                                                                                                                                                             |                                                                                                                                | Total liabilities, senior convertible redeemable
    preferred stock and stockholders equity |        | $       | 117,237 |  |        | $       | 72,755 | 
|                                                                                                                                                                                             |                                                                                                                                |                                                                                               |        |         |         |  |        |        

See accompanying notes.

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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
amounts)


|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |        | 
|------------------------------------------------------------------------------------------------------------------ | ------------------------ | ------------------------ | ------ | ------ |  | ---- | ------ | ------ |  | - | ------- | ------ | 
|                                                                                                                   |                          |                         
|                                                                                                                   |                          | Years ended December 31,
|                                                                                                                   |                          |                         
|                                                                                                                   |                          | 2002                     |        | 2001   |  | 2000
|                                                                                                                   |                          |                          |        |        |  |     
|Net product revenue                                                                                                |                          | $                        | 48,618 |        |  | $    | 28,363 |        |  | $ | 13,998  |       
|Net service revenue                                                                                                |                          |                          |       |        |  |      |       |        |  |   | 750     |       
|Net service revenue from related party                                                                             |                          |                          |       |        |  |      | 44     |        |  |   | 12,337  |       
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       
|                                                                                                                   | Total net revenues       |                          |        | 48,618 |  |      |        | 28,407 |  |   |         | 27,085 | 
|Cost of sales  products (including
    purchases from related party of $457, $1,276 and $5,325,
    respectively) |                          |                          | 17,685 |        |  |      | 8,238  |        |  |   | 10,529  |       
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       
|Gross margin                                                                                                       |                          |                          | 30,933 |        |  |      | 20,169 |        |  |   | 16,556  |       
|Marketing and sales expenses                                                                                       |                          |                          | 24,383 |        |  |      | 16,113 |        |  |   | 31,765  |       
|General and administrative expenses                                                                                |                          |                          | 6,238  |        |  |      | 7,539  |        |  |   | 7,541   |       
|Regulatory, research and development expenses                                                                      |                          |                          | 568    |        |  |      | 465    |        |  |   | 539     |       
|Restructuring charges                                                                                              |                          |                          |       |        |  |      |       |        |  |   | 735     |       
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       
|                                                                                                                   | Total operating expenses |                          |        | 31,189 |  |      |        | 24,117 |  |   |         | 40,580 | 
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       
|Loss from operations                                                                                               |                          |                          | (256   | )      |  |      | (3,948 | )      |  |   | (24,024 | )     
|Interest and other income                                                                                          |                          |                          | 204    |        |  |      | 972    |        |  |   | 1,458   |       
|Interest expense                                                                                                   |                          |                          | (3,906 | )      |  |      | (465   | )      |  |   |        |       
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       
|Net loss                                                                                                           |                          |                          | (3,958 | )      |  |      | (3,441 | )      |  |   | (22,566 | )     
|Accretion of beneficial conversion feature
    related to convertible redeemable preferred stock                   |                          |                          | (1,024 | )      |  |      |       |        |  |   |        |       
|Accretion of stated value of convertible
    redeemable preferred stock                                            |                          |                          | (682   | )      |  |      |       |        |  |   |        |       
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       
|Net loss available to common stockholders                                                                          |                          | $                        | (5,664 | )      |  | $    | (3,441 | )      |  | $ | (22,566 | )     
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       
|Net loss per share available to common
    stockholders (basic and diluted)                                        |                          | $                        | (0.25  | )      |  | $    | (0.17  | )      |  | $ | (1.29   | )     
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       
|Weighted average shares used in computing net
    loss per share (basic and diluted)                               |                          |                          | 22,851 |        |  |      | 19,707 |        |  |   | 17,468  |       
|                                                                                                                   |                          |                          |        |        |  |      |        |        |  |   |         |       

See accompanying notes.

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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands)


|                                |                                                                                                  |              |        |          |  |            |    |          |  |         |      |         |  |       |         |        |   |   |        |      |   |   |         |         |   |   |        |         |  
|------------------------------- | ------------------------------------------------------------------------------------------------ | ------------ | ------ | -------- |  | ---------- | -- | -------- |  | ------- | ---- | ------- |  | ----- | ------- | ------ | - | - | ------ | ---- | - | - | ------- | ------- | - | - | ------ | ------- | -
|                                |                                                                                                  |              |        |          |  |            |    |          |  |         |      |        
|                                |                                                                                                  | Common Stock |        |          |  | Additional |    | Deferred |  | Accumu- |      |        
|                                |                                                                                                  |              |        | Treasury |  | Paid-in    |    | Compen-  |  | lated   |      |        
|                                |                                                                                                  | Shares       |        | Amount   |  | Stock      |    | Capital  |  | sation  |      | Deficit |  | Total
|                                |                                                                                                  |              |        |          |  |            |    |          |  |         |      |         |  |      
|Balance as of December 31, 1999 |                                                                                                  |              | 17,311 |          |  | $          | 17 |          |  | $       | (100 | )       |  | $     | 80,761  |        |   | $ | (1,080 | )    |   | $ | (42,879 | )       |   | $ | 36,719 |        
|                                | Issuance of common stock upon exercise of options                                                |              |        | 283      |  |            |    | 1        |  |         |      |        |  |       |         | 241    |   |   |        |     |   |   |         |        |   |   |        | 242     |  
|                                | Compensation expense related to stock options                                                    |              |        |         |  |            |    |         |  |         |      |        |  |       |         | 195    |   |   |        |     |   |   |         |        |   |   |        | 195     |  
|                                | Deferred compensation related to stock options                                                   |              |        |         |  |            |    |         |  |         |      |        |  |       |         | 116    |   |   |        | (116 | ) |   |         |        |   |   |        |        |  
|                                | Amortization of deferred compensation                                                            |              |        |         |  |            |    |         |  |         |      |        |  |       |         |        |   |   |        | 446  |   |   |         |        |   |   |        | 446     |  
|                                | Reversal of deferred compensation for separated
    employees                                    |              |        |         |  |            |    |         |  |         |      |        |  |       |         | (518   | ) |   |        | 518  |   |   |         |        |   |   |        |        |  
|                                | Net loss                                                                                         |              |        |         |  |            |    |         |  |         |      |        |  |       |         |       |   |   |        |     |   |   |         | (22,566 | ) |   |        | (22,566 | )
|                                |                                                                                                  |              |        |          |  |            |    |          |  |         |      |         |  |       |         |        |   |   |        |      |   |   |         |         |   |   |        |        
|Balance as of December 31, 2000 |                                                                                                  |              | 17,594 |          |  |            | 18 |          |  |         | (100 | )       |  |       | 80,795  |        |   |   | (232   | )    |   |   | (65,445 | )       |   |   | 15,036 |        
|                                | Issuance of common stock for cash                                                                |              |        | 3,500    |  |            |    | 3        |  |         |      |        |  |       |         | 29,163 |   |   |        |     |   |   |         |        |   |   |        | 29,166  |  
|                                | Issuance of common stock upon exercise of options
    and warrants                               |              |        | 977      |  |            |    | 1        |  |         |      |        |  |       |         | 805    |   |   |        |     |   |   |         |        |   |   |        | 806     |  
|                                | Issuance of common stock to acquire product rights                                               |              |        | 422      |  |            |    |         |  |         |      |        |  |       |         | 3,999  |   |   |        |     |   |   |         |        |   |   |        | 3,999   |  
|                                | Compensation expense related to stock options                                                    |              |        |         |  |            |    |         |  |         |      |        |  |       |         | 50     |   |   |        |     |   |   |         |        |   |   |        | 50      |  
|                                | Amortization of deferred compensation                                                            |              |        |         |  |            |    |         |  |         |      |        |  |       |         |       |   |   |        | 104  |   |   |         |        |   |   |        | 104     |  
|                                | Reversal of deferred compensation for separated
    employees                                    |              |        |         |  |            |    |         |  |         |      |        |  |       |         | (41    | ) |   |        | 41   |   |   |         |        |   |   |        |        |  
|                                | Net loss                                                                                         |              |        |         |  |            |    |         |  |         |      |        |  |       |         |       |   |   |        |     |   |   |         | (3,441  | ) |   |        | (3,441  | )
|                                |                                                                                                  |              |        |          |  |            |    |          |  |         |      |         |  |       |         |        |   |   |        |      |   |   |         |         |   |   |        |        
|Balance as of December 31, 2001 |                                                                                                  |              | 22,493 |          |  |            | 22 |          |  |         | (100 | )       |  |       | 114,771 |        |   |   | (87    | )    |   |   | (68,886 | )       |   |   | 45,720 |        
|                                | Issuance of common stock upon exercise of options
    and warrants                               |              |        | 463      |  |            |    |         |  |         |      |        |  |       |         | 560    |   |   |        |     |   |   |         |        |   |   |        | 560     |  
|                                | Amortization of deferred compensation                                                            |              |        |         |  |            |    |         |  |         |      |        |  |       |         |       |   |   |        | 87   |   |   |         |        |   |   |        | 87      |  
|                                | Accretion of beneficial conversion feature
    related to convertible redeemable preferred stock |              |        |         |  |            |    |         |  |         |      |        |  |       |         | 1,024  |   |   |        |     |   |   |         | (1,024  | ) |   |        |        |  
|                                | Accretion of stated value of convertible
    redeemable preferred stock                          |              |        |         |  |            |    |         |  |         |      |        |  |       |         |       |   |   |        |     |   |   |         | (682    | ) |   |        | (682    | )
|                                | Valuation of warrants issued with Senior Secured
    Notes                                       |              |        |         |  |            |    |         |  |         |      |        |  |       |         | 4,131  |   |   |        |     |   |   |         |        |   |   |        | 4,131   |  
|                                | Net loss                                                                                         |              |        |         |  |            |    |         |  |         |      |        |  |       |         |       |   |   |        |     |   |   |         | (3,958  | ) |   |        | (3,958  | )
|                                |                                                                                                  |              |        |          |  |            |    |          |  |         |      |         |  |       |         |        |   |   |        |      |   |   |         |         |   |   |        |        
|Balance as of December 31, 2002 |                                                                                                  |              | 22,956 |          |  | $          | 22 |          |  | $       | (100 | )       |  | $     | 120,486 |        |   | $ |       |      |   | $ | (74,550 | )       |   | $ | 45,858 |        
|                                |                                                                                                  |              |        |          |  |            |    |          |  |         |      |         |  |       |         |        |   |   |        |      |   |   |         |         |   |   |        |        

See accompanying notes.

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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |         |       |        |         |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------- | ----- | ------ | ------- | ------- | ----- | ------ | ------- | ------- | ----- | ------ | ------- | -
|                                                         |                                                                                                  |                                                                                       
|                                                         |                                                                                                  | December 31,                                                                          
|                                                         |                                                                                                  |                                                                                       
|                                                         |                                                                                                  | 2002                                                                                   |                                                                     | 2001                                      |       | 2000  
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |       
|Operating activities                                     |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         | Net loss                                                                                         |                                                                                        | $                                                                   | (3,958                                    | )     |        | $       | (3,441  | )     |        | $       | (22,566 | )    
|                                                         | Adjustments to reconcile net loss to net cash
    used in operating activities:                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |         |      
|                                                         |                                                                                                  | Reserves for product returns, exchanges, rebates
    and chargebacks                   |                                                                     |                                           | 4,330 |        |         |         | 2,065 |        |         |         | 1,508 |       
|                                                         |                                                                                                  | Reserves for excess and dated inventory                                                |                                                                     |                                           | 1,683 |        |         |         | 79    |        |         |         | 1,662 |       
|                                                         |                                                                                                  | Allowance for doubtful accounts and cash discounts                                     |                                                                     |                                           | 1,087 |        |         |         | 720   |        |         |         | 407   |       
|                                                         |                                                                                                  | Depreciation and amortization                                                          |                                                                     |                                           | 876   |        |         |         | 608   |        |         |         | 668   |       
|                                                         |                                                                                                  | Amortization of product rights                                                         |                                                                     |                                           | 3,990 |        |         |         | 739   |        |         |         |      |       
|                                                         |                                                                                                  | Amortization of intangibles                                                            |                                                                     |                                           | 83    |        |         |         | 470   |        |         |         | 501   |       
|                                                         |                                                                                                  | Amortization of deferred compensation                                                  |                                                                     |                                           | 87    |        |         |         | 104   |        |         |         | 445   |       
|                                                         |                                                                                                  | Compensation expense related to stock options                                          |                                                                     |                                           |      |        |         |         | 50    |        |         |         | 195   |       
|                                                         |                                                                                                  | Interest accretion, amortization of original
    issue discount and financing expenses |                                                                     |                                           | 2,261 |        |         |         | 465   |        |         |         |      |       
|                                                         |                                                                                                  | Write-down of assets and other charges                                                 |                                                                     |                                           |      |        |         |         | 30    |        |         |         |      |       
|                                                         |                                                                                                  | Changes in operating assets and liabilities:                                           |                                                                     |                                           |       |        |         |         |       |        |         |         |       |       
|                                                         |                                                                                                  |                                                                                        | Accounts receivable                                                 |                                           |       | (7,564 | )       |         |       | (7,962 | )       |         |       | 1,087  |        
|                                                         |                                                                                                  |                                                                                        | Inventory                                                           |                                           |       | (3,499 | )       |         |       | (113   | )       |         |       | (1,590 | )      
|                                                         |                                                                                                  |                                                                                        | Receivable from related party                                       |                                           |       |       |         |         |       | 2,682  |         |         |       | (2,000 | )      
|                                                         |                                                                                                  |                                                                                        | Prepaid expenses and other current assets                           |                                           |       | (2,215 | )       |         |       | (442   | )       |         |       | 106    |        
|                                                         |                                                                                                  |                                                                                        | Accounts payable                                                    |                                           |       | 1,370  |         |         |       | 1,086  |         |         |       | (1,429 | )      
|                                                         |                                                                                                  |                                                                                        | Payable to related party                                            |                                           |       | 353    |         |         |       | (574   | )       |         |       | 510    |        
|                                                         |                                                                                                  |                                                                                        | Accrued salaries and employee benefits                              |                                           |       | (1,346 | )       |         |       | 1,246  |         |         |       | (1,222 | )      
|                                                         |                                                                                                  |                                                                                        | Reserve for product returns, exchanges, rebates
    and chargebacks |                                           |       | (3,121 | )       |         |       | (976   | )       |         |       | (1,375 | )      
|                                                         |                                                                                                  |                                                                                        | Deferred revenue                                                    |                                           |       | 4,204  |         |         |       |       |         |         |       |       |        
|                                                         |                                                                                                  |                                                                                        | Other accrued liabilities                                           |                                           |       | (2,096 | )       |         |       | (2,534 | )       |         |       | 89     |        
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         |                                                                                                  |                                                                                        |                                                                     | Net cash used in operating activities     |       |        | (3,475  | )       |       |        | (5,698  | )       |       |        | (23,004 | )
|Investing activities                                     |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         | Acquisition of product rights                                                                    |                                                                                        |                                                                     | (40,019                                   | )     |        |         | (14,173 | )     |        |         |        |      
|                                                         | Cash paid for manufacturing license and other
    assets                                         |                                                                                        |                                                                     | (2,979                                    | )     |        |         |        |       |        |         |        |      
|                                                         | Loans to officers                                                                                |                                                                                        |                                                                     | (450                                      | )     |        |         |        |       |        |         |        |      
|                                                         | Purchases of property and equipment                                                              |                                                                                        |                                                                     | (166                                      | )     |        |         | (231    | )     |        |         | (449    | )    
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         |                                                                                                  |                                                                                        |                                                                     | Net cash used in investing activities     |       |        | (43,614 | )       |       |        | (14,404 | )       |       |        | (449    | )
|Financing activities                                     |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         | Issuance of Senior Secured Notes and Warrants                                                    |                                                                                        |                                                                     | 28,000                                    |       |        |         |        |       |        |         |        |      
|                                                         | Financing costs related to Senior Secured Notes                                                  |                                                                                        |                                                                     | (1,770                                    | )     |        |         |        |       |        |         |        |      
|                                                         | Payment on note payable (including accreted
    interest)                                        |                                                                                        |                                                                     | (3,000                                    | )     |        |         |        |       |        |         |        |      
|                                                         | Issuance of senior convertible redeemable
    preferred stock                                    |                                                                                        |                                                                     | 13,000                                    |       |        |         |        |       |        |         |        |      
|                                                         | Issuance of common stock                                                                         |                                                                                        |                                                                     | 560                                       |       |        |         | 29,972  |       |        |         | 242     |      
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         |                                                                                                  |                                                                                        |                                                                     | Net cash provided by financing activities |       |        | 36,790  |         |       |        | 29,972  |         |       |        | 242     |  
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|Net increase (decrease) in cash and cash
    equivalents |                                                                                                  |                                                                                        | (10,299                                                             | )                                         |       |        | 9,870   |         |       |        | (23,211 | )      
|Cash and cash equivalents at beginning of the year       |                                                                                                  |                                                                                        | 19,378                                                              |                                           |       |        | 9,508   |         |       |        | 32,719  |        
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|Cash and cash equivalents at end of the year             |                                                                                                  | $                                                                                      | 9,079                                                               |                                           |       | $      | 19,378  |         |       | $      | 9,508   |        
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|Supplemental cash flow disclosures:                      |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         | Interest paid on debt (excluding accreted
    interest)                                          |                                                                                        | $                                                                   | 1,583                                     |       |        | $       |        |       |        | $       |        |      
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|Supplemental investing and financing
    activities:     |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         | Issuance of common stock and notes payable to
    acquire product rights                         |                                                                                        | $                                                                   |                                          |       |        | $       | 23,604  |       |        | $       |        |      
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         | Issuance of warrants in connection with product
    rights acquisition                           |                                                                                        | $                                                                   | 4,131                                     |       |        | $       |        |       |        | $       |        |      
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         | Accretion of beneficial conversion feature
    related to convertible redeemable preferred stock |                                                                                        | $                                                                   | 1,024                                     |       |        | $       |        |       |        | $       |        |      
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        
|                                                         | Accretion of stated value of convertible
    redeemable preferred stock                          |                                                                                        | $                                                                   | 682                                       |       |        | $       |        |       |        | $       |        |      
|                                                         |                                                                                                  |                                                                                        |                                                                     |                                           |       |        |         |         |       |        |         |        

See accompanying notes.

F-6



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                               
|-- | ----------------------------------------------
|1. | Summary of Significant Accounting
    Policies



| |                          
| | -------------------------
| | Organization and Business

Women First HealthCare, Inc. (the
Company) is a specialty pharmaceutical company dedicated
to improving the health and well-being of midlife women. Its
mission is to help midlife women make informed choices about
their physical and emotional health and to provide
pharmaceutical products and self-care products to help these
women improve the quality of their lives. The Company markets
these products in the United States through a number of channels
including its dedicated sales force, its contract sales
dermatology force, its direct-to-consumer marketing programs
through its Internet sites, womenfirst.com, aswechange.comand vaniqa.comand through its As We
Change® national mail order catalog. The Companys
corporate offices are located in San Diego, California. The
Company originally incorporated under the name Healthy Living
for Women, Inc. in Delaware on November 1, 1996. Operations
commenced in 1997, and on July 1, 1999, the Company
completed its initial public offering.

As used herein, the Company collectively refers
to the consolidated entity of Women First HealthCare and As We
Change.



| |                      
| | ---------------------
| | Basis of Presentation

The financial statements have been prepared on a
going concern basis. The Company has incurred losses and
negative cash flows from operations since our inception. As of
December 31, 2002, the Company had working capital
$13.6 million, and an accumulated deficit of
$74.6 million. For the year ended December 31, 2002
the Company used cash in operating activities of
$3.5 million and had a net loss of $4.0 million. At
December 31, 2002, the Company was not in compliance with
covenants related to the Senior Secured Notes. The
Companys ability to fund its operations and debt service
during 2003 is dependent on its ability to establish profitable
operations and restructure the Senior Secured Notes (see
Note 18). The Company also intends to reduce expenditures
and manage cash more prudently until it has sufficient funding.
The Company believes it will be successful in funding its 2003
operation. Based upon the Companys working capital
position at December 31, 2002, its planned changes in
operating expenditures and its planned equity financing (see
Note 18), management believes it will have sufficient cash
to fund operations through at least December 31, 2003.



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements presented
herein include the Company and its wholly owned subsidiary, As
We Change LLC. All significant intercompany transactions and
balances have been eliminated in consolidation.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.

F-7



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                  
| | -----------------
| | Reclassifications

Certain previously reported amounts have been
reclassified to conform to the current period presentation.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly liquid financial
instruments purchased with an original maturity of three months
or less to be cash equivalents. Cash equivalents are carried at
cost plus accrued interest, which approximates market.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

The Company sells its pharmaceutical products
primarily to established distributors and large retailers in the
pharmaceutical industry. Credit is extended based on an
evaluation of the customers financial condition and
collateral is not required. As more fully described in
Note 14, the Company had four customers in 2002 and three
customers in 2001 who each individually accounted for greater
than 10% of the Companys net revenues. As of
December 31, 2002 and 2001, gross accounts receivable from
these customers were $15.6 million and $8.2 million,
respectively. The Company has no long-term commitments from
those customers or any other customers. The loss of any key
customer, or a significant reduction in sales to those
customers, could significantly reduce revenues. The
Companys self-care products are typically sold to
individuals for cash or payment by major credit card.

Significant estimates made by the Company are
used in the analysis of the accounts receivable allowance,
reserve for product returns, exchanges, rebates and chargebacks
and inventory reserves.



| |                                          
| | -----------------------------------------
| | Collectibility of Accounts
    Receivable

The Company evaluates the collectibility of its
trade receivables based on a combination of factors. The Company
regularly analyzes its significant customer accounts, and, when
it becomes aware of a specific customers inability to meet
its financial obligations to the Company, such as in the case of
bankruptcy filings or deterioration in the customers
operating results or financial position, the Company records a
specific reserve for bad debt to reduce the related receivable
to the amount it reasonably believes is collectible. The Company
also records reserves for bad debt for all other customers based
on a variety of factors including the length of time the
receivables are past due, the financial health of the customer
and historical experience. If circumstances related to specific
customers change, the Companys estimates of the
recoverability of receivables could be further adjusted or the
related receivables could be written-off to the allowance as
uncollectible. The Companys credit losses have
historically been minimal.



| |                                  
| | ---------------------------------
| | Supply of Pharmaceutical Products

The Company is dependent on a single source of
supply for each of the pharmaceutical products it offers for
sale and would need to obtain alternative sources if the
suppliers could not meet the Companys needs or the
Companys supply agreements were terminated earlier than
expected.



| |          
| | ---------
| | Inventory

Pharmaceutical inventory is valued at the lower
of cost or market using specific identification. The inventory
of self-care products is valued at the lower of cost or market
and is determined on a first-in, first-out basis.

The Company provides reserves for potentially
excess, dated or otherwise impaired inventory. Reserves for
excess inventory are based on an analysis of expected future
sales that will occur before the inventory on hand or under a
firm commitment will expire. The analysis is based on the total
amounts of inventory on hand

F-8



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

or under a firm commitment, channel inventory
data and prescription activity, which are purchased from
nationally recognized providers of channel inventory data and
prescription data. In addition, the Company obtains inventory
information from key customers in order to provide more detailed
information regarding the channel inventory of specific
customers. The actual amounts could be different from the
estimates and differences are accounted for in the period in
which they become known.



| |                  
| | -----------------
| | Long-Lived Assets

The Company amortizes the acquired rights for
pharmaceutical products over the estimated economic useful life
of 15 years. The useful life is assessed on a product by
product basis based on the estimated marketability and future
sales volume, which are dependent on a variety of factors,
including the introduction of new products by competitors and
continued use of existing products. In practice, pharmaceutical
prescription products are long lived because doctors continue to
prescribe drugs that they have grown comfortable with and where
the product risk profile is well known. Judgment is required in
estimating the useful lives of product rights. Actual useful
lives could be different from the estimated lives and
differences are accounted for in the period in which they become
known.

As of December 31, 2002, the Company has
capitalized costs associated with the manufacturing rights for
BactrimTM and Ortho-Est® Tablets
of $1.1 million and $1.6 million, respectively. These
costs are being amortized over the life of the products on a
straight-line basis. Amortization expense was $0.1 million
in 2002; there was no amortization in prior years.

Property and equipment are stated at cost and
depreciated over the estimated useful lives of the assets,
ranging from three to seven years using the straight-line
method. Leasehold improvements are stated at cost and amortized
over the shorter of the estimated useful lives of the assets or
their lease term.

The Companys license for
EsclimTM has a net carrying value of
$0.7 million and $0.9 million as of December 31,
2002 and 2001, respectively, and is being amortized over its
seven-year life.

In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, the Company reviews the long-lived assets, including
product rights, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. An impairment loss would be measured and
recognized if the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset. If the
carrying amount of the asset were determined to be impaired, an
impairment loss would be recorded to write-down the carrying
value of the asset to fair value by using quoted market prices
when available. When a quoted market price is not available, an
estimated fair value would be determined through other valuation
techniques. The Company has used projected cash flows discounted
to reflect the expected technical, commercial, competitive and
other factors related to acquired technologies or product, and
comparisons to similar asset sales and valuations by others, to
estimate the fair value of its intangible assets.



| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets

Goodwill and other intangible assets resulted
primarily from the 1998 acquisition of As We Change. The Company
also capitalizes trademark-filing costs, which are amortized
over the estimated economic life of the trademarks,
15 years.

In 2002, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting
Standard (SFAS) No. 142, Goodwill and Other
Intangible Assets(SFAS 142). Under these rules,
goodwill and intangible assets deemed to have indefinite lives
are not amortized but subject to annual impairment tests. As of
December 31, 2002, the Company had goodwill and intangible
assets recorded at approximately $2.8 million, net of
accumulated amortization. During the second quarter of 2002, the
Company performed the first of the required impairment tests of
goodwill and indefinite lived intangible assets

F-9



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

to determine if a transition impairment charge
should be recognized under SFAS 142. The tests showed that
no impairment charge should be recognized. Absent any other
indicators of impairment, the Company will hereafter test at
least annually for impairment.

Upon adoption of SFAS 142, the Company
stopped amortizing goodwill and certain other intangibles, which
reduced 2002 amortization expense by approximately
$0.2 million.

The effect of adoption of SFAS No. 142 on
the reported net loss for the prior two years is as follows:

|                                        |                                   |              |        |      |   |   |         |       |  
|--------------------------------------- | --------------------------------- | ------------ | ------ | ---- | - | - | ------- | ----- | -
|                                        |                                   |             
|                                        |                                   | Years ended 
|                                        |                                   | December 31,
|                                        |                                   |             
|                                        |                                   | 2001         |        | 2000
|                                        |                                   |              |        |     
|Net loss, as reported                   |                                   | $            | (3,441 | )    |   | $ | (22,566 | )    
|Add back amortization of goodwill       |                                   |              | 470    |      |   |   | 501     |      
|                                        |                                   |              |        |      |   |   |         |      
|Net loss, as adjusted                   |                                   | $            | (2,971 | )    |   | $ | (22,065 | )    
|                                        |                                   |              |        |      |   |   |         |      
|Net loss per share (basic and diluted): |                                   |              |        |      |   |   |         |      
|                                        | Net loss per share, as reported   |              | $      | (.17 | ) |   | $       | (1.29 | )
|                                        | Add back amortization of goodwill |              |        | .02  |   |   |         | .03   |  
|                                        |                                   |              |        |      |   |   |         |      
|                                        | Net loss per share, as adjusted   |              | $      | (.15 | ) |   | $       | (1.26 | )
|                                        |                                   |              |        |      |   |   |         |      

Stock-Based
Compensation

The Company accounts for stock option plans in
accordance with the provisions of Accounting Principles Board
Opinion No. 25 (APB No. 25), Accounting for Stock
Issued to Employees, and related interpretations which
requires the Company recognize compensation expense on the grant
date if the current market price of the stock exceeds the
exercise price.

SFAS No. 123, Accounting for Stock-Based
Compensation(SFAS 123), as amended in December 2002 by
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure(SFAS 148), together establish the use of the fair
value based method of accounting for stock-based compensation
arrangements, under which compensation cost is determined using
the fair value of stock-based compensation determined as of the
grant date, and is recognized over the periods in which the
related services are rendered. SFAS 123 and SFAS 148
permit companies to elect to continue using the intrinsic value
accounting method specified in APB No. 25 to account for
stock-based compensation related to option grants to employees.
The Company has elected to retain the implicit value based
method for such grants. Options or stock awards issued to
non-employees have been determined in accordance with
SFAS 123, SFAS 148 and Emerging Issues Task Force
Abstract No. 96-18, Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services(EITF 96-18). Deferred charges for options granted to
non-employees are periodically remeasured as the options vest.

The Company records deferred compensation for the
difference between the exercise price of stock options granted
and the deemed fair value for financial statement presentation
purposes of the Companys common stock at the date of
grant. The deferred compensation is amortized over the vesting
period of the related options, which is generally four years.
The Company recorded no deferred compensation during the years
ended December 31, 2002 and 2001, and recorded deferred
compensation during the year ended December 31, 2000 of
$0.1 million. The Company recorded related amortization
expense of $0.1 million, $0.1 million and
$0.5 million in 2002, 2001 and 2000, respectively.

The following table discloses the pro-forma net
loss had the fair value method of accounting for stock-based
employee compensation cost been applied to all awards. The fair
value for these options was estimated at the date of grant using
the Black-Scholes method for options pricing.

F-10



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                                                      |  |                          |        |      |  |      |        |   |  |   |         |  
|------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                                      |  |                         
|                                                                                      |  | Years ended December 31,
|                                                                                      |  |                         
|                                                                                      |  | 2002                     |        | 2001 |  | 2000
|                                                                                      |  |                          |        |      |  |     
|Net loss available to common stockholders, as
    reported                            |  | $                        | (5,664 | )    |  | $    | (3,441 | ) |  | $ | (22,566 | )
|Stock-based compensation using the fair value
    method                              |  |                          | (2,432 | )    |  |      | (1,220 | ) |  |   | (477    | )
|                                                                                      |  |                          |        |      |  |      |        |   |  |   |         |  
|Pro-forma net loss available to common
    stockholders                               |  | $                        | (8,096 | )    |  | $    | (4,661 | ) |  | $ | (23,043 | )
|                                                                                      |  |                          |        |      |  |      |        |   |  |   |         |  
|Net loss per share (basic and diluted), as
    reported                               |  | $                        | (.25   | )    |  | $    | (.17   | ) |  | $ | (1.29   | )
|Effect of stock-based compensation using the Fair
    value method                    |  |                          | (.10   | )    |  |      | (.07   | ) |  |   | (.03    | )
|                                                                                      |  |                          |        |      |  |      |        |   |  |   |         |  
|Pro-forma net loss per share available to common
    stockholders (basic and diluted) |  | $                        | (0.35  | )    |  | $    | (0.24  | ) |  | $ | (1.32   | )
|                                                                                      |  |                          |        |      |  |      |        |   |  |   |         |  

The Black-Scholes option-pricing model was used
in the fair value method with the following assumptions:

|                                              |  |      |          |      |  |      |          |   |  |  |          |  
|--------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                              |  | 2002 |          | 2001 |  | 2000
|                                              |  |      |          |      |  |     
|Risk-free interest rate                       |  |      | 2.0      | %    |  |      | 4.5      | % |  |  | 5.9      | %
|Dividend yield                                |  |      | 0        | %    |  |      | 0        | % |  |  | 0        | %
|Volatility factor                             |  |      | 361      | %    |  |      | 105      | % |  |  | 196      | %
|Weighted-average expected life of the options |  |      | 5  years |      |  |      | 5  years |   |  |  | 5  years |  

For purposes of the adjusted pro forma
disclosures, the estimated fair value of the options is
amortized to expense over the vesting period. The
weighted-average fair value of options granted during 2002, 2001
and 2000 was $6.97, $4.67 and $1.43, respectively.

Revenue
Recognition and Deferral

The Company recognizes revenue when all four of
the following criteria are met: (1) persuasive evidence
that an arrangement exists; (2) delivery of the products or
services has occurred; (3) the selling price is fixed or
determinable; and (4) collectibility is reasonably assured.
In addition, the Company follows provisions of the Securities
and Exchange Commissions Staff Accounting Bulletin
No. 101 (SAB 101), Revenue Recognition, which
sets forth guidelines in the timing of revenue recognition based
on factors such as passage of title, installation, payments and
customer acceptance.

The Company defers recognition of revenue if it
determines there is excess channel inventory for its products.
Excess channel inventory exists if the Companys wholesale
customers inventory of its products exceeds its estimates
of demand for the companys products at the retail level,
after considering factors such as product shelf-life. The
Company determines whether excess channel inventory exists based
on an analysis of the amount of each product in the channel
inventory and prescription activity and trends. The Company
obtains information for this analysis by purchasing data from
nationally recognized providers of this information. In
addition, the Company obtains inventory information from key
customers in order to provide more detailed information
regarding the channel inventory at specific customer locations.
The Company defers estimated sales, net of the related product
cost it pays to its suppliers, associated with the estimated
excess channel inventory. Judgment is required in estimating the
amounts excess channel inventory. As of December 31, 2002,
the amount of the deferral was $4.2 million and is included
as deferred revenue in the accompanying Consolidated Balance
Sheets. The deferral of revenue arose from slower than
anticipated prescription growth for the Companys products
during the fourth quarter of 2002. The actual amounts could be
different from the estimates and differences are accounted for
in the period in which they become known.

The Company records shipping and handling costs
incurred in accordance with the Emerging Issues Task Force Issue
00-10, Accounting for Shipping and Handling Costs.Accordingly, amounts billed to a customer in

F-11



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

a sales transaction related to shipping and
handling are classified as revenue. The costs incurred by the
Company for shipping and handling are included in cost of sales.

Service revenues under the Companys
co-promotion and development agreements were recognized when
realized and earned based upon work performed or upon completion
of certain performance requirements of the contracts, or when
received if amounts were non-refundable and there were no future
performance obligations. Service revenues in 2002 and 2001 under
these agreements were not significant. In 2000, the Company
recognized $4.3 million of service revenues related to
these agreements. There were no cost of sales associated with
the service revenues.

Reserves for
Product Returns, Exchanges, Rebates and Chargebacks

The Company continuously monitors the quantity of
its products in the distribution channel and the demand for its
pharmaceutical products through the number of prescriptions
written. The Companys pharmaceutical products have
expiration dates that range from 18 to 60 months from the date
of manufacture. The Company purchases data regarding quantities
in the distribution channel and prescription activity from
nationally recognized providers of this information. In
addition, the Company obtains inventory information from key
customers in order to gather more detailed information regarding
the channel inventory at specific customer locations. The
Company will generally accept for credit or exchange
pharmaceutical products that have become unusable due to passage
of the expiration date, drug recall or discontinuance. The
Company establishes reserves for these credits and exchanges at
the time of sale. Reserves were recorded that reduced reported
net revenue by $4.3 million, $2.1 million and
$1.5 million during 2002, 2001 and 2000, respectively.
Actual returns, exchanges, chargebacks and rebates incurred
during these periods amounted to $3.1 million,
$1.0 million and $1.4 million, respectively.

Catalog
Costs

Catalog production expenses incurred by As We
Change consist of the costs to produce, print and distribute
catalogs. These costs are considered direct-response
advertising, and as such, are capitalized as incurred and
amortized over the period the catalog generates revenue,
generally eight months. As of December 31, 2002, 2001 and
2000, the Company had $0.7 million, $0.5 million and
$0.4 million, respectively, in unamortized catalog costs.
Catalog production and mailing expenses of
$2.4 million,$2.2 million and
$3.6 million were recorded in marketing and sales expense
in 2002, 2001 and 2000, respectively.

Advertising
Expenses

The Company expenses advertising costs related to
pharmaceutical products as incurred. Total advertising
associated expenses were $1.2 million, $0.5 million
and $2.2 million in the years ended December 31, 2002,
2001 and 2000, respectively.

Regulatory,
Research and Development Costs

Regulatory, research and development expenses,
consisting primarily of salaries and regulatory cost associated
with the Companys pharmaceutical products, are expensed as
incurred.



| |                                                    
| | ---------------------------------------------------
| | Original Issue Discount and Debt Issuance
    Costs

Original issue discount of $4.1 million
related to the valuation of the warrants issued in connection
with the Senior Secured Notes issued to finance the acquisition
of Vaniqa® Cream and debt issuance costs of
$1.7 million are being amortized to interest expense over
the life of the Senior Secured Notes (see Note 7). At
December 31, 2002, the accumulated amortization of original
issue discount was $0.7 million and the accumulated
amortization of the debt issuance costs was $0.3 million.

F-12



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Accretion of Beneficial Conversion Feature
    Related to Convertible Redeemable Preferred Stock

In June 2002, the Company recorded a non-cash
charge of $1.0 million for the beneficial conversion
feature of the convertible redeemable preferred stock issued to
finance the acquisition of Vaniqa® Cream. At
the time of issuance, the $6.35 per share conversion price was
less than the $6.85 per share market price of the Companys
common stock.



| |                                                                        
| | -----------------------------------------------------------------------
| | Accretion of Stated Value of Convertible
    Redeemable Preferred Stock

The convertible redeemable preferred stock had an
initial stated value of $13.0 million, which accretes at a
rate of 10%, calculated quarterly, and increases to 11.5% in
December 2003 and 12.5% in June 2004. The accretion is added to
the stated value of the convertible redeemable preferred stock
and is shown as a separate item in the accompanying Statement of
Operations.



| |             
| | ------------
| | Income Taxes

The Company provides for income taxes under the
asset and liability method of SFAS 109. Deferred tax assets
and liabilities are recognized for future tax consequences
attributable to differences between the financial statement
carrying amount of assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled (see Note 16).



| |                     
| | --------------------
| | Comprehensive Income

Under SFAS 130, Reporting Comprehensive
Income, the reporting and display of comprehensive income
and its components is required in the financial statements. For
the periods presented in the accompanying financial statements,
the Company has no items for which comprehensive loss would
differ from the reported net loss.



| |                   
| | ------------------
| | Net Loss Per Share

Basic net loss available to common stockholders
per share is calculated by dividing the net loss available to
common stockholders by the weighted average number of common
shares outstanding for the period. Diluted net loss per share,
which would include additional potential common shares issued
related to outstanding options, warrants and conversion of the
convertible redeemable preferred stock and the Note Payable to
Élan, if dilutive, is unchanged from basic loss per share
due to the Companys net losses making the effect of these
common share equivalents anti-dilutive. Excluded from the
determination of net loss per share are 6.8 million,
3.3 million and 2.8 million of potentially dilutive
common shares as of December 31, 2002, 2001 and 2000,
respectively.



| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents,
accounts receivable, accounts payable, accrued salaries and
employee benefits and other accrued liabilities are considered
representative of their respective fair values because of their
short-term nature.

During 2002, the Company loaned two officers a
total of $0.4 million on an interest free basis (see
Note 13). In order to reflect the carrying value at the
estimated fair value, the Company imputed interest at 5%. As of
December 31, 2002, the net carrying value of these notes,
which approximates fair value, is $0.2 million.

At December 31, 2002 the Company was in
default under its Senior Secured Notes. As a result of the
default there are indications that the fair value of all of the
Companys debt as of December 31, 2002 would be

F-13



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

different than the $42.9 million carrying
value; however the Company believes it is not practical to
estimate the fair value at this time. (see Note 18).



| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which establishes methods for accounting and
reporting for costs associated with exit or disposal activities.
The statement requires a liability for termination related
activities be recognized as a liability at the point it is
incurred, and not at the point of a commitment to a plan. Under
previous guidance, certain exit costs were accrued upon
managements commitment to an exit plan, which is generally
before an actual liability has been incurred. Adoption of this
statement is required at the beginning of fiscal 2003. This
statement will impact the timing of exit or disposal activities
reported by the Company after adoption.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148
amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS
No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. The disclosure provisions of
SFAS 148 are effective for financial statements for the
year ended December 31, 2002. SFAS 148 did not have a
material impact on the Companys consolidated financial
statements as the adoption of this standard did not require it
to change, and it does not plan to change, to the fair value
based method of accounting for stock-based compensation.



|   |                    
|-- | -------------------
|2. | Accounts Receivable

Accounts receivable consist of the following:

|                                                   |  |              |        |      |  |   |       |  
|-------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ----- | -
|                                                   |  |             
|                                                   |  | December 31,
|                                                   |  |             
|                                                   |  | 2002         |        | 2001
|                                                   |  |              |        |     
|Trade receivables                                  |  | $            | 16,362 |      |  | $ | 9,746 |  
|Allowance for doubtful accounts and cash discounts |  |              | (502   | )    |  |   | (363  | )
|                                                   |  |              |        |      |  |   |       |  
|                                                   |  | $            | 15,860 |      |  | $ | 9,383 |  
|                                                   |  |              |        |      |  |   |       |  



|   |          
|-- | ---------
|3. | Inventory

Inventory, which is primarily finished goods,
consists of the following:

|                                        |  |              |        |      |  |   |       |  
|--------------------------------------- |  | ------------ | ------ | ---- |  | - | ----- | -
|                                        |  |             
|                                        |  | December 31,
|                                        |  |             
|                                        |  | 2002         |        | 2001
|                                        |  |              |        |     
|Pharmaceutical products                 |  | $            | 4,633  |      |  | $ | 1,356 |  
|Self-care products                      |  |              | 685    |      |  |   | 523   |  
|                                        |  |              |        |      |  |   |       |  
|                                        |  |              | 5,318  |      |  |   | 1,879 |  
|Reserves for excess and dated inventory |  |              | (2,355 | )    |  |   | (732  | )
|                                        |  |              |        |      |  |   |       |  
|                                        |  | $            | 2,963  |      |  | $ | 1,147 |  
|                                        |  |              |        |      |  |   |       |  

Inventory under firm purchase commitments as of
December 31, 2002 totaled $1.6 million.

F-14



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |                       
|-- | ----------------------
|4. | Property and Equipment

Property and equipment consist of the following:

|                         |  |              |        |      |  |   |       |  
|------------------------ |  | ------------ | ------ | ---- |  | - | ----- | -
|                         |  |             
|                         |  | December 31,
|                         |  |             
|                         |  | 2002         |        | 2001
|                         |  |              |        |     
|Furniture and fixtures   |  | $            | 751    |      |  | $ | 743   |  
|Office equipment         |  |              | 1,242  |      |  |   | 1,099 |  
|Leasehold improvements   |  |              | 193    |      |  |   | 193   |  
|                         |  |              |        |      |  |   |       |  
|                         |  |              | 2,186  |      |  |   | 2,035 |  
|Accumulated depreciation |  |              | (1,322 | )    |  |   | (969  | )
|                         |  |              |        |      |  |   |       |  
|                         |  | $            | 864    |      |  | $ | 1,066 |  
|                         |  |              |        |      |  |   |       |  



|   |                                           
|-- | ------------------------------------------
|5. | Product Rights and Related
    Commitments

On June 29, 2001, the Company and Élan
entered into an asset and inventory purchase agreement. Pursuant
to the agreement, the Company acquired the exclusive U.S.
product rights to Midrin® and finished goods
inventory in exchange for 0.4 million shares of common
stock valued at $4.0 million ($9.47 per share) and an
$11.0 million convertible promissory note bearing interest
at 7%. The Company is required to pay a residual royalty on
future product sales for 10 years of up to
$5.0 million. The royalty is capped at $0.5 million
per year except in 2002, when it could have gone higher. Royalty
expense in 2002 was $0.3 million. The Company recorded
product rights of $15.1 million that are being amortized
straight-line over the estimated useful life of 15 years.

On October 12, 2001, the Company and
Hoffmann-La Roche entered into an asset and inventory purchase
agreement. Pursuant to the agreement, the Company acquired the
exclusive U.S. product rights to the BactrimTM
family of antibacterial products and finished goods inventory
for $6.0 million in cash. The Company recorded product
rights of $5.7 million that are being amortized
straight-line over the estimated useful life of 15 years.
In 2002, $0.1 million was added to product rights,
representing additional costs associated with the acquisition of
the product rights.

On November 15, 2001, the Company acquired
all rights in the U.S. and Puerto Rico to the prescription pain
management products Equagesic® Tablets and
Synalgos®-DC Capsules from American Home Products
Corporation (now known as Wyeth). The acquisition includes
relevant trademarks and the Abbreviated New Drug Application
(ANDA) and New Drug Application (NDA) for
Equagesic® and Synalgos®-DC. The Company
paid $17.3 million to acquire the rights and related
inventory, comprised of $7.5 million cash at closing and a
$9.8 million three-year note payable. In November 2002, the
Company and Wyeth amended the note payable to reduce the
principal amount to $9.5 million to compensate the Company
for delays in product delivery. The Company recorded product
rights of $16.1 million that are being amortized
straight-line over the estimated useful life of 15 years.
Wyeth will continue to manufacture and supply the Company with
Equagesic® Tablets and Synalgos®-DC
Capsules through November 2004.

On June 25, 2002, the Company acquired
exclusive worldwide rights and title to Vaniqa®
Creme (eflornithine hydrochloride) from a joint venture formed
by Bristol-Myers Squibb (BMS) and The Gillette
Company. The Company did not acquire any facilities, equipment
or personnel in the transaction. BMS and the Company also
entered into a related supply agreement, whereby BMS will
continue to manufacture Vaniqa® Cream for
three years following the acquisition. The aggregate purchase
price for the worldwide rights and title to
Vaniqa® Cream was $40.0 million,
including $2.2 million in acquisition costs. In addition,
the Company acquired $0.7 in inventory and assumed
$3.7 million in liabilities for product returns for prior
Vaniqa® Cream sales. As of December 31,
2002, the total cost of the Vaniqa® Cream
product rights was

F-15



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

$43.7 million. The Company financed the
acquisition with $28.0 million of Senior Secured Notes,
$13.0 million of convertible redeemable preferred stock and
$0.8 million in cash. The convertible redeemable preferred
stock had an aggregate initial stated value of to
$13.0 million, which accretes at a rate of 10%, calculated
quarterly, and increases to 11.5% in December 2003 and 12.5% in
June 2004. The convertible redeemable preferred stock is
convertible at any time at the option of the holders into shares
of the Companys common stock at a rate equal to the
accreted stated value divided by $6.35, subject to certain
anti-dilution adjustments. The product rights are being
amortized straight-line over the estimated useful life of
15 years.

Product rights consist of the following:

|                            |  |              |        |      |  |   |        |  
|--------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                            |  |             
|                            |  | December 31,
|                            |  |             
|                            |  | 2002         |        | 2001
|                            |  |              |        |     
|Midrin®                     |  | $            | 15,116 |      |  | $ | 15,116 |  
|BactrimTM                   |  |              | 5,890  |      |  |   | 5,742  |  
|Equagesic®and
    Synalgos® |  |              | 16,386 |      |  |   | 16,086 |  
|Vaniqa® Cream               |  |              | 43,676 |      |  |   |       |  
|                            |  |              |        |      |  |   |        |  
|                            |  |              | 81,068 |      |  |   | 36,944 |  
|Accumulated amortization    |  |              | (4,729 | )    |  |   | (739   | )
|                            |  |              |        |      |  |   |        |  
|                            |  | $            | 76,339 |      |  | $ | 36,205 |  
|                            |  |              |        |      |  |   |        |  

For the existing products, amortization expense
for product rights will be $5.4 million in each of the next
five years.



|   |                                     
|-- | ------------------------------------
|6. | Goodwill and Other Intangible Assets

Goodwill and other intangible assets consist of
the following:

|                                               |                          |                          |       |       |     |   |       |       |      |  
|---------------------------------------------- | ------------------------ | ------------------------ | ----- | ----- | --- | - | ----- | ----- | ---- | -
|                                               |                          |                         
|                                               |                          | December 31,            
|                                               |                          |                         
|                                               |                          | 2002                     |       | 2001 
|                                               |                          |                          |       |      
|Intangible assets subject to amortization:     |                          |                          |       |       |     |   |       |      
|                                               | Trademarks               |                          | $     | 135   |     |   | $     | 48    |     
|                                               | Assembled workforce      |                          |       | 170   |     |   |       | 170   |     
|                                               | Non-compete agreements   |                          |       |      |     |   |       | 280   |     
|                                               |                          |                          |       |       |     |   |       |      
|                                               |                          |                          | 305   |       |     |   | 498   |      
|                                               |                          | Accumulated amortization |       |       | (84 | ) |       |       | (281 | )
|                                               |                          |                          |       |       |     |   |       |      
|                                               |                          |                          | 221   |       |     |   | 217   |      
|                                               |                          |                          |       |       |     |   |       |      
|Intangible assets not subject to amortization: |                          |                          |       |       |     |   |       |      
|                                               | Goodwill                 |                          |       | 3,261 |     |   |       | 3,261 |     
|                                               | Accumulated amortization |                          |       | (669  | )   |   |       | (669  | )   
|                                               |                          |                          |       |       |     |   |       |      
|                                               |                          |                          | 2,592 |       |     |   | 2,592 |      
|                                               |                          |                          |       |       |     |   |       |      
|                                               |                          | $                        | 2,813 |       |     | $ | 2,809 |      
|                                               |                          |                          |       |       |     |   |       |      

The non-compete agreements, which became fully
amortized during 2002, were written off at the conclusion of the
estimated life. The accumulated amortization shown above on
intangible assets not subject to amortization relates to
amortization recorded before the Company adopted SFAS 142
(see Note 1).

F-16



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Future amortization expense is as follows:

|           |  |   |     | 
|---------- |  | - | --- | 
|2003       |  | $ | 52  | 
|2004       |  |   | 52  | 
|2005       |  |   | 32  | 
|2006       |  |   | 21  | 
|2007       |  |   | 21  | 
|Thereafter |  |   | 43  | 
|           |  |   |     | 
|           |  | $ | 221 | 
|           |  |   |     | 



|   |               
|-- | --------------
|7. | Long-Term Debt

Long-term debt as of December 31, consists
of the following:

|                                                                                                                      |  |      |        |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                                                                      |  | 2002 |        | 2001
|                                                                                                                      |  |      |        |     
|7% Convertible Promissory Note Payable to
    Élan; secured by Midrin® product rights                                 |  | $    | 12,196 |      |  | $ | 11,390 |  
|Non-interest bearing Note Payable to Wyeth;
    secured by Equagesic® and Synalgos®
    product rights                |  |      | 6,139  |      |  |   | 8,605  |  
|11% Senior Secured Notes; secured by
    Vaniqa®Cream product rights (net of
    unamortized debt discount of $3,478) |  |      | 24,522 |      |  |   |       |  
|                                                                                                                      |  |      |        |      |  |   |        |  
|                                                                                                                      |  |      | 42,857 |      |  |   | 19,995 |  
|Less current portion                                                                                                  |  |      | (3,018 | )    |  |   | (2,728 | )
|                                                                                                                      |  |      |        |      |  |   |        |  
|                                                                                                                      |  | $    | 39,839 |      |  | $ | 17,267 |  
|                                                                                                                      |  |      |        |      |  |   |        |  

The Convertible Promissory Note Payable to
Élan is due in June 2008 unless converted earlier into
common stock. This note is convertible at the option of the
holder into common stock based on a conversion price of $11.96
per share, subject to certain adjustments. Interest is
compounded semi-annually and added to principal until July 2003
at which time interest will be payable quarterly. Interest,
which has been added to principal, totaled $1.2 million as
of December 31, 2002. The Midrin® product
rights sales secure this note.

The Note Payable to Wyeth was originally due in
three equal installments of $3.25 million each commencing
November 2002. In 2002, the November 2002 payment was reduced to
$3.0 million to compensate the Company for delays in
product delivery. The amended Note Payable provides that the
Company must make payments of $3.25 million on
November 28, 2003 and November 30, 2004. In accordance
with EITF 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments, the
modification to the debt was not considered
substantial, therefore the Company is amortizing the
forgiven amount over the term of the debt thus reducing the
effective interest rate. The Company initially imputed interest
at 7%, which was adjusted to 4.1% upon the amendment, and
recorded the discounted present value of the Note Payable.

The $28.0 million in Senior Secured Notes
issued in connection with the acquisition of
Vaniqa® Cream mature in September 2005 and
bear interest at the initial rate of 11%, which increases to
12.5% in January 2004 and to 13% in July 2004. Interest on the
Senior Secured Notes is required to be paid in cash on a
quarterly basis, except that the Company may pay interest
amounts in excess of 11% in cash or through the issuance of
additional notes. The purchasers of the notes also received
warrants exercisable for 1.7 million shares of common stock
at an exercise price of $5.50 per share. The warrants expire in
December 2006.

F-17



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Senior Secured Notes are required to be
redeemed with 100% of the proceeds of future loans and sales of
debt securities and 75% or the proceeds of future sales of
equity securities, subject to various exceptions, including
proceeds from equity securities that are used for acquisitions
of pharmaceutical products and other assets meeting specified
criteria. The Company may redeem the Senior Secured Notes at any
time at a redemption price of 108% of the aggregate principal
amount outstanding plus accrued and unpaid interest. The holders
of the Senior Secured Notes also have the right to require the
Company to redeem the Senior Secured Notes upon certain changes
in control of the Company. The Company is currently maintaining
key man life insurance on its Chief Executive
Officer, Edward F. Calesa, for the benefit of the investors
in an amount of $10.0 million. This can be reduced
proportionately to the redemption of the Senior Secured Notes,
but not less than $5.0 million. The Company must also
generally use 75% of its excess cash flow (as
defined in the Note and Warrant Purchase Agreement for the
Senior Secured Notes) to redeem the Senior Secured Notes at 100%
of the aggregate principal amount outstanding plus accrued but
unpaid interest. The Companys obligations under the Senior
Secured Notes are secured by a pledge of the Companys
interest in its Vaniqa® Cream related assets.

The Senior Secured Notes prohibit the Company
from paying dividends and incurring additional indebtedness,
subject to exceptions, and contain a variety of financial and
other covenants. The Companys 2002 results caused it to
fall out of compliance with all of these financial covenants,
which required minimum earnings before interest, depreciation,
taxes and amortization, minimum fixed charge coverage ratio and
minimum net worth measured as of December 31, 2002 and the
four quarters then ended and limited capital expenditures during
2002. The Company is working closely with its note holders to
restructure the Senior Secured Notes. (see Note 18).

Scheduled principal payments on the
Companys long-term debt were as follows as of
December 31, 2002:

|           |                          |   |        |        | 
|---------- | ------------------------ | - | ------ | ------ | 
|2003       |                          | $ | 3,250  |       
|2004       |                          |   | 3,250  |       
|2005       |                          |   | 28,000 |       
|2006       |                          |   |       |       
|2007       |                          |   |       |       
|Thereafter |                          |   | 11,000 |       
|           |                          |   |        |       
|           | Total scheduled payments |   | $      | 45,500 | 
|           |                          |   |        |       



|   |                                           
|-- | ------------------------------------------
|8. | Convertible Redeemable Preferred
    Stock

The Company financed the acquisition of the
product rights to Vaniqa® Cream in part
through the issuance of 13,000 shares of convertible redeemable
preferred stock (the convertible redeemable preferred
stock) for $13.0 million. The convertible redeemable
preferred stock has an aggregate initial stated value equal to
$13.0 million, which accretes at a rate of 10% per annum,
calculated quarterly, which increases to 11.5% per annum in
December 2003 and 12.5% per annum in July 2004. In June 2002,
the Company recorded a one-time, non-cash charge of
$1.0 million for the beneficial conversion feature of the
convertible redeemable preferred stock issued to finance the
acquisition of Vaniqa® Cream. At the time of
issuance, the $6.35 per share conversion price of the stock was
less than the market price of the Companys common stock.
The convertible redeemable preferred stock is convertible at any
time at the option of the holders into shares of the
Companys common stock at a rate equal to the accreted
stated value divided by $6.35, subject to certain anti-dilution
adjustments. Unless previously converted, the Company will be
required to redeem the convertible redeemable preferred stock
for cash at its accreted stated value plus accrued and unpaid
dividends, if any, in June 2006. Dividends accreted during 2002
were $0.7 million, and at June 2006, the accreted stated
value will

F-18



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

be $20.4 million. If the Companys
common stock trades at three times the conversion price of the
convertible redeemable preferred stock for a specified period of
time, the Company may, at its option, require the mandatory
conversion of the convertible redeemable preferred stock or
redeem the convertible redeemable preferred stock, subject to
the holders rights to convert to common stock before such
optional redemption is completed. The convertible redeemable
preferred stock has no voting rights.

If the Companys declares a dividend or
makes any other distribution (including in cash or other
property or assets) to holders of shares of its common stock,
other than a dividend payable solely in shares of common stock,
then the holders of the convertible redeemable preferred stock
will be entitled to receive an amount equal to the amount of the
dividend or distribution received by a holder of the number of
shares of common stock for which the convertible preferred
redeemable stock is convertible on the record date for such
dividend or distribution. The Company is required to pay these
dividends to the convertible redeemable preferred stock holders
at the same time and in the same form as such dividend or
distribution is made to holders of common stock.



|   |                     
|-- | --------------------
|9. | Stockholders Equity



| |             
| | ------------
| | Common Stock

In June 2001, the Company issued 0.4 million
shares of common stock to Élan in conjunction with the
acquisition of the product rights for Midrin®. For
purposes of this transaction, the stock was valued at
$4.0 million ($9.47 per share).

In August 2001, the Company sold 3.5 million
shares of its common stock at a price of $9.00 per share to
various institutional and private investors in a private
placement transaction for aggregate net proceeds of
$29.2 million. The Company filed a registration statement
with respect to the shares in September 2001. The Company also
issued warrants to purchase an aggregate of 200,000 shares of
common stock at $3.50 per share. The warrants expire on
August 8, 2006.

In June 2002, the Company issued warrants to
purchase 1.7 million shares of common stock at $5.50 per
share to the holders of the Senior Secured Notes issued in
connection with the acquisition of the product rights for
Vaniqa® Cream. The warrants expire in December 2006.
The Company estimated the fair value of these warrants at the
grant date using the Black-Scholes valuation model, using the
following assumptions: risk-free interest rate of 4.13%,
dividend yield of 0%, volatility factor of 50% and a weighted
average expected life of the warrants of 4.5 years. The
Company recorded a discount to the Senior Secured Notes of
$4.1 million with a corresponding increase to additional
paid-in-capital. The discount is being amortized to interest
expense over the period the related debt is outstanding (see
Note 7). In addition, the Company authorized the issuance
2.2 million shares of common stock to be reserved for the
conversion feature of the convertible redeemable preferred
stock. The Company plans to file a registration statement to
register these shares in the second quarter of 2003.

The following common stock is reserved for future
issuance as of December 31, 2002:

|                                       |                            |  |       |       | 
|-------------------------------------- | -------------------------- |  | ----- | ----- | 
|Stock options:                         |                            |  |       |      
|                                       | Granted and outstanding    |  |       | 1,573 | 
|                                       | Reserved for future grants |  |       | 1,068 | 
|Warrants                               |                            |  | 2,061 |      
|Convertible note payable               |                            |  | 1,020 |      
|Convertible redeemable preferred stock |                            |  | 2,154 |      
|                                       |                            |  |       |      
|                                       |                            |  | 7,876 |      
|                                       |                            |  |       |      

F-19



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |              
| | -------------
| | Stock Options

In March 1998, the Board of Directors approved a
Long Term Incentive Plan under which 1.8 million shares of
common stock were reserved for issuance upon exercise of options
granted by the Company. In February 1999, the Companys
stockholders approved an increase in the number of shares
available in the Long Term Incentive Plan to 2.3 million.
In September 2000, the Companys stockholders approved an
increase in the number of shares available in the Long Term
Incentive Plan to 2.9 million. In June 2002, the
Companys stockholders approved an increase in the number
of shares available in this same plan to 3.9 million. The
Long Term Incentive Plan provides for the grant of incentive and
nonstatutory stock options to employees, directors and
independent consultants of the Company. The exercise price of
incentive stock options must be at least equal to the fair
market value on the date of grant, and the exercise price of
nonstatutory stock options may be no less than 85% of the fair
market value on the date of grant. The maximum term of all
options granted is ten years.

In March 2000, the Board of Directors approved a
Non-Qualified Stock Option Plan under which 0.3 million
shares of common stock were reserved for issuance upon exercise
of options granted by the Company to key employees and
consultants of the Company.

A summary of option activity is as follows:

|                                    |           |        |       |          |   |   |      |      | 
|----------------------------------- | --------- | ------ | ----- | -------- | - | - | ---- | ---- | 
|                                    |           |        |       | Weighted
|                                    |           |        |       | average 
|                                    |           |        |       | exercise
|                                    |           | Shares |       | price   
|                                    |           |        |       |         
|Outstanding as of December 31, 1999 |           |        | 2,146 |          |   | $ | 2.04 |     
|                                    | Granted   |        |       | 1,520    |   |   | $    | 1.45 | 
|                                    | Exercised |        |       | (283     | ) |   | $    | .85  | 
|                                    | Cancelled |        |       | (1,137   | ) |   | $    | 2.71 | 
|                                    |           |        |       |          |   |   |      |     
|Outstanding as of December 31, 2000 |           |        | 2,246 |          |   | $ | 1.44 |     
|                                    | Granted   |        |       | 832      |   |   | $    | 6.02 | 
|                                    | Exercised |        |       | (886     | ) |   | $    | .91  | 
|                                    | Cancelled |        |       | (308     | ) |   | $    | 2.38 | 
|                                    |           |        |       |          |   |   |      |     
|Outstanding as of December 31, 2001 |           |        | 1,884 |          |   | $ | 3.50 |     
|                                    | Granted   |        |       | 268      |   |   | $    | 7.00 | 
|                                    | Exercised |        |       | (411     | ) |   | $    | 1.35 | 
|                                    | Cancelled |        |       | (168     | ) |   | $    | 5.01 | 
|                                    |           |        |       |          |   |   |      |     
|Outstanding as of December 31, 2002 |           |        | 1,573 |          |   | $ | 4.50 |     
|                                    |           |        |       |          |   |   |      |     

A summary of options outstanding as of
December 31, 2002 is as follows:

|                |  |             |       |                |  |                |      |             |  |                |      |  |  |  |     |  |  |   |      | 
|--------------- |  | ----------- | ----- | -------------- |  | -------------- | ---- | ----------- |  | -------------- | ---- |  |  |  | --- |  |  | - | ---- | 
|                |  |             |       |                |  |                |      |             |  | Weighted      
|                |  |             |       | Weighted       |  |                |      |             |  | average       
|                |  |             |       | average        |  | Weighted       |      |             |  | exercise price
|                |  | Options     |       | remaining life |  | average        |      | Options     |  | of options    
|Exercise prices |  | outstanding |       | in years       |  | exercise price |      | exercisable |  | exercisable   
|                |  |             |       |                |  |                |      |             |  |               
|$0.29-$0.91     |  |             | 228   |                |  |                | 7.08 |             |  | $              | .78  |  |  |  | 197 |  |  | $ | .78  | 
|$0.94-$2.25     |  |             | 355   |                |  |                | 5.80 |             |  | $              | 1.35 |  |  |  | 276 |  |  | $ | 1.32 | 
|$2.31-$6.95     |  |             | 746   |                |  |                | 5.18 |             |  | $              | 5.65 |  |  |  | 265 |  |  | $ | 4.83 | 
|$6.96-$13.81    |  |             | 244   |                |  |                | 7.02 |             |  | $              | 9.03 |  |  |  | 76  |  |  | $ | 9.51 | 
|                |  |             |       |                |  |                |      |             |  |                |      |  |  |  |     |  |  |   |      | 
|                |  |             | 1,573 |                |  |                | 5.88 |             |  | $              | 4.50 |  |  |  | 814 |  |  | $ | 3.11 | 
|                |  |             |       |                |  |                |      |             |  |                |      |  |  |  |     |  |  |   |      | 

F-20



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Included in the options outstanding as of
December 31, 2002, 2001 and 2000 are 27,450 options granted
under a predecessor plan. No additional options are available to
be granted under the predecessor plan.



|    |                              
|--- | -----------------------------
|10. | Restructuring Charges in 2000

The Company recorded restructuring charges of
$0.7 million during the second quarter of 2000 in
accordance with EIFT 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The objective of the restructuring was to increase
effectiveness and efficiency by restructuring the Company into
three operating divisions. The charges include costs pertaining
to the termination or resignation of approximately 65 management
and sales employees ($0.7 million) and other nominal costs.
No additional charges were incurred subsequent to the second
quarter 2000, and all payments relating to the restructuring
were made as of December 31, 2000. In 2001, the Company was
reduced to two operating divisions and no restructuring costs
were incurred.



|    |                       
|--- | ----------------------
|11. | Co-Promotion Agreement

Effective March 1, 1999, the Company
obtained the right from BMS to co-promote the
cholesterol-lowering drug Pravachol® to
obstetricians and gynecologists, primary care physicians
designated as obstetricians and gynecologists by BMS, and nurse
practitioners and physicians assistants associated with
obstetricians and gynecologists practices pursuant to a
co-promotion agreement with BMS. The term of the contract was
from March 1, 1999 through March 31, 2002. BMS and the
Company terminated the agreement effective March 31, 2001.

Under the agreement, BMS agreed to pay specified
costs associated with product samples and physician education.
In addition, as compensation for services rendered, the Company
received a percentage of net sales in excess of a baseline as
set forth in the agreement. Revenues recorded under the
agreement in 2001 and 2000 were not significant.



|    |                                   
|--- | ----------------------------------
|12. | Distribution and License Agreement

On July 19, 1999, the Company entered into a
distribution and license agreement with Fournier under which the
Company has the exclusive right to market, use, distribute and
sell the EsclimTM estradiol transdermal
system. The distribution and license agreement required the
Company to pay Fournier a non-refundable license fee of
$1.1 million, of which $0.75 million was paid in 1999
and $0.35 million was paid in November 2001. The Company is
also required to pay Fournier a royalty, which includes
manufacturing costs, based upon the net sales of the product.
The agreement runs seven years from the date of the first
commercial sale of the product, which occurred on
November 16, 1999. The cost is being amortized
straight-line over the seven-year life of the agreement.



|    |                                              
|--- | ---------------------------------------------
|13. | Related Party Agreements and
    Transactions



| |                   
| | ------------------
| | Ortho-Est® Tablets

In July 1998, the Company signed an exclusive
distribution agreement with Ortho, a subsidiary of Johnson &
Johnson, a principal stockholder of the Company. This agreement
was terminated September 30, 2000. Under the original
agreement, the Company would market and distribute
Ortho-Est® Tablets, an oral estrogen product used
for Menopausal Hormone Therapy, throughout the U.S. and Puerto
Rico. The original agreement was for a period of ten years with
annual renewals available after that period. The original
agreement provided for the Company to make both fixed and
contingent payments to Ortho for product purchased. In addition,
the Company was required to make monthly adjustment payments to
Ortho based on progress toward projected annual purchases.

F-21



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

During 2002, 2001 and 2000, $0.5 million,
$1.3 million and $5.3 million, respectively, was
charged to cost of sales and $0.2 million,
$0.4 million and $0.2 million, respectively, was
charged to marketing and sales for professional samples in the
accompanying Statement of Operations for products purchased from
Ortho.

In September 2000, the Company and Ortho entered
into a new agreement that terminated the original agreement,
reduced the minimum payment for 2000 from $5.4 million to
$4.7 million, eliminated all future minimum payments
totaling $28.0 million, and transferred all of Orthos
right, title, and interest in Ortho-Est® Tablets to
the Company effective January 1, 2001. The new agreement
provided for the Company to purchase Ortho-Est®
Tablets at Orthos fully burdened manufacturing costs
through April 2002. The Company subsequently entered into a
contract with Pharmaceutics International, Inc. for the supply
of the Ortho-Est® Tablets through June 2005.



| |                 
| | ----------------
| | Ortho Tri-Cylen®

On May 27, 1999, the Company entered into a
co-promotion agreement with Ortho, pursuant to which the Company
agreed to co-promote Ortho Tri-Cylen®, a leading
oral contraceptive, and Ortho-Prefest®, a new oral
combination estrogen replenishment therapy product, which
received approval by the Food and Drug Administration in October
1999. Pursuant to an amendment effective as of March 31,
2000 to the co-promotion agreement, the Company discontinued the
co-promotion of Ortho Tri-Cyclen® and received a
payment of $1.5 million, recorded in related party revenue,
as compensation for previous co-promotion activities. The
amendment included a non-compete clause for which Ortho paid the
Company $0.5 million, which was amortized as other income
ratably over the term of the non-compete agreement that expired
on March 31, 2001.



| |               
| | --------------
| | Ortho-Prefest®

Under the amendment to the co-promotion agreement
discussed above, the Company continued to co-promote
Ortho-Prefest® with the Companys compensation
based on certain net sales of the product as set forth in the
agreement. Effective September 30, 2000, Ortho and the
Company entered into a new co-promotion agreement for
Ortho-Prefest® that terminated the original
agreement and amendment thereto. The new co-promotion agreement
provided specific compensation for the Company for co-promoting
Ortho-Prefest® through December 31, 2000, at
which time the new agreement terminated. The Company recorded
related party revenue of $7.0 million in 2000 as a result
of the new agreement.

In September 1999, in accordance with the
Companys co-promotion agreement with Ortho, Ortho and the
Company entered into a contract whereby the Company managed the
development of educational programs related to hormonal
management. The new co-promotion agreement for
Ortho-Prefest® amended the contract to change the
scope of the original contract and provided for a new education
program. The Company recognized $3.8 million of revenue for
work completed under the contract during 2000. All revenues and
expenses related to education programs were recognized in 2000.



| |                               
| | ------------------------------
| | Notes Receivable from Officers

In February 2002, the Company loaned to Charles
Caporale, Vice-President, CFO, Treasurer and Secretary of the
Company, and Saundra L. Childs, Vice-President of the
Pharmaceutical Division, $0.1 million and
$0.3 million, respectively. The notes are payable in full
at the earlier of (1) the executives termination of
employment, (2) the sale of the Company or
(3) February 2017. There is no provision for forgiveness of
the loans. The notes are with full recourse and are secured by
the executives vested stock options. At March 31,
2003, neither officers vested stock options had any
realizable value. The notes do not bear interest; however, the
Company has imputed interest at 5%. The present value of the
notes is $0.2 million as of December 31, 2002.

F-22



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                                  
|--- | -------------------------------------------------
|14. | Segment and Significant Customers
    Disclosures

As of December 31, 2002, the Company
operated in two segments: (1) Pharmaceutical, which markets
pharmaceutical products and (2) Consumer, which markets and
sells self-care products. Trialogue, a division established at
the time of the Companys restructuring in June 2000 has
been phased out. During 2000, Trialogue received educational
grants from pharmaceutical companies to fund the development of
educational programs with independent providers of continuing
education programs. The Companys reportable segments are
strategic business units that offer different products and
services. They are each managed separately because they perform
different services utilizing different and distinct operations.

Information as to the segment operations is set
forth below based on the nature of the products and services
offered. The Company evaluates performance based on several
factors, of which the primary financial measure is business
segment operating income or loss, defined as income or loss
before other income/expense. Operating income or loss by segment
does not include corporate overhead allocations. Transactions
between segments are not significant. Each segment generates
revenues primarily in the United States, and revenue from
foreign sources is not significant. The Pharmaceutical and
Trialogue divisions had significant transactions with a related
party in 2000 as discussed in Note 13. The accounting policies
of the business segments are the same as those described in the
summary of accounting policies (see Note 1). All
significant non-cash items in each of the three years ending
December 31, 2002, relate to the pharmaceutical division
and are shown in the accompanying Statement of Cash Flows.
Expenditures for segment assets include cash and non-cash items.

|                                |  |                              |         |          |  |           |       |              |  |   |        |   |  |   |         |  
|------------------------------- |  | ---------------------------- | ------- | -------- |  | --------- | ----- | ------------ |  | - | ------ | - |  | - | ------- | -
|                                |  |                             
|                                |  | Year ended December 31, 2002
|                                |  |                             
|                                |  | Pharmaceutical               |         | Consumer |  | Corporate |       | Consolidated
|                                |  |                              |         |          |  |           |       |             
|Net revenues                    |  | $                            | 41,038  |          |  | $         | 7,580 |              |  | $ |       |   |  | $ | 48,618  |  
|Cost of goods                   |  |                              | 14,443  |          |  |           | 3,242 |              |  |   |       |   |  |   | 17,685  |  
|                                |  |                              |         |          |  |           |       |              |  |   |        |   |  |   |         |  
|Gross margin                    |  |                              | 26,595  |          |  |           | 4,338 |              |  |   |       |   |  |   | 30,933  |  
|Operating expenses              |  |                              | 21,334  |          |  |           | 4,401 |              |  |   | 5,454  |   |  |   | 31,189  |  
|                                |  |                              |         |          |  |           |       |              |  |   |        |   |  |   |         |  
|Operating income (loss)         |  |                              | 5,261   |          |  |           | (63   | )            |  |   | (5,454 | ) |  |   | (256    | )
|Interest and other income       |  |                              |        |          |  |           |      |              |  |   | 204    |   |  |   | 204     |  
|Interest expense                |  |                              |        |          |  |           |      |              |  |   | (3,906 | ) |  |   | (3,906  | )
|                                |  |                              |         |          |  |           |       |              |  |   |        |   |  |   |         |  
|Net income (loss)               |  | $                            | 5,261   |          |  | $         | (63   | )            |  | $ | (9,156 | ) |  | $ | (3,958  | )
|                                |  |                              |         |          |  |           |       |              |  |   |        |   |  |   |         |  
|Depreciation and amortization   |  | $                            | 4,896   |          |  | $         | 140   |              |  | $ |       |   |  | $ | 5,036   |  
|Segment assets                  |  |                              | 102,405 |          |  |           | 4,250 |              |  |   | 10,582 |   |  |   | 117,237 |  
|Expenditures for segment assets |  |                              | 44,599  |          |  |           | 59    |              |  |   |       |   |  |   | 44,658  |  

F-23



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                |  |                              |        |          |  |           |       |              |  |   |        |   |  |   |        |  
|------------------------------- |  | ---------------------------- | ------ | -------- |  | --------- | ----- | ------------ |  | - | ------ | - |  | - | ------ | -
|                                |  |                             
|                                |  | Year ended December 31, 2001
|                                |  |                             
|                                |  | Pharmaceutical               |        | Consumer |  | Corporate |       | Consolidated
|                                |  |                              |        |          |  |           |       |             
|Net revenues                    |  | $                            | 21,019 |          |  | $         | 7,344 |              |  | $ |       |   |  | $ | 28,363 |  
|Related party revenue           |  |                              | 44     |          |  |           |      |              |  |   |       |   |  |   | 44     |  
|                                |  |                              |        |          |  |           |       |              |  |   |        |   |  |   |        |  
|Total revenues                  |  |                              | 21,063 |          |  |           | 7,344 |              |  |   |       |   |  |   | 28,407 |  
|Cost of goods                   |  |                              | 5,023  |          |  |           | 3,215 |              |  |   |       |   |  |   | 8,238  |  
|                                |  |                              |        |          |  |           |       |              |  |   |        |   |  |   |        |  
|Gross margin                    |  |                              | 16,040 |          |  |           | 4,129 |              |  |   |       |   |  |   | 20,169 |  
|Operating expenses              |  |                              | 12,962 |          |  |           | 4,511 |              |  |   | 6,644  |   |  |   | 24,117 |  
|                                |  |                              |        |          |  |           |       |              |  |   |        |   |  |   |        |  
|Operating income (loss)         |  |                              | 3,078  |          |  |           | (382  | )            |  |   | (6,644 | ) |  |   | (3,948 | )
|Interest and other income       |  |                              |       |          |  |           |      |              |  |   | 972    |   |  |   | 972    |  
|Interest expense                |  |                              |       |          |  |           |      |              |  |   | (465   | ) |  |   | (465   | )
|                                |  |                              |        |          |  |           |       |              |  |   |        |   |  |   |        |  
|Net income (loss)               |  | $                            | 3,078  |          |  | $         | (382  | )            |  | $ | (6,137 | ) |  | $ | (3,441 | )
|                                |  |                              |        |          |  |           |       |              |  |   |        |   |  |   |        |  
|Depreciation and amortization   |  | $                            | 1,368  |          |  | $         | 553   |              |  | $ |       |   |  | $ | 1,921  |  
|Segment assets                  |  |                              | 49,431 |          |  |           | 3,946 |              |  |   | 19,378 |   |  |   | 72,755 |  
|Expenditures for segment assets |  |                              | 38,005 |          |  |           | 3     |              |  |   |       |   |  |   | 38,008 |  

Included in 2001 corporate operating expenses is
$258 of Trialogue expenses.

|                                |  |                              |         |          |  |           |        |           |  |              |       |   |  |   |        |   |  |   |         |  
|------------------------------- |  | ---------------------------- | ------- | -------- |  | --------- | ------ | --------- |  | ------------ | ----- | - |  | - | ------ | - |  | - | ------- | -
|                                |  |                             
|                                |  | Year ended December 31, 2000
|                                |  |                             
|                                |  | Pharmaceutical               |         | Consumer |  | Trialogue |        | Corporate |  | Consolidated
|                                |  |                              |         |          |  |           |        |           |  |             
|Net revenue                     |  | $                            | 5,732   |          |  | $         | 8,539  |           |  | $            | 477   |   |  | $ |       |   |  | $ | 14,748  |  
|Related party                   |  |                              | 8,488   |          |  |           |       |           |  |              | 3,849 |   |  |   |       |   |  |   | 12,337  |  
|                                |  |                              |         |          |  |           |        |           |  |              |       |   |  |   |        |   |  |   |         |  
|Total revenue                   |  |                              | 14,220  |          |  |           | 8,539  |           |  |              | 4,326 |   |  |   |       |   |  |   | 27,085  |  
|Cost of goods                   |  |                              | 6,440   |          |  |           | 4,089  |           |  |              |      |   |  |   |       |   |  |   | 10,529  |  
|                                |  |                              |         |          |  |           |        |           |  |              |       |   |  |   |        |   |  |   |         |  
|Gross margin                    |  |                              | 7,780   |          |  |           | 4,450  |           |  |              | 4,326 |   |  |   |        |   |  |   | 16,556  |  
|Operating                       |  |                              | 22,421  |          |  |           | 6,377  |           |  |              | 4,789 |   |  |   | 6,993  |   |  |   | 40,580  |  
|                                |  |                              |         |          |  |           |        |           |  |              |       |   |  |   |        |   |  |   |         |  
|Operating loss                  |  |                              | (14,641 | )        |  |           | (1,927 | )         |  |              | (463  | ) |  |   | (6,993 | ) |  |   | (24,024 | )
|Interest and other income       |  |                              |        |          |  |           |       |           |  |              |      |   |  |   | 1,458  |   |  |   | 1,458   |  
|                                |  |                              |         |          |  |           |        |           |  |              |       |   |  |   |        |   |  |   |         |  
|Net loss                        |  | $                            | (14,641 | )        |  | $         | (1,927 | )         |  | $            | (463  | ) |  | $ | (5,535 | ) |  | $ | (22,566 | )
|                                |  |                              |         |          |  |           |        |           |  |              |       |   |  |   |        |   |  |   |         |  
|Depreciation and amortization   |  | $                            | 1,035   |          |  | $         | 579    |           |  | $            |      |   |  | $ |       |   |  | $ | 1,614   |  
|Segment assets                  |  |                              | 6,596   |          |  |           | 4,235  |           |  |              | 333   |   |  |   | 9,508  |   |  |   | 20,672  |  
|Expenditures for segment assets |  |                              | 393     |          |  |           | 56     |           |  |              |      |   |  |   |       |   |  |   | 449     |  

F-24



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Net revenues from each of the following customers
represented greater than 10% of the consolidated net revenues
for the years shown:

|                                  |  |                         |      |                  |  |                  |      |   |  |  |      |  
|--------------------------------- |  | ----------------------- | ---- | ---------------- |  | ---------------- | ---- | - |  |  | ---- | -
|                                  |  |                        
|                                  |  | Year ended December 31,
|                                  |  |                        
|                                  |  | 2002                    |      | 2001             |  | 2000            
|                                  |  |                         |      |                  |  |                 
|                                  |  | Percent of              |      | Percent of       |  | Percent of      
|                                  |  | Consolidated Net        |      | Consolidated Net |  | Consolidated Net
|                                  |  | Revenues                |      | Revenues         |  | Revenues        
|                                  |  |                         |      |                  |  |                 
|Ortho-McNeil Pharmaceutical, Inc. |  |                         |     |                  |  |                  |     |   |  |  | 45.5 | %
|McKesson Drug                     |  |                         | 35.8 | %                |  |                  | 13.4 | % |  |  |     |  
|QK Healthcare, Inc.               |  |                         | 23.5 | %                |  |                  | 33.4 | % |  |  |     |  
|Cardinal Health, Inc.             |  |                         | 15.3 | %                |  |                  | 12.8 | % |  |  |     |  
|AmerisourceBergen Corp.           |  |                         | 13.3 | %                |  |                  |     |   |  |  |     |  
|                                  |  |                         |      |                  |  |                  |      |   |  |  |      |  
|                                  |  |                         | 87.9 | %                |  |                  | 59.6 | % |  |  | 45.5 | %
|                                  |  |                         |      |                  |  |                  |      |   |  |  |      |  

The Company has no long-term commitments from
these customers or any other customers to purchase products. The
loss of any of key customers, or a significant reduction in
sales to those customers, could significantly reduce revenues.

Revenues by product for each of the three years
ending December 31, 2002 are shown below:

|                                          |                        |      |        |        |  |      |        |       |  |   |       |       | 
|----------------------------------------- | ---------------------- | ---- | ------ | ------ |  | ---- | ------ | ----- |  | - | ----- | ----- | 
|                                          |                        | 2002 |        | 2001   |  | 2000
|                                          |                        |      |        |        |  |     
|Womens health:                           |                        |      |        |        |  |      |        |       |  |   |       |      
|                                          | EsclimTM               |      | $      | 9,896  |  |      | $      | 5,984 |  |   | $     | 389   | 
|                                          | Ortho-Est®
    Tablets |      |        | 3,761  |  |      |        | 9,402 |  |   |       | 5,211 | 
|                                          |                        |      |        |        |  |      |        |       |  |   |       |      
|                                          |                        |      | 13,657 |        |  |      | 15,386 |       |  |   | 5,600 |      
|                                          |                        |      |        |        |  |      |        |       |  |   |       |      
|Skin care:                                |                        |      |        |        |  |      |        |       |  |   |       |      
|                                          | Vaniqa®Cream           |      |        | 14,391 |  |      |        |      |  |   |       |      | 
|                                          |                        |      |        |        |  |      |        |       |  |   |       |      
|Non-strategic:                            |                        |      |        |        |  |      |        |       |  |   |       |      
|                                          | Midrin®                |      |        | 3,254  |  |      |        | 831   |  |   |       |      | 
|                                          | BactrimTM              |      |        | 1,499  |  |      |        | 3,520 |  |   |       |      | 
|                                          | Equagesic®             |      |        | 2,136  |  |      |        | 515   |  |   |       |      | 
|                                          | Synalgos®              |      |        | 5,456  |  |      |        | 634   |  |   |       |      | 
|                                          |                        |      |        |        |  |      |        |       |  |   |       |      
|                                          |                        |      | 12,345 |        |  |      | 5,500  |       |  |   |      |      
|                                          |                        |      |        |        |  |      |        |       |  |   |       |      
|Other                                     |                        |      | 645    |        |  |      | 133    |       |  |   | 132   |      
|                                          |                        |      |        |        |  |      |        |       |  |   |       |      
|Total net pharmaceutical product revenues |                        | $    | 41,038 |        |  | $    | 21,019 |       |  | $ | 5,732 |      
|                                          |                        |      |        |        |  |      |        |       |  |   |       |      

15.     Commitments

Leases

The Company leases office space, automobiles and
equipment under operating leases. Lease expense was
$0.7 million in each of the three years ended
December 31, 2002. The Company has provided a
$0.1 million letter of credit (secured by a
$0.1 million certificate of deposit) to secure its
obligations under its office lease.

F-25



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Minimum future annual obligations for operating
leases for years ending after December 31, 2002 are as
follows:

|           |  |   |       | 
|---------- |  | - | ----- | 
|2003       |  | $ | 962   | 
|2004       |  |   | 601   | 
|2005       |  |   | 443   | 
|2006       |  |   | 69    | 
|2007       |  |   |      | 
|Thereafter |  |   |      | 
|           |  |   |       | 
|           |  | $ | 2,075 | 
|           |  |   |       | 

Third-Party Sales Agreement

On December 10, 2002, the Company entered
into a sales and marketing agreement with Ventiv Health
U.S. Sales L.L.C., wherein Ventiv will market
Vaniqa® Cream to dermatologists throughout the U.S.
The agreement expires in December 2005, subject to early
termination provisions. Ventiv will be compensated with
royalties based on the level of sales generated in excess of a
baseline. Additionally, the Company made an initial payment to
Ventiv of $0.2 million, in January 2003. To support
Ventivs efforts the Company has committed to spend a
minimum of $2.0 million each year in support of
Vaniqa® Cream-related activities, which will not be
paid to Ventiv directly.

Royalties

The Company pays royalties to Fournier and Elan
based on net sales of EsclimTM and
Midrin®, respectively. There are no minimum royalty
payments.

Rebate Agreements

The Company has a number of rebate agreements
with different terms. The Company provides rebates to its
wholesalers or retailers for reimbursements of discounts it has
offered its customers. The Company pays rebates to certain
marketing organizations that demonstrate they have generated
sales of the Companys products. These agreements vary
considerably and are dependent on the sales levels generated
through various channels.

16.     Income
Taxes

As of December 31, 2002, the Company had
federal and state tax net operating loss carryforwards of
approximately $66.4 million and $53.8 million,
respectively. The federal tax loss carryforwards will begin to
expire in 2019, unless previously utilized. The state tax loss
will begin to expire in 2007, unless previously utilized. The
Company also has federal and state research and development tax
credit carryforwards of approximately $0.2 million and
$0.1 million respectively, which will begin to expire in
2020, unless previously utilized.

Pursuant to Internal Revenue Code
Sections 382 and 383, use of the Companys net
operating loss and credit carryforwards may be limited if a
cumulative change in ownership of more than 50% occurs within a
three-year period. However, the Company does not believe such
limitations will have a material impact upon the utilization of
these carryforwards.

Significant components of the Companys
deferred tax assets as of December 31, 2002 and 2001 are
shown below. A valuation allowance of $28.8 million and
$27.4 million has been recognized, as realization of such
assets is uncertain.

F-26



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                         |                                  |              |         |        |     |   |         |        |     | 
|------------------------ | -------------------------------- | ------------ | ------- | ------ | --- | - | ------- | ------ | --- | 
|                         |                                  |             
|                         |                                  | December 31,
|                         |                                  |             
|                         |                                  | 2002         |         | 2001  
|                         |                                  |              |         |       
|Deferred tax assets:     |                                  |              |         |        |     |   |         |       
|                         | Net operating loss carryforwards |              | $       | 26,340 |     |   | $       | 26,069 |    
|                         | Research and development credits |              |         | 222    |     |   |         | 222    |    
|                         | Returns and allowances           |              |         | 2,247  |     |   |         | 921    |    
|                         |                                  | Other        |         |        | 214 |   |         |        | 214 | 
|                         |                                  |              |         |        |     |   |         |       
|                         | Total deferred tax assets        |              |         | 29,023 |     |   |         | 27,426 |    
|Deferred tax liabilities |                                  |              | (168    | )      |     |   | (1      | )     
|Valuation allowance      |                                  |              | (28,855 | )      |     |   | (27,425 | )     
|                         |                                  |              |         |        |     |   |         |       
|Net deferred taxes       |                                  | $            |        |        |     | $ |        |       
|                         |                                  |              |         |        |     |   |         |       

17.     Employee
Savings Plan

The Company has an employee savings plan covering
all employees 18 years or older, starting on the first day
of the month following employment, to make contributions by
salary reduction pursuant to section 401(k) of the Internal
Revenue Code. Contributions to the plan by the Company are
discretionary. The Company did not make any contributions during
the years ended 2002, 2001 and 2000.

18.     Subsequent
Events (Unaudited)

The Companys 2002 results caused it to fall
out of compliance with the financial covenants in the Senior
Secured Notes, which required the Company to maintain a minimum
level of earnings before interest, depreciation, taxes and
amortization, a minimum fixed charge coverage ratio and a
minimum net worth measured as of December 31, 2002 and the
four quarters then ended and to limit capital expenditures
during 2002. The Company was also out of compliance with the
same covenants for the period ended March 31, 2003. In
April 2003, the Company entered into a binding term sheet with
the holders of the Senior Secured Notes to remedy these defaults
by agreeing to implement the following material terms:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the financial covenants governing the Senior
    Secured Notes will be revised to include only requirements for
    minimum cash revenue, maximum cash expenditures and minimum cash
    balances, to be tested periodically through December 31,
    2004, after which time more customary financial covenants will
    be implemented;                                                                                                     
|
| |  | in addition to the Vaniqa® Cream
    assets that the Company has already pledged to secure its
    performance under the Senior Secured Notes, the Company will
    grant the note holders a security interest in all of its other
    assets, other than its rights to EsclimTM and
    Midrin® products;                                                                                                                                   
|
| |  | the Company will grant warrants to the note
    holders to purchase 2.0 million shares of common stock at
    an average market price to be determined based on closing market
    prices leading up to the public announcement of the agreement in
    principle and simultaneously cancel the existing warrants to
    purchase 1.7 million shares of the Companys common
    stock at $5.50 per share currently held by the note holders;
|
| |  | the Company will apply an agreed-upon portion of
    the proceeds from any asset sales and the license or sale of its
    international rights to Vaniqa®  Cream to offer to
    repay the convertible redeemable preferred stock and the Senior
    Secured Notes at stated optional redemption prices;                                                                                                                                     
|
| |  | the Company will modify the terms of the
    convertible redeemable preferred stock to reduce the optional
    redemption price to 108% of accreted stated value through
    November 30, 2003, at which time                                                                                                                                                                                                                                

F-27



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | the redemption price would increase based on a
    formula that takes into account the number of shares redeemed
    before November 30, 2003; and                                                                                                                                                                                                                                                                     
|
| |  | as a condition to the restructuring, the Company
    will be required to have at least $2.5 million of
    additional capital. The Companys President, Chief
    Executive Officer and Chairman of the Board, Edward F. Calesa,
    has committed to provide $1.0 million of this amount and
    the Companys management has received indications of
    interest for the remaining $1.5 million in equity financing.

The Companys default under the Senior
Secured Notes permits the note holders to accelerate the payment
of the Companys indebtedness under the Senior Secured
Notes and seek to foreclose on the collateral pledged to secure
the Companys indebtedness under the Senior Secured Notes.
While the Company entered into a binding term sheet with the
note holders to remedy the defaults, the Company has not yet
completed definitive documents to implement the terms of the
term sheet and the closing of the restructuring is subject to
conditions. In addition, any future default by the Company under
the Senior Secured Notes would allow the note holders to
accelerate the Companys indebtedness under the Senior
Secured Notes.

From time to time the Company is involved in
routine litigation and proceedings in the ordinary course of its
business. The Company is currently involved in litigation
entitled Andres Lopez Sandoval, et. al. v. Kern Medica
Center, et. al., brought against Hoffman-LaRoche in February
2003 in the Superior Court of the State of California, County of
Kern. The Company has agreed to indemnify Hoffman-LaRoche for
any claims related to BacrimTM that occur after the
date the Company acquired the product, which would include the
Sandoval claim. Hoffman-LaRoche was named as a defendant
in this litigation which alleges damages against the
deceaseds physician, hospital, ambulance provider and a
number of other care givers as well as other pharmaceutical
companies that manufactured products prescribed to the deceased
in connection with his illness. The claim seeks a judgment of
$10 million from each defendant in addition to punitive
damages for medical malpractice, fraud, personal injury,
negligence, breach of implied warranty, misrepresentation,
wrongful death, loss of consortium, intentional infliction of
emotional distress, negligent infliction of emotional distress,
general negligence and intentional tort. The Company believe we
have meritorious defenses to this lawsuit and will contest these
claims vigorously. However, the ultimate resolution of these
matters could have a material adverse effect on the
Companys financial condition and results of operations.
Even if the Company prevails, the litigation could be expensive
to defend and could require significant amounts of management
time and the diversion of significant operational resources.

The Company is not currently involved in any
other pending litigation matters that it believes would have a
material adverse effect on it.

On January 21, 2003, the Company entered
into a Revolving Credit and Security Agreement (the Credit
Agreement) with CapitalSource Finance LLC,
(CapitalSource), under which CapitalSource agreed to
extend the Company a line of credit equal to approximately 85%
of the Companys eligible accounts receivable up to a
maximum of $5.0 million. On the same day, the Company also
borrowed the minimum amount required under the agreement,
$1.5 million. Because the Company did not have adequate
accounts receivable to support the $1.5 million in
borrowing and because the Credit Agreement contained a
cross-default provision with the Senior Secured Notes, the
Company became in default under the Credit Agreement. On
March 26, 2003, the Company agreed with CapitalSource to
cancel the Credit Agreement without any penalties and repaid the
$1.5 million. The Company may not be able to replace the
Credit Agreement on terms acceptable to it, or at all.

In March 2003, the Company announced
restructuring plans in order to improve its operating results
and terminated 56 employees (35% of its work force),
primarily sales and marketing personnel in the pharmaceutical
division. Under the provisions of SFAS 146, the Company will
accrue approximately $0.7 million in costs relating to this
restructuring in the first quarter of 2003, and the Company
estimates $0.1 million will be

F-28



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

expensed in subsequent quarters during 2003. The
costs consist of severance pay and related benefits of
$0.3 million (paid in March and April 2003) and an
estimated $0.4 million in equipment and early termination
fees on automobiles leases for vehicles used by terminated
employees (to be paid in the second quarter of 2003).

In March 2003, the Company also announced plans
to attempt to sell the product rights to its pharmaceutical
products which do not relate to its core mission of improving
the health and well being of midlife women. The product rights
that the Company is considering divesting include
BactrimTM, Midrin®,
Equagesic® and Synalgos®, subject to the
terms of the Companys agreement with the holders of the
Senior Secured Notes. The proceeds of the sales from these
product rights will be used to repay debt and to fund current
operations.

F-29



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##### Table of Contents



Schedule II

WOMEN FIRST HEALTHCARE, INC.

VALUATION AND QUALIFYING ACCOUNTS

|                                                                     |                                      |                |   |           |   |            |   |            |   |               |   |            |   |  |   |      |   |  |   |       |  |  |   |        |  
|-------------------------------------------------------------------- | ------------------------------------ | -------------- | - | --------- | - | ---------- | - | ---------- | - | ------------- | - | ---------- | - |  | - | ---- | - |  | - | ----- |  |  | - | ------ | -
|                                                                     |                                      |                |   |           |   |           
|                                                                     |                                      |                |   | Additions |   |           
|                                                                     |                                      |                |   |           |   |           
|                                                                     |                                      | Balance at     |   | Charged   |   | Charged to |   | Charged to |   |               |   | Balance at
|                                                                     |                                      | Beginning      |   | Against   |   | Cost of    |   | Bad Debt   |   |               |   | End of    
|                                                                     |                                      | of Period      |   | Revenues  |   | Sales      |   | Expense    |   | Deductions(1) |   | Period    
|                                                                     |                                      |                |   |           |   |            |   |            |   |               |   |           
|                                                                     |                                      |               
|                                                                     |                                      | (In thousands)
|Allowance for doubtful accounts and cash
    discounts:              |                                      |                |   |           |   |            |   |            |   |               |   |            |   |  |   |      |   |  |   |       |  |  |   |       
|                                                                     | For the year ended December 31, 2002 |                | $ | (363      | ) |            | $ | (1,022     | ) |               | $ |           |   |  | $ | (65  | ) |  | $ | 948   |  |  | $ | (502   | )
|                                                                     | For the year ended December 31, 2001 |                |   | (335      | ) |            |   | (471       | ) |               |   |           |   |  |   | (249 | ) |  |   | 692   |  |  |   | (363   | )
|                                                                     | For the year ended December 31, 2000 |                |   | (83       | ) |            |   | (142       | ) |               |   |           |   |  |   | (265 | ) |  |   | 155   |  |  |   | (335   | )
|Reserve for excess, dates and impaired
    inventory:                |                                      |                |   |           |   |            |   |            |   |               |   |            |   |  |   |      |   |  |   |       |  |  |   |       
|                                                                     | For the year ended December 31, 2002 |                |   | (732      | ) |            |   |           |   |               |   | (1,683     | ) |  |   |     |   |  |   | 60    |  |  |   | (2,355 | )
|                                                                     | For the year ended December 31, 2001 |                |   | (1,662    | ) |            |   |           |   |               |   | (79        | ) |  |   |     |   |  |   | 1,009 |  |  |   | (732   | )
|                                                                     | For the year ended December 31, 2000 |                |   |          |   |            |   |           |   |               |   | (1,662     | ) |  |   |     |   |  |   |      |  |  |   | (1,662 | )
|Reserve for product returns, exchanges,
    rebates and chargebacks: |                                      |                |   |           |   |            |   |            |   |               |   |            |   |  |   |      |   |  |   |       |  |  |   |       
|                                                                     | For the year ended December 31, 2002 |                |   | (1,717    | ) |            |   | (4,330     | ) |               |   |           |   |  |   |     |   |  |   | 3,121 |  |  |   | (2,926 | )
|                                                                     | For the year ended December 31, 2001 |                |   | (628      | ) |            |   | (2,065     | ) |               |   |           |   |  |   |     |   |  |   | 976   |  |  |   | (1,717 | )
|                                                                     | For the year ended December 31, 2000 |                |   | (495      | ) |            |   | (1,508     | ) |               |   |           |   |  |   |     |   |  |   | 1,375 |  |  |   | (628   | )



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Deductions under allowance for doubtful accounts
    and cash discounts represent doubtful accounts written off and
    cash discounts taken by customers. Deductions under reserve for
    excess, dates and impaired inventory represent inventory written
    off and destroyed. Deductions under reserve for product returns,
    exchanges, rebates and chargebacks represent actual products
    returned or exchanged and cash payments made for rebates and
    chargebacks.



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##### Table of Contents



EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                                                  
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 3  | .1(1)       |  | Fourth Amended and Restated Certificate of
    Incorporation.                                                                                                                                    
|        | 3  | .2(2)       |  | Certificate of Designation of Preferences and
    Rights of Senior Convertible Redeemable Preferred Stock,
    Series A.                                                                         
|        | 3  | .3(1)       |  | Second Amended and Restated Bylaws.                                                                                                                                                              
|        | 4  | .1(3)       |  | Form of Specimen Common Stock Certificate.                                                                                                                                                       
|        | 10 | .1(4)       |  | Employment Agreement dated January 8, 1998
    by and between Women First HealthCare, Inc. and Edward F. Calesa.                                                                                 
|        | 10 | .2(5)       |  | Amended and Restated 1998 Long-Term Incentive
    Plan.                                                                                                                                          
|        | 10 | .3(6)       |  | Management Incentive Compensation Plan.                                                                                                                                                          
|        | 10 | .4(4)       |  | Lease Agreement dated April 3, 1998 by and
    between Women First HealthCare, Inc. and Prentiss Properties
    Acquisition Partners, L.P.                                                       
|        | 10 | .5(1)       |  | Distribution and License Agreement dated as of
    July 19, 1999 between Women First HealthCare, Inc. and
    Laboratoires Fournier S.A.*                                                        
|        | 10 | .6(5)       |  | 1999 Non-Qualified Stock Option Plan.                                                                                                                                                            
|        | 10 | .7(8)       |  | Ortho-Est® Asset Transfer and Supply
    Agreement effective September 30, 2000 between Women First
    HealthCare, Inc. and Ortho-McNeil Pharmaceutical, Inc.                                   
|        | 10 | .8(8)       |  | Ortho-PrefestTMCo-Promotion Agreement
    effective September 30, 2000 between Women First HealthCare,
    Inc. and Ortho-McNeil Pharmaceutical, Inc.                                            
|        | 10 | .9(9)       |  | Amendment No. 1 to Distribution and License
    Agreement dated November 3, 2000 between Laboratoires Fournier
    S.A. and Women First HealthCare, Inc.*                                        
|        | 10 | .10(9)      |  | Pharmacy Supplier Agreement between Novation, LLC
    and Women First HealthCare, Inc. dated as of December 20,
    2000.*                                                                       
|        | 10 | .11(10)     |  | Co-Promotion Agreement dated as of April 6,
    2001 between Women First HealthCare, Inc. and Essentia
    Pharmaceuticals B.V.*                                                                 
|        | 10 | .12(11)     |  | Midrin Asset and Inventory Purchase Agreement
    dated as of June 29, 2001 by and among Women First Health
    Care, Inc., Élan Pharma International Limited and Élan
    Pharmaceuticals, Inc.*
|        | 10 | .13(11)     |  | Securities Purchase Agreement dated June 29,
    2001 among Women First HealthCare, Inc., Élan International
    Services, Ltd., and Élan Pharma International Limited.                          
|        | 10 | .14(11)     |  | Convertible Secured Promissory Note dated
    June 29, 2001.                                                                                                                                     
|        | 10 | .15(12)     |  | Manufacturing Site Transfer Agreement dated as of
    June 22, 2001 between Women First HealthCare, Inc. and
    Pharmaceutics International, Inc.*                                              
|        | 10 | .16(12)     |  | Securities Purchase Agreement dated as of
    August 8, 2001 by and among Women First HealthCare, Inc.
    and the purchasers listed on Exhibit A thereto.                                       
|        | 10 | .17(13)     |  | Securities Purchase Agreement dated as of
    August 8, 2001 among Women First HealthCare, Inc. and the
    Purchasers who were signatories thereto.                                             
|        | 10 | .18(13)     |  | Warrant Agreement by and between Women First
    HealthCare, Inc. and Gruntal & Co., L.L.C. dated as of
    August 8, 2001.                                                                      
|        | 10 | .19(14)     |  | Agreement between Women First Healthcare, Inc.
    and Hoffmann-La Roche.*                                                                                                                       
|        | 10 | .20(15)     |  | Asset Purchase Agreement dated November 15,
    2001 by and between American Home Products Corporation and Women
    First Health Care, Inc.*                                                    
|        | 10 | .21(15)     |  | Manufacturing and Supply Agreement dated
    November 15, 2001 by and between American Home Products
    Corporation and Women First Health Care, Inc.*                                          
|        | 10 | .22(15)     |  | Trademark License Agreement dated
    November 15, 2001 by and between American Home Products
    Corporation and Women First Health Care, Inc.*                                                 
|        | 10 | .23(15)     |  | Senior Secured Promissory Note dated
    November 15, 2001.*                                                                                                                                     
|        | 10 | .24(16)     |  | Amendment No. 1 to Senior Secured Promissory
    Note dated November 25, 2002.                                                                                                                   



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                            
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .25(15)     |  | Security Agreement dated November 15, 2001
    by and between American Home Products Corporation and Women
    First Health Care, Inc.                                                                                                     
|        | 10 | .26(17)     |  | Manufacturing and Supply Agreement between Mutual
    Pharmaceutical Company, Inc. and Women First HealthCare, Inc.
    made on January 24, 2002.*                                                                                         
|        | 10 | .27(17)     |  | Promissory Note Dated February 26, 2002
    between Women First HealthCare, Inc. and Saundra Childs.                                                                                                                                       
|        | 10 | .28(17)     |  | Promissory Note Dated February 26, 2002
    between Women First HealthCare, Inc. and Charles M. Caporale.                                                                                                                                  
|        | 10 | .29(2)      |  | Asset Purchase Agreement, dated as of
    June 25, 2002, by and among Westwood-Squibb Colton Holdings
    Partnership, The Gillette Company, Bristol-Myers Squibb Company
    and Women First HealthCare, Inc.                             
|        | 10 | .30(2)      |  | License Agreement, dated as of June 25,
    2002, by and among The Gillette Company, Bristol-Myers Squibb
    Company and Women First HealthCare, Inc                                                                                      
|        | 10 | .31(2)      |  | Supply Agreement, dated as of June 25, 2002,
    by and between Bristol-Myers Squibb Company and Women First
    HealthCare, Inc.*                                                                                                         
|        | 10 | .32(2)      |  | Note and Warrant Purchase Agreement, dated as of
    June 25, 2002, by and among Women First HealthCare, Inc.
    and the Purchasers named therein                                                                                         
|        | 10 | .33(2)      |  | Form of Senior Secured Note dated June 25,
    2002.                                                                                                                                                                                       
|        | 10 | .34(2)      |  | Form of Common Stock Purchase Warrant dated
    June 25, 2002.                                                                                                                                                                             
|        | 10 | .35(2)      |  | Preferred Stock Purchase Agreement, dated
    June 25, 2002, by and among Women First HealthCare, Inc.
    and the Purchasers named therein.                                                                                               
|        | 10 | .36(2)      |  | Registration Rights Agreement, dated
    June 25, 2002, related to the Senior Secured Notes and
    Common Stock Purchase Warrants by and among Women First
    HealthCare, Inc. and the holders of Senior Secured Notes named
    therein.
|        | 10 | .37(2)      |  | Registration Rights Agreement, dated
    June 25, 2002, related to the Convertible Preferred Stock
    by and among Women First HealthCare, Inc. and the holders of
    Convertible Preferred Stock named therein.                         
|        | 10 | .38(2)      |  | Security Agreement, dated as of June 25,
    2002, by and among Women First HealthCare, Inc. and the holders
    of Senior Secured Notes and Convertible Preferred Stock named
    therein.                                                
|        | 10 | .40(16)     |  | Sales and Marketing Agreement, dated
    December 10, 2002, by and between Ventiv Health U.S. Sales
    L.L.C and Women First HealthCare, Inc.                                                                                            
|        | 10 | .41(18)     |  | Professional Promotion Agreement, dated
    September 1, 2002, by and between PDI Shared Sales, Inc.
    and Women First HealthCare, Inc.*                                                                                                 
|        | 21 | .1(16)      |  | Subsidiaries.                                                                                                                                                                                                                              
|        | 23 | .1(14)      |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                              



---



|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 1999 filed August 13, 1999.       
|   
|(2) | Incorporated by reference to the Companys
    Current Report on Form 8-K filed July 2, 2002.                                                     
|   
|(3) | Incorporated by reference to Amendment No. 4
    to the Companys Registration Statement on Form S-1
    filed June 24, 1999.                     
|   
|(4) | Incorporated by reference to the Companys
    Registration Statement on Form S-1 filed March 12,
    1999.                                       
|   
|(5) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 1999 filed March 30, 2000.          
|   
|(6) | Incorporated by reference to Amendment No. 1
    to the Companys Registration Statement on Form S-1
    filed May 24, 1999.                      
|   
|(7) | Incorporated by reference to Amendment No. 2
    to the Companys Registration Statement on Form S-1
    filed June 2, 1999.                      
|   
|(8) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2000 filed November 14, 2000.



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##### Table of Contents





|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(9) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-K for the year ended
    December 31, 2000 filed March 30, 2001.



|     |                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001 filed May 15, 2001.         
|    
|(11) | Incorporated by reference to the Companys
    Current Report on Form 8-K filed July 3, 2001.                                                     
|    
|(12) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2001 filed August 13, 2001.       
|    
|(13) | Incorporated by reference to the Companys
    Registration Statement on Form S-3 filed September 4,
    2001.                                    
|    
|(14) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2001 filed November 13, 2001.
|    
|(15) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 2001 filed March 27, 2002.          
|    
|(16) | Filed herewith.                                                                                                                                   
|    
|(17) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2002 filed May 10, 2002.         
|    
|(18) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2001 filed November 13, 2002.
|    
|*    | Women First has been granted confidential
    treatment with respect to portions of this exhibit.                                                 



|  |                                                                                        
|- | ---------------------------------------------------------------------------------------
| | Confidential treatment has been requested with
    respect to portions of this exhibit.