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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, 2003



|  |                                                                                               
|- | ----------------------------------------------------------------------------------------------
|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.)

5355 Mira Sorrento Place, San Diego,
California 92121

(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 þ     NO o

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 under the
Securities Exchange Act of
1934).     Yes þ     No o

As of June 30, 2003, the aggregate market
value of the registrants common stock held by
non-affiliates of the registrant was approximately $30,206,105
based on the closing price of the registrants common stock
on the NASDAQ National Market on June 30, 2003 of
$1.14 per share.

As of March 26, 2004, 26,657,548 shares
of registrants common stock, $.001 par value, were
outstanding.



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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 Stockholder Matters                           
|                                                  | Item 6. Selected Consolidated Financial Data                                                            
|                                                  | 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            
|                                                  | Item 9A. Controls and Procedures                                                                        
|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. Principal Accountant Fees and Services                                                         
|PART IV                                          
|                                                  | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                               
|SIGNATURES                                       
|REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
|EXHIBIT 10.41                                    
|EXHIBIT 21.1                                     
|EXHIBIT 23.1                                     
|EXHIBIT 31.1                                     
|EXHIBIT 31.2                                     
|EXHIBIT 32.1                                     



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TABLE OF CONTENTS

|         |  |                                                                                                    |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                                    |  | Page
|         |  |                                                                                                    |  |     
|PART I  
|Item 1.  |  | Business                                                                                           |  |      | 1  | 
|Item 2.  |  | Properties                                                                                         |  |      | 20 | 
|Item 3.  |  | Legal Proceedings                                                                                  |  |      | 20 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                            |  |      | 21 | 
|PART II 
|Item 5.  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |  |      | 21 | 
|Item 6.  |  | Selected Consolidated Financial Data                                                               |  |      | 22 | 
|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  |      | 23 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |  |      | 36 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                                        |  |      | 36 | 
|Item 9.  |  | Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure           |  |      | 36 | 
|Item 9a. |  | Controls and Procedures                                                                            |  |      | 36 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                                 |  |      | 37 | 
|Item 11. |  | Executive Compensation                                                                             |  |      | 40 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  |      | 43 | 
|Item 13. |  | Certain Relationships and Related Transactions                                                     |  |      | 45 | 
|Item 14. |  | Principal Accountant Fees and Services                                                             |  |      | 46 | 
|PART IV 
|Item 15. |  | Exhibits, Financial Statement Schedules and
    Reports on Forms 8-K                               |  |      | 47 | 

Information Relating to Forward-Looking
Statements

This Annual Report on Form 10-K includes
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. These
forward-looking statements include statements about our
strategies, objectives and our future achievements. To the
extent statements in this Annual Report involve, without
limitation, our expectations for growth, estimates of future
revenue, our sources and uses of cash, our liquidity needs, our
intentions to divest strategic and non-strategic assets,
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. 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. Important factors that could cause
actual results to differ materially from those in these
forward-looking statements are disclosed in this Annual Report
on Form 10-K, including, without limitation, those
discussions under Risk Factors in Item 1.
Business and in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations as well as other risks identified from time to
time in our filings with the Securities and Exchange Commission,
press releases and other communications.

In this Annual Report on Form 10-K,
Women First HealthCare, Inc., Women
First, we, us, its,
and our refer to Women First HealthCare, Inc.
and our wholly-owned subsidiaries, As We Change and Women First
HealthCare Limited, a U.K. subsidiary.



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PART I






|        |         
|------- | --------
|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 historically
marketed these products in the United States through a number of
channels including our dedicated sales force, tele-sales and our
direct-to-consumer marketing programs through our Internet
sites, womenfirst.com, and Vaniqa.com. In March
2004, we announced restructuring plans in order to conserve cash
and laid off 78 employees (80% of our workforce), including
our entire sales force of 44 employees, all
28 employees employed by the As We
Change® mail order catalog business and
6 support employees from our corporate office.

As of March 26, 2004, the products we sell
include the following:



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



| |   |                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Vaniqa®(eflornithine hydrochloride) Cream, 13.9%, a topical cream
    clinically proven to slow the growth of unwanted facial hair in
    women. We acquired exclusive worldwide rights in June 2002 from
    a joint venture formed by the Bristol-Myers Squibb Company
    (BMS) and The Gillette Company
    (Gillette),   
|
| |  | EsclimTM,
    an estrogen patch system. We acquired the exclusive rights
    (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. (Fournier), effective July 1999,
|
| |  | Ortho-Est®Tablets,an oral estrogen product that we acquired from
    Ortho-McNeil Pharmaceutical in January 2001,                                                                                                                                                                                                                 
|
| |  | Midrin®, a
    prescription headache management product for which we acquired
    exclusive U.S. rights and title from Élan Pharma
    International Ltd. (Élan) 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, a pain management product for which we acquired all
    rights in the U.S. and Puerto Rico from Wyeth in November 2001.                                                                                                                                                                                

All of the above product or license rights are
available for sale.

As a result of our inability to execute on the
sale of any of our pharmaceutical product rights in 2003, the
declining prescription demand for our products and shift of all
strategic sales and marketing focus to Vaniqa® Cream during
the fourth quarter of 2003, we evaluated the recoverability of
our product rights carrying values and determined that our
product rights for BactrimTM, Midrin®,
Synalgos® and Equagesic® were impaired and,
accordingly, we recognized impairment charges totaling
$19.2 million in the fourth quarter of 2003. For 2003, we
recognized impairment charges totaling $25.1 million. There
can be no assurance that we will be successful in recovering the
current carrying values of our product and license rights in the
event we sell any or all such rights.

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Industry Trends

We believe that the markets for pharmaceutical
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 and
    gynecologists and the 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 68 million women in the United States
over age 40 in 2004. That number is expected to grow to
77 million women by the year 2014.

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 menopausal hormonal
therapy alleviates the symptoms commonly associated with
menopause. Recent studies conducted by the National Cancer
Institute found that women on menopausal hormonal therapy after
menopause run a higher risk of ovarian cancer after ten years of
use. However, a 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.
In addition, a sub-study of the Womens Health Initiative
Memory Study (WHIMS) recently concluded that women treated in
the study with conjugated estrogens combined with
medroxyprogesterone acetate have a greater risk of developing
probable dementia than those on placebo. In March 2004, the
National Institutes of Health announced that it had stopped
clinical trials of estrogen-only replenishment therapy because
it found that oral estrogens not only failed to improve
participants health but also may have slightly raised the
risk of strokes. There remains a great deal of confusion in the
market place concerning menopausal hormonal therapy, combination
estrogen/progestin replacement therapy and estrogen-only
replacement therapy and the market for these products has shrunk
considerably. We believe this has had an adverse effect on our
sales of EsclimTM and Ortho-Est®
Tablets. According to IMS Health, pharmaceutical sales for
menopausal hormonal therapy in the United States were
approximately $2.2 billion in 2002, down significantly from
approximately $2.9 billion in 2001. Data is based on total
prescription sales (TRx) at retail cost or Average Wholesale
Price (AWP) for USCs 52110 and 52130 (at USC 4 level.)

The estrogen in our Ortho-Est®
Tablets is approved by the Food and Drug Administration
(FDA) 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

In order to address our current debt service
requirements and working capital needs, our near term strategic
priorities are to: (i) identify an acquisition or merger
partner with interest in acquiring our company or all or a
significant portion of our assets; (ii) identify and
implement measures to conserve our existing cash resources,
(iii) restructure our existing indebtedness including
various general creditors, and (iv) raise sufficient
capital to satisfy our working capital and debt service
requirements for the foreseeable future. Presently we are
considering the sale of all of our pharmaceutical product and
license rights. We laid off our sales force in March 2004 for
cash conservation purposes. We also committed in December 2003
to sell or discontinue the operations of the As We Change mail
order catalog business as we projected that it would continue to
incur losses for the foreseeable future and was not a core
element of our specialty pharmaceutical business.

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Pending the sale of our company or key assets, we
are seeking to continue generating prescription demand and
product sales at minimal costs with limited marketing and no
detail sales efforts.

Products and Product Agreements

Pharmaceutical
Products

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
Company and The Gillette Company. Vaniqa® Cream
is a topical cream clinically proven to slow the growth of
unwanted facial hair in women, was approved for marketing by the
FDA in July 2000 and is the only prescription pharmaceutical
product 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
$39.2 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 BMS 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 supply agreement with BMS,
whereby, as amended, BMS will manufacture Vaniqa®
Cream through June 2007.

We financed the Vaniqa® Cream
acquisition and related costs 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 January 2004, and to 13% per annum in
July 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 with a first security interest by our
Vaniqa® Cream, Ortho-Est®, and
BactrimTM product rights and substantially all
other assets of the Company, other than our license rights to
EsclimTM. In addition, the notes are secured
with a second security interest in our Equagesic®
and Synalgos® product rights. The convertible
redeemable preferred stock had an aggregate initial stated value
of $13.0 million, accreted quarterly at a rate of
10% per annum through December 31, 2003, increases to
11.5% per annum through June 30, 2004, and
12.5% per annum thereafter. 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 or
redeemed early, we will be required to redeem the convertible
redeemable preferred stock for cash at its accreted stated value
plus accreted unpaid dividends 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,
75% of the proceeds of future sales of equity securities, and
50% to 100% of the proceeds derived from asset sales, as
specified in the relevant documents. 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. We
must also generally use 75% of our excess cash flow,
as defined, 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 certain affiliates
of CIBC Capital Partners and Whitney & Co., LLC. Among
other affirmative covenants, the holders of the senior secured
notes and the convertible redeemable preferred stock are jointly
entitled to appoint one non-voting observer to attend our Board
of Directors meetings, 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
at the closing. For more information about possible defaults
under the senior secured notes and the holders rights in
such an event, see Risks and Uncertainties 
Risks Related to Our Business.

In December 2003, we entered into an agreement
with Shire Pharmaceuticals Ireland Limited (Shire),
an affiliate of Shire Pharmaceuticals Group plc, to sub-license
exclusive rights to manufacture,

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market, use, distribute, and sell
Vaniqa® Cream (eflornithine hydrocholoride)
for the European Union, Australia, Canada, Hong
Kong, Israel, New Zealand, South Africa, South Korea,
Singapore, Switzerland, Taiwan, and Thailand, in exchange for a
cash payment of $10 million.


Under the terms of our sub-license and supply
agreement with Shire, we sold and transferred to Shire certain
trademarks, regulatory documentation and books and records
relating to Vaniqa® Cream in the licensed
territories and granted sublicenses of certain of our rights
under the license and related agreements with BMS, Gillette and
their former joint venture partnership. In addition, for a
limited period of time, Shire may purchase its supply of
Vaniqa® Cream indirectly through us, from
BMS, pursuant to the Companys existing supply agreement
with BMS.

In accordance with the terms of our senior
secured notes and convertible redeemable preferred stock, we
applied 75% of the net proceeds from the Shire transaction to
redeem a portion of our outstanding convertible redeemable
preferred stock. As part of the transaction, the holders of our
senior secured notes and convertible redeemable preferred stock
consented to the transaction and released their security
interest in the assets sold to Shire under the terms of a
collateral release and non-disturbance agreement.

EsclimTM.
In July 1999, we entered into a seven year distribution and
license agreement with Laboratoires Fournier S.A.
(Fournier) 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
July 2006). 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 strengths including 0.025, 0.0375, 0.05, 0.075 and
1.0 milligrams per day. The EsclimTM
product, which received FDA 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. 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 FDA 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 countrys 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. Effective April 1, 2003,
EsclimTM was added to the formulary at Medco
Plan Sponsors.

On March 30, 2004, we received a notice of
default and request for cure from Fournier relating to
$0.2 million due on February 29, 2004. Under the
distribution and license agreement, we have 60 days to cure
this breach. Fournier also has asked for adequate assurances of
due performance under the agreement under Section 2-609 of
the Uniform Commercial Code and has indicated that it will
suspend performance under the agreement until it receives such
assurances. Fournier further states that unless it receives the
requested assurances from us by April 30, 2004, it will
take the position that we have repudiated the agreement. If not
cured, we do not believe Fourniers suspension of
performance will have a material impact on us for at least the
next two to five months. We believe there is at least two months
of product at each dosage in the distribution channel and at our
third-party distribution center.

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

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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 us an exclusive license to use the
Ortho-Est® 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. Ortho-Est® Tablets are manufactured
by Pharmaceutics International Inc. under a five-year agreement
that expires in February 2007. Ortho-Est® is on
formulary at Advance PCS, Express Scripts and MedCo Plan
Sponsors.


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. In August 2001,
Midrin® was scheduled by the Drug Enforcement Agency
(DEA), 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. The purchase price
of $15.0 million was financed through the issuance to
Élan of an $11.0 million convertible secured
promissory note as well as the issuance of 0.4 million
shares of common stock valued at $4.0 million. 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 $10.49 per share, subject to
certain adjustments. Interest totaling $1.6 million was
compounded semi-annually and added to principal through June
2003, and is payable in cash quarterly thereafter. The
Midrin® product rights secure this note. We recorded
an impairment charge of $11.4 million against the
Midrin® product rights in 2003. Midrin®
is on formulary at Caremark, Express Scripts® and Medco
Plan Sponsors.

BactrimTM.
In October 2001, we acquired exclusive U.S. rights to the
BactrimTM family of antibacterial products,
including an exclusive royalty-free license to use the
BactrimTM trademark in the U.S., 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. Subject to certain terms of the
agreement, we can 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 recorded an impairment charge of
$4.0 million against the BactrimTM
product rights in 2003.

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 includes relevant trademarks and the Abbreviated
New Drug Application and New Drug Application for
Equagesic®, a DEA schedule IV drug, and
Synalgos®-DC, a DEA 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 remainder payable in
cash in three equal annual installments. As amended, the
November 2002 note payment was reduced to $3.0 million and
the November 2003 payment was split into two installments of
$1.63 million, of which the first installment was paid in
December 2003, and the second installment is due in May 2004,
with interest at 12%. The current principal outstanding under
the amended promissory note is $4.9 million. The note is
secured by the Equagesic® and Synalgos®
product rights. We recorded an impairment charge of
$9.7 million against the Equagesic® and
Synalgos® product rights in 2003.

Self-Care
Products

We previously offered 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
offered women a wide range of products designed to offer product
solutions to meet the needs of women at midlife. In December
2003, we committed to selling or shutting down our consumer
products subsidiary, As We Change, as we projected it would
incur losses for the foreseeable future and does not constitute
a core element of our specialty pharmaceutical business.

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Marketing and Sales

In January 2004, there are estimated to be over
57,000 board certified obstetricians and gynecologists and over
13,000 board certified dermatologists in the United States. Up
through our restructuring in mid-March 2004, we had 29 highly
trained dedicated sales representatives and 8 flex-time
representatives to market and sell Vaniqa® Cream and
EsclimTM to those dermatological practices
where we believe there was the greatest potential for
Vaniqa® Cream and those obstetrician/gynecologist
practices that have proven to be our top prescribers. As of
March 26, 2004, we had no sales representatives, and only
one national account manager focused on maintaining our products
on formulary at managed care organizations. We have retained
management and staff to support our marketing and regulatory
efforts, and a customer service representative.

From time to time, we engaged the services of
third-party contract sales organizations to promote our
products. In September and December 2002, we hired third-party
sales organizations with established dental and dermatology
marketing and sales teams, to promote Synalgos® to
dental offices and Vaniqa® Cream to
dermatologists. In March and August 2003, we terminated these
relationships as the forecasted prescription demand was not
achieved. We may look to partner with other contract sales
organizations in the future.

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, production, packaging, labeling and shipping of
finished goods to our distribution center. In each case, we are
dependent on single sources of supply for the pharmaceutical
products we offer. The following companies are sole suppliers
for the indicated products:



| |   |                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | BMS supplies Vaniqa® under a
    five-year agreement, as amended, that expires in June 2007.                                                                                                                                                                                                                                                           
|
| |  | Fournier, a French company, supplies
    EsclimTM under a seven-year agreement that
    expires in July 2006.                                                                                                                                                                                                                                          
|
| |  | Pharmaceutics International, Inc. supplies
    Ortho-Est® Tablets to us under a five-year agreement
    that expires in February 2007.                                                                                                                                                                                                                 
|
| |  | Mallinckrodt Inc. supplies Midrin®
    pursuant to periodic purchase orders, as we do not have a formal
    supply agreement.                                                                                                                                                                                                                          
|
| |  | Mutual Pharmaceutical Company, Inc. supplies
    BactrimTM under a five-year term agreement
    that expires in January 2007.                                                                                                                                                                                                                          
|
| |  | Wyeth, as successor to American Home Products
    Corporation, supplied Equagesic® Tablets and
    Synalgos®-DC capsules under an agreement that
    expired in November 2003. We are in final negotiations with an
    alternative supplier and believe we have sufficient quantities
    on hand to cover expected sales orders for several quarters.

In general, our supplier agreements allow either
party to terminate the agreement early if the other party is in
default of any material obligations and fails to cure the
default timely after notice. In addition, our supplier
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.

We have an agreement with UPS Supply Chain
Management, Inc. for warehousing, distribution, logistics
management and billing for the pharmaceutical products we sell.
Such an agreement may be terminated, by either party, at any
time upon 90 days notice.

Competition

The health care industry is intensely
competitive, characterized by continuous product development and
subject to rapid technological change. Our principal competitors
are large, well-known pharmaceutical, life science, health care
companies and manufacturers of generic substitutes that have
considerably greater financial, sales, marketing, technical and
developmental capabilities and resources than we have.
Additionally, these competitors have research and development
capabilities that may allow them to develop new

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formulations or enhanced products that may
compete with product lines or dosages we market and distribute.
As specialty markets continue to evolve, there will be numerous
companies and products that will continue to offer competitive
advantages to already existing products in the marketplace.




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

Vaniqa®(eflornithine hydrochloride) Cream, 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 has only recently begun to market the product.
Vaniqa® Cream is the only prescription
product available for unwanted facial hair in women. 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 the
over-the-counter form.

The hormone replacement therapy pharmaceutical
products we offer face significant competition. 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 and Pharmacia
Corporation, divisions of Pfizer, Solvay
Pharmaceuticals, Inc., Barr Laboratories, Inc., King
Pharmaceuticals 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 compete in the estrogen
replenishment therapy market, a market dominated by
PremarinTM, a product manufactured by Wyeth.
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. Triptans are manufactured by
several companies, 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® and
Vicoprofen® from Abbott Laboratories and
codeine products such as Tylenol® with
Codeine, manufactured by McNeil Consumer Healthcare, a
subsidiary of Johnson & Johnson.



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

Competition for the self-care products has been
significant. As We Change competed 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.

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

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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 two patents on
Vaniqa®, a use patent covering eflornithine
hydrochloride for inhibition of hair growth that expires January
2005, and a formulary patent that expires in July 2014. We have
licensed these patent rights from Gillette, 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 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 defending 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 have been
assigned to us.

Trademarks and Domain
Names.As We Change owns the
registered U.S. trademark As We Change®. In
addition, we own several trademark registrations, including 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® and EsclimTM trademarks
during the term of these agreements. We also own the rights to
the Vaniqa® trademark and the
Vaniqa® 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.com and
womenfirst.com, vaniqa.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 rigorous regulation by one or more federal
agencies including the FDA, DEA, U.S. Department of
Agriculture, Environmental Protection Agency (EPA),
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.

The FDA administers the Food, Drug and Cosmetic
Act, or FDCA, and related regulations, which govern, among other
things, the development, testing, approval, safety,
effectiveness, manufacture, labeling, storage, recordkeeping,
export, advertising and promotion of prescription drugs, a
category that includes our products. Failure to comply with FDA
requirements may subject us and/or our contract manufacturers to
administrative or judicial sanctions, including FDA refusal to
approve pending applications, warning letters, product recalls,
product seizures, total or partial suspension of production or
distribution, fines, injunctions and/or criminal prosecution.

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All of the prescription drug products that we
market have been approved by the FDA, except
Midrin®, however, we are subject to a number of
post-approval requirements. Midrin® is a
grandfathered product that was introduced prior to
1962. The FDA has the authority to revoke existing approvals or
to review the status of currently exempt pharmaceuticals and
require application and approval of prescription drugs if new
information reveals that they are not safe or effective. Drugs
that contain ingredients that are considered to be controlled
substances under the Controlled Substances Act and related
regulations are administered by the DEA. These regulations
require registration of facilities that manufacture, distribute,
dispense, import or export controlled substances; establish
labeling and packaging requirements; establish production and
manufacturing quotas; require extensive recordkeeping and
reporting; and impose other requirements to ensure appropriate
security, control and accounting mechanisms to prevent drug loss
and diversion. The DEA conducts periodic inspections of
establishments that handle controlled substances. Failure of our
manufacturers or distributors to comply with DEA requirements
could result, among other consequences, in DEA failure to renew
registrations, suspension or revocation of existing
registrations, civil penalties, forfeitures or criminal
prosecution. Midrin®, Equagesic® and
Synalgos®, contain such ingredients. As a result,
packaging for these drugs must be clearly labeled and be in
tamper-resistant packages. In addition, we are required to
maintain a DEA license to distribute the products, and because
the active ingredient in Synalgos® is strictly
controlled by the DEA, the quantity of Synalgos®
that we may have manufactured is limited.

If we seek to make certain changes to an approved
product, such as promoting or labeling a product for a new
indication, making certain manufacturing or dosage changes or
product enhancements or adding labeling claims, we will need FDA
review and approval before the change can be implemented. While
physicians may use products for indications that have not been
approved by the FDA, we may not label or promote the product for
an indication that has not been approved. Securing FDA approval
for new indications or product enhancements and, in some cases,
for manufacturing and labeling claims, is generally a
time-consuming and expensive process that may require us to
conduct clinical studies under FDAs investigational new
drug regulations. Even if such studies are conducted, the FDA
may not approve any change in a timely fashion, or at all. In
addition, certain adverse experiences associated with use of the
products must be reported to the FDA, and FDA rules govern how
we can label, advertise or otherwise promote our products.

We and the third party manufacturers on which we
rely for the manufacture of our products are subject to
requirements that drugs be manufactured, packaged, and labeled
in conformity with current Good Manufacturing Practices and
other requirements. To comply with GMP requirements,
manufacturers must continue to spend time, money and effort to
meet organization and personnel, facilities, equipment,
production and process, labeling and packaging, quality control,
recordkeeping and other requirements. Drug manufacturing
facilities must be registered with and approved by FDA and must
list with the FDA the drug products they intend to distribute.
The manufacturer is subject to periodic inspections by the FDA
and by other regulatory agencies. The FDA 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 FDA regulates the
distribution of samples of drugs. Both FDA and DEA may impose
criminal penalties arising from non-compliance with applicable
regulations.

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

Employees

As of March 26, 2004, we employed 16
continuing full-time people. In March 2004, we announced
restructuring plans in order to conserve cash and laid off 78
employees (80% of our workforce), including our entire sales
force of 44 employees, 28 employees employed by the As We
Change® mail order catalog business

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and 6 other operational and administrative
support personnel. As part of a restructuring and downsizing in
March 2003, we laid off 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
satisfactory. Our ability to achieve our strategic, financial
and operational objectives depends in large part upon the
continued service of our senior management and key personnel.
Competition for qualified personnel in the pharmaceutical and
health care industry is intense.


Seasonality

Sales of our pharmaceutical products do not tend
to be seasonal. Sales of our self-care products typically were
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 sales of our
merchandise related to fashion and exercise typically were
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 did not use the
catalog for gift buying, making the last calendar quarter the
weakest.

Website Access to Reports

On our website, www.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

Unless we are able to sell assets or raise
additional financing, we may not have adequate cash to meet our
working capital and debt service needs beyond mid-April 2004.
Substantial doubt exists about our ability to continue as a
going concern.

We had approximately $1.1 million in cash
and cash equivalents as of March 26, 2004. As of
December 31, 2003, our working capital deficit was
approximately $56.0 million, including long-term debt
re-classified to current liabilities of approximately
$38.0 million. We have estimated the timing and amounts of
cash receipts and disbursements over the near term, and believe
that unless we are able to raise additional financing we may not
have adequate cash to meet our working capital and debt service
needs beyond mid-April 2004. All of our assets (other than our
license rights interest to the EsclimTM patch)
have been pledged to secure our obligations under our various
debt agreements. We expect that we will be in default of our
obligations under our $28.0 million original principal
amount of senior secured notes for the quarter ending
March 31, 2004. We also expect that we will not have
adequate cash to make our interest and principal payments due in
the second quarter under the Elan and Wyeth notes payable. Under
each of these notes, any default would provide the note holders
with rights to declare the notes to be immediately due and
payable and to foreclose on the assets that have been pledged to
secure our obligations under the notes. If our note holders
choose to exercise their rights upon our anticipated defaults,
our other lenders also could seek to accelerate our indebtedness
under those obligations and we would likely seek the protection
afforded by the federal bankruptcy laws. Any such exercise would
have a material adverse effect on our business. In addition,
even if we did not elect to seek bankruptcy protection, our
lenders could institute an involuntary bankruptcy proceeding
against us. There would likely be no assets available for
distribution to our stockholders if the obligations under our
debt agreements were to be accelerated.

Our cash shortage, significantly negative working
capital position, anticipated defaults under our debt agreements
and our potential need to seek protection under the federal
bankruptcy laws raise substantial doubt about our ability to
continue as a going concern. Our independent public accountants
have expressed substantial doubt about our ability to continue
as a going concern in their audit report.

We have retained Miller Buckfire Lewis
Ying & Co., LLC (MBLY) to assist in
exploring opportunities to sell our company or some or all of
our pharmaceutical products or license rights, to restructure
our significant outstanding indebtedness and to obtain new
sources of financing. We and MBLY have begun discussions with
the holders of our $28.0 original principal amount of senior
secured notes to obtain a

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forbearance agreement to defer near-term interest
payments, address likely future covenant violations and
additional financing needs, but there can be no assurance that
the senior lenders will grant such forbearance or that such
additional financing will be available. If we are unsuccessful
in promptly implementing a transaction to sell our company or
some or all of our assets or in obtaining additional financing,
our company may be forced to continue to withhold payment to
suppliers, commence withholding payment to debt holders and
others. In such a case, our company could be required to file
for bankruptcy protection. Although we have received indications
of interest from potential acquirers of one or more of our
pharmaceutical products and potential sources of financing, our
company does not have any definitive agreements in place. There
can be no assurance that a sale of assets or a financing on
terms acceptable to us or our creditors can be agreed to and
implemented.


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

As of December 31, 2003, we had outstanding
debt obligations of $42.7 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 interest totaling $1.6 million accreted to the
principal balance of the note through June 2003. Thereafter, we
have been required to make quarterly interest payments in cash.
The total principal plus accrued interest under our note of
$12.6 million to Élan is due in June 2008. We issued a
non-interest bearing promissory note to Wyeth to acquire the
product rights for Equagesic® and
Synalgos®, of which $4.9 million remains
outstanding. As amended, we are required to make a principal
payment of $1.6 million plus 12% interest in May 2004, and
a $3.25 million principal only payment on 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 January 2004, and 13% per annum in
July 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 had 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 January 2004 and 12.5% in July 2004. Unless previously
converted, we are 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 pledged our Vaniqa® Cream, and
substantially all of our other assets other than our rights to
EsclimTM and Midrin®, to secure
our obligations under the senior secured notes and convertible
redeemable preferred stock. We also pledged assets related to
Midrin®, Equagesic® and
Synalgos® as first security for the repayment of the
related debt obligations. If we default on our obligations, we
may lose our rights to the products in which the lenders have a
security interest.

We estimate that existing channel inventories
for our significant products, as of December 31, 2003, are
adequate to satisfy expected prescription demand for the next
three to 15 months. As a result, we may be unable to record
any significant cash-generating revenues during 2004.

We estimated inventories in the distribution
channel (channel inventories) by obtaining and
utilizing detailed inventory information obtained from key
customers, historical data and trends, and industry information
we purchase from nationally recognized providers of this
information. Based on our expected prescription demand for our
significant products, we estimated that existing channel
inventories are adequate to satisfy prescription demand for the
next three to 15 months as of December 31, 2003. Due
to the adequacy of the existing channel inventories, the amounts
of replacement product we owed to customers as of
December 31, 2003, and the elimination of the sales force
in March 2004, there is a significant risk that we will be
unable to generate any significant cash-generating revenues (as
compared to revenues recognized upon completion of sales
previously recorded as deferred revenues for which we previously
received payment) during 2004. This may cause us to default on
our debt covenants, harm our ability to raise financing and
infringe on our formulary position under our managed care
contracts.

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We estimate our inventory obsolescence and
product returns reserve requirements based, in part, on our
expected trends for future prescriptions and sales.

We report revenue net of estimated reserve for
product returns, replacements, rebates, chargebacks and prompt
pay discounts. We estimate out reserve requirements utilizing
historical data, industry information and information obtained
from key customers. We generally accept for credit or exchange
pharmaceutical products that have become unsaleable or unusable
due to expiration dating, drug recall or discontinuance. If
actual results differ from the estimates, the reserves are
adjusted in the period the difference is known. Based on our
agreements with our customers and our historical experience with
actual product returns for replacement or credit, we estimate
the amount of product that we expect to be returned for
replacement or credit. The estimated product to be returned for
replacement is provided for at our inventory value (actual
replacement cost), and the estimated product to be returned for
credit is provided for at our sales price. The actual amounts
could be different from the estimates and differences are
accounted for in the period they become known. We may be unable
to generate the prescription demand forecasted for certain
products in 2004. The loss of our managed care contracts would
adversely affect demand for our products. Any significant
decline in prescription demand from our estimates could result
in a material increase in our inventory obsolescence and product
return requirements reserve requirements, which would adversely
affect our results of operations and could harm our stock price.

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 our senior secured
notes and convertible redeemable preferred stock 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 and sell assets. In
addition, our senior secured notes require us to maintain
minimum cash revenues, set maximum cash expenditure levels and
maintain a minimum cash balance of $2.0 million through
December 31, 2004. The minimum cash we are required to have
at the end of each month in 2004 is $1.5 million. As of
March 26, 2004, we had cash and cash equivalents of
approximately $1.1 million, and we do not expect to satisfy
the cash revenue covenant under the senior secured
notes for the period ending March 31, 2004. Any default by
us under the senior secured notes allows the note holders to
accelerate our indebtedness under the senior secured notes. If
the note holders seek to exercise their remedies against us,
including immediate acceleration of the senior secured notes, we
would likely be required to file for protection under the
federal bankruptcy laws which would have a material adverse
effect on our business and, in turn, any investment in our
common stock.

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

Our common stock trades on the Nasdaq National
Market, which specifies certain requirements for the continued
listing of 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
stockholders equity value of $10.0 million and a
minimum stock bid price of $1.00 per share. As of
December 31, 2003, we had a stockholders deficit of
$24.3 million, and our closing stock price as of
March 26, 2004 was $0.20. We expect that the Nasdaq
National Market will notify us of its intent to de-list our
common stock soon after the filing of this Annual Report on
Form 10-K. While we expect that our stock would continue to
trade on the Over The Counter (OTC) Bulletin Board
following any delisting from the Nasdaq National Market, any
such delisting of our common stock could have a material adverse
effect on the market price of, and the efficiency of the trading
market for, our common stock. Also, if in the future we were to
determine that we need to seek additional equity capital, it
could have an adverse effect on our ability to raise such equity
capital.

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

Historically, a limited number of customers have
accounted for a significant portion of our total revenues. Four
key customers, McKesson Drug Operations, QK
Healthcare, Inc., Cardinal Health, Inc. and
AmerisouceBergen Corp., each individually accounted for greater
than 10% of our total revenues for the year ended
December 31, 2003. Together, these customers accounted for
approximately 55% of our gross revenues for the year ended
December 31, 2003, and 88% and 70% of our total revenues
for the years ended December 31, 2002 and 2001,
respectively. We have no long-term purchase commitments from any
customers or managed care organizations. 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 managed care providers, or a
significant reduction in sales to or prescription demand pull
through from those customers/organizations, could significantly
reduce our revenues. During 2003, we experienced such a
reduction in our sales to these customers primarily due to our
declining prescription demand across most products. In addition,
because these key customers purchase such a relatively large
percentage of our products and the managed care organizations
generate significant prescription demand for us, we may be
particularly susceptible to risks of cancellation of product
orders or returns of unsold products from these key customers.

In March 2004, we laid off our 44-member sales
force in an effort to conserve cash. Our sales force previously
served as the primary means by which we sought to generate
awareness or demand for our products. The termination of our
sales efforts could significantly reduce our revenues, harm our
financial results and further depress the price of our common
stock. Further, our competitors may be able to encroach on our
business, which could reduce our revenues, harm our financial
results and further depress the price of our common stock. In
addition, we have deferred payments owed to some of our managed
care organizations and this may adversely affect our ability to
retain their service in the future.

We have experienced significant losses since
our inception, and rely on sales from two major products for a
substantial portion of our future revenue and cash
flow.

We have incurred significant losses since we were
founded in November 1996, accumulating a deficit of
$147.9 million through December 31, 2003. We have not
achieved profitability in any complete fiscal year since our
inception. Problems, delays and expenses that we may encounter
include, but are not limited to, unanticipated product returns
or problems and additional costs related to marketing,
competition, technology transfers, manufacturing and supply,
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.

A substantial portion of our future revenues and
cash flows are estimated to come from sales of Vaniqa®
Cream and EsclimTM products. We rely on these
products for substantially all of our revenues and cash flows.
Effective March 19, 2004, we laid off our 44-member sales
force. Accordingly, we do not expect to maintain or increase
prescription levels for these products, adversely affecting our
sales. Sales of our products also are subject to the following
risks, among others: (i) the ability of our competitors to
price products below a price at which we can competitively sell
these products; (ii) physician or public perception that
these products are not safe or effective; (iii) the
introduction of new competitive generic or branded products; and
(iv) a suspension or reduction in sales of these products
as a result of an adverse event experienced by a patient.

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 or
liabilities to customers in future periods.

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

13



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detailed information regarding the channel
inventory at specific customer locations. We will generally
accept for credit or replacement pharmaceutical products that
have become unsaleable or unusable due to expiration dating,
drug recall or discontinuance. We establish reserves for these
credits and replacements at the time of sale. There can be no
assurance that we will be able to accurately estimate 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 of the impact of our
lay off of our sales force in March 2004, 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 and we rely on data from
third parties. The actual amounts could be different from the
estimates, and differences are accounted for in the period in
which they become known. If we determine that the actual amounts
exceed the reserve amounts, we will record a charge to earnings
approximating such difference. A material reduction in earnings
resulting from such a charge could cause us to fail to meet our
covenant requirements, the expectations of investors and
securities analysts, which could cause the price of our stock to
decline.


We also establish reserves for potentially
excess, dated or otherwise impaired inventories. Reserves for
excess inventories are based on an analysis of expected future
sales that will occur before the inventories on hand or under a
firm commitment will expire. The analysis is based on the total
amount of inventories on hand or under a firm purchase
commitment, forecasts of future sales, promotional focus,
channel inventory data and prescription activity, which are
purchased from nationally recognized providers of channel
inventory data and prescription data. In addition, we obtain
detailed inventory information from key customers in order to
provide more meaningful analysis of the channel inventories.
Judgment is required in estimating the inventory reserves. The
actual amounts could be different from the estimates and
differences are accounted for in the period in which they become
known.

To recognize revenue under generally accepted
accounting principles, we must be able to reasonably estimate
the amount of future product returns and rebate/chargeback
liabilities. 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 report revenue net of actual product returns
received for replacement, estimated reserves for product
returns, exchanges, rebates, distributor chargebacks, and prompt
pay discounts. We estimate our reserve requirements utilizing
historical data, industry information, and detailed information
obtained from key customers. We generally accept for credit or
exchange pharmaceutical products that have become unsaleable or
unusable due to expiration dating, drug recall or
discontinuance. If we experience actual results that are
significantly different than our estimates, and we conclude that
we are unable to reasonably estimate the amount of future
returns, rebates, and chargebacks, we may be precluded from
recognizing revenue until our products are pulled
through from the wholesale level to the retail level. This
could materially decrease our recognized revenues on a quarterly
and annual basis. Our inability to recognize revenue due to our
inability to reasonably estimate the amount of future returns,
rebates, and chargebacks may cause us to fail to meet the
expectations of investors and, in turn, cause the price of our
common stock to decline. If actual results differ from the
estimates, we adjust the reserves in the period the difference
is known.

Certain governmental health insurance providers
as well as hospitals and clinics that are members of group
purchasing organizations may be entitled to price discounts and
rebates to our products used by those organizations and their
patients. When recording sales, we estimate the likelihood that
products sold to wholesale distributors will ultimately be
subject to a rebate or price discount and record sales net of
estimated discounts for rebates and chargebacks. This estimate
is based on historical trends and industry data from the
utilization of our products. If actual rebate liabilities exceed
our established reserve provisions, we may incur higher costs
than we had expected, and higher cash expenditures for rebates.

We defer revenue, net of direct cost of sales,
if, in our judgment, we estimate that key wholesale customers
have excess channel inventory (i.e., if our wholesale
customers inventory exceeds our estimates of demand at the
retail level, after considering factors such as product
shelf-life, prescription activity and trends). As of
December 31, 2003, we had deferred revenue of
$1.8 million, which is included in the accompanying
consolidated balance sheets. The deferral of revenue primarily
arose from slower than anticipated prescription growth for our
products during the fourth quarter of 2002 and 2003. There can
be no certainty that we will be

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able to recognize this revenue in the future. The
actual amounts could be different from the estimates and
differences are accounted for in the period 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 have taken significant impairment charges
against product rights assets in 2003. We may sell these product
rights for less than their adjusted book value, thereby
negatively impacting future earnings.

We have announced plans to consider the sale of
all of our product rights. 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 and for less than the outstanding debt for
which such assets are collateral. 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 our expectations and
those of our investors. This may further depress the price of
our common stock.

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 decline further.

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 demand for our products,                                                                                                                                                                                                           
|
| |  | our ability adequately to address our current
    financial condition,                                                                                                                                                                        
|
| |  | the timing of new product offerings or other
    significant events by our competitors,                                                                                                                                                       
|
| |  | our ability to maintain our formulary status with
    EsclimTM,                                                                                                                                                                               
|
| |  | 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,                                                                                                                                  
|
| |  | 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 or further deterioration in
    our prescription demand for our promoted products,
|
| |  | the timing and amount of possible future
    impairment write-downs or write-offs of product rights and other
    long-lived assets,                                                                                                          
|
| |  | 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. In addition, we have
deferred payments owed to some of these suppliers, and this may
adversely affect our ability to obtain future supply of such
product. The following companies are currently our sole
suppliers for the indicated products:



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | BMS supplies Vaniqa® under a
    five-year agreement, as amended, that expires in June 2007,                                          
|
| |  | Fournier, a French company, supplies
    EsclimTM under a seven-year agreement that
    expires in July 2006,                         
|
| |  | Pharmaceutics International, Inc. supplies
    Ortho-Est® Tablets to us under a five-year agreement
    that expires in February 2007,
|
| |  | Mallinckrodt Inc. supplies Midrin®
    pursuant to periodic purchase orders as we do not have a formal
    supply agreement,          

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| |   |                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mutual Pharmaceutical Company, Inc. supplies
    BactrimTM under a five-year agreement that
    expires in January 2007, and                                                                                                                                                                
|
| |  | Wyeth, as successor to American Home Products
    Corporation, supplied Equagesic® Tablets and
    Synalgos®-DC capsules under an agreement that
    expired in November 2003. We believe we have sufficient
    quantities on hand to cover expected sales orders for several
    quarters.

In general, our supplier agreements allow either
party to terminate the agreement early if the other party is in
default of any material obligations and fails to cure the
default timely after notice. In addition, our supplier
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.

On March 30, 2004, we received a notice of
default and request for cure from Fournier relating to
$0.2 million due on February 29, 2004. Under the
distribution and license agreement, we have 60 days to cure
this breach. Fournier also has asked for adequate assurances of
due performance under the agreement and has indicated that it
will suspend performance under the agreement until it receives
such assurances. Fournier further states that unless it receives
the requested assurances from us by April 30, 2004, it will
take the position that we have repudiated the agreement.

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 or it may not be cost effective to pursue
incurring the costs to effectuate a technology transfer. In
these circumstances, we may be unable to continue to fill
customers orders as planned.

Our inability 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
will continue to be important to our potential success and
competitive position. If we fail to maintain our existing
rights, our competitive position will be harmed. Our license
rights to the EsclimTM estradiol transdermal
system expire in July 2006, and Fournier has notified us that it
does not intend to renew our license. 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 we sell are not protected by
patents. We hold a number of registered trademarks and have
applied for registration of a number of key trademarks. 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 those rights altogether. Any of these events could
harm our business and your investment in our common stock.

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Potential future impairments under
SFAS 144 could adversely affect our future results of
operations and financial position.

In accordance with SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, we
periodically evaluate the recoverability of our long-lived
assets as well as the related useful lives to determine whether
facts and circumstances warrant adjustments to the carrying
values and/or estimated useful lives. An impairment loss is
measured and recognized if the sum of the expected future
discounted 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 discounted
cash flows 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 our
intangible assets. Performance in future periods may result in
our products not meeting expectations and leading to lower than
expected cash flows, in which case product rights will be
revalued and an impairment charge will be recorded when
determined. 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 2003, we recorded
impairment charges of $25.1 million.

In addition, under the SFAS 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, 2003, we had no carrying
value for goodwill and intangible assets as we wrote off all
such assets in December 2003 upon committing to discontinue our
As We Change catalog operation.

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

The market price of our common stock declined
significantly in March 2004 and may continue to decline in the
future. From January 1, 2000 to March 26, 2004, our
stock has ranged from a high sales price of $11.84 to a low
sales price of $0.18. Factors beyond our control such as
stockholders reactions to our public announcements,
de-listing from the Nasdaq National Market, our liquidity
problems, our restructuring efforts, sales of substantial
amounts of shares by large stockholders, concern as to safety of
drugs, competitive factors 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 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

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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 highly competitive. We may not be able
to achieve and maintain market acceptance or compete
effectively, especially against established industry competitors
with significantly greater financial resources.

Our EsclimTM patches and
Ortho-Est® tablets estrogen replenishment therapy
products are under significant scrutiny by the FDA and broader
medical community and may not maintain market acceptance.
EsclimTM accounted for 47.7% and 24.7% of our
gross revenues for the years ended December 31, 2003 and
2002, respectively. Ortho-Est® accounted for 4.3%
and 9.2% of our gross revenues for the same periods. 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 have decreased the overall
demand for hormone replacement therapy products in 2003, and the
results of future studies could decrease the future demand for
our EsclimTM and Ortho-Est®
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.

In addition, a sub-study of the Womens
Health Initiative Memory Study (WHIMS) recently concluded
that women treated in the study with conjugated estrogens
combined with medroxyprogesterone acetate have a greater risk of
developing probable dementia than those on placebo. Again, the
result from this study can further reduce the demand for drugs
in this therapeutic class (Hormones). In March 2004, the
National Institutes of Health announced that it had stopped
clinical trials of estrogen-only replenishment therapy because
it found that oral estrogens not only failed to improve
participants health but also may have slightly raised the
risk of strokes. We expect this announcement will decrease the
demand for our EsclimTM and
Ortho-Est® 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 or future
    competing products,                                                             
|
| |  | our success in maintaining our formulary
    positions with pharmacy benefit managers and group purchasing
    organizations,
|
| |  | their perceived efficacy, safety and cost,                                                                                   
|
| |  | the extent to which they are substituted
    generically by the pharmacy,                                                    
|
| |  | 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
direct-to-physician and direct-to-consumer marketing programs
and strategies and the growth in our target market will result
in increased revenues. If our marketing programs

18



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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.


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
specifically 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 sell 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. Third-party insurance coverage may not be adequate or
available for the products we offer and reimbursement granted
may not be maintained at price levels sufficient for us to
realize an appropriate return on our investment in our products.
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.

Government authorities, private insurers and
other third-party payers are attempting to contain health care
costs by:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | generally limiting coverage and level of
    reimbursement for prescription products,                                                                       
|
| |  | seeking to switch to over-the-counter use for
    drugs, which are currently available by prescription only,                                                
|
| |  | refusing, in some cases, to provide any coverage
    for uses of approved products for indications for which the FDA
    has not granted marketing approval,
|
| |  | controlling the pharmaceutical products that are
    on their formulary lists, and                                                                          
|
| |  | requiring or encouraging, through more favorable
    reimbursement levels or otherwise, the substitution of generic
    alternatives for branded products.  

The competition between pharmaceutical companies
to get their products approved for reimbursement also may result
in downward pricing pressure in the industry or in the markets
in which our products compete. We may not be successful in any
efforts we take to mitigate the effect of a decline in average
selling price for our products. Any decline in our average
selling prices would reduce our revenues and harm our gross
margins.

New legislation or regulatory proposals may
harm our ability to raise capital and increase our
revenues.

A number of legislative and regulatory proposals
aimed at changing the health care system, including the cost of
prescription products and changes in the levels at which
consumers and healthcare providers are reimbursed for purchases
of pharmaceutical products, have been proposed. While we cannot
predict with certainty when or whether any of this pending
legislation will be signed into law or the effect that it may
have on our business, the nature of these changes, as well as
the adoption of any of these changes, may exacerbate
industry-wide pricing pressures, which could reduce our revenues
and harm our gross margins.

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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 $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.

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 FDA and the DEA. 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 FDA 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
DEA 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 DEA. If we are
unable to increase production of dihydrocodeine (the controlled
ingredient in Synalgos®) beyond the currently
approved DEA,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 FDA and the DEA 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 FDA 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 revenues of EsclimTM and
Ortho-Est® Tablets may be impacted.






|        |           
|------- | ----------
|Item 2. | Properties

We are headquartered in facilities consisting of
approximately 10,998 square feet in San Diego,
California, pursuant to a lease expiring in December 2006. As We
Change is headquartered in facilities consisting of
approximately 14,880 square feet in San Diego,
pursuant to a lease expiring in September 2006.






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

20



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##### Table of Contents








|        |                                                        
|------- | -------------------------------------------------------
|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 Stockholder 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, 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 | 
|March 31, 2003     |  | $    | 4.85  |     |  | $ | 0.44 | 
|June 30, 2003      |  | $    | 1.94  |     |  | $ | 0.45 | 
|September 30, 2003 |  | $    | 1.95  |     |  | $ | 1.01 | 
|December 31, 2003  |  | $    | 2.00  |     |  | $ | 1.23 | 

As of March 26, 2004, there were
26,657,548 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.

21



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##### Table of Contents








|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

The following Selected Consolidated Financial
Data 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
Operations and Item 8. Financial Statements and
Supplementary Data included elsewhere in this Annual
Report on Form 10-K.

Consolidated Statements of Operations
Data:

|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |       |  
|---------------------------------------------------------------------------------- | ------------------------------------------ | ---- | ------- | ------------------------------------- | - | ---- | ------ | ----- | - | ---- | ------ | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                   |                                            | 2003 |         | 2002                                  |   | 2001 |        | 2000  |   | 1999
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |     
|                                                                                   |                                            |      |         |                                       |   |     
|                                                                                   |                                            |      |         | (In thousands, except per share data) |   |     
|Net Revenue                                                                        |                                            | $    | 1,431   |                                       |   | $    | 41,038 |       |   | $    | 21,063 |       |   | $ | 14,220  |       |   | $ | 12,509  |      
|Cost of Sales                                                                      |                                            |      | 12,316  |                                       |   |      | 14,443 |       |   |      | 5,023  |       |   |   | 6,439   |       |   |   | 9,381   |      
|Gross Profit (loss)                                                                |                                            |      | (10,885 | )                                     |   |      | 26,595 |       |   |      | 16,040 |       |   |   | 7,781   |       |   |   | 3,128   |      
|Marketing and sales expenses                                                       |                                            |      | 15,155  |                                       |   |      | 20,766 |       |   |      | 12,783 |       |   |   | 21,147  |       |   |   | 17,424  |      
|General and administrative expenses                                                |                                            |      | 7,038   |                                       |   |      | 5,454  |       |   |      | 6,358  |       |   |   | 6,994   |       |   |   | 9,839   |      
|Regulatory and development expenses                                                |                                            |      | 1,767   |                                       |   |      | 568    |       |   |      | 465    |       |   |   | 539     |       |   |   | 1,697   |      
|Asset impairment charges                                                           |                                            |      | 25,087  |                                       |   |      |       |       |   |      |       |       |   |   |        |       |   |   |         |      
|Restructuring charges                                                              |                                            |      | 653     |                                       |   |      |       |       |   |      |       |       |   |   | 735     |       |   |   |        |      
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      
|Loss from operations                                                               |                                            |      | (60,585 | )                                     |   |      | (193   | )     |   |      | (3,566 | )     |   |   | (21,634 | )     |   |   | (25,832 | )    
|Interest income & expense, net                                                     |                                            |      | (6,332  | )                                     |   |      | (3,702 | )     |   |      | 507    |       |   |   | 1,458   |       |   |   | 645     |      
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      
|Net loss from continuing operations                                                |                                            |      | (66,917 | )                                     |   |      | (3,895 | )     |   |      | (3,059 | )     |   |   | (20,176 | )     |   |   | (25,187 | )    
|Net loss from discontinued operations                                              |                                            |      | (4,484  | )                                     |   |      | (63    | )     |   |      | (382   | )     |   |   | (2,390  | )     |   |   | (4,948  | )    
|Accretion expenses associated with convertible
    redeemable preferred stock      |                                            |      | (1,939  | )                                     |   |      | (1,706 | )     |   |      |       |       |   |   |        |       |   |   | (3,362  | )    
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      
|Net loss applicable to common stockholders                                         |                                            | $    | (73,340 | )                                     |   | $    | (5,664 | )     |   | $    | (3,441 | )     |   | $ | (22,566 | )     |   | $ | (33,497 | )    
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      
|Basic and diluted net loss per common share
    applicable to common stockholders: |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      
|                                                                                   | Net loss from continuing operations        |      | $       | (2.65                                 | ) |      | $      | (0.17 | ) |      | $      | (0.15 | ) |   | $       | (1.16 | ) |   | $       | (2.01 | )
|                                                                                   | Net loss from discontinued operations      |      |         | (0.18                                 | ) |      |        |      |   |      |        | (0.02 | ) |   |         | (0.13 | ) |   |         | (0.39 | )
|                                                                                   | Net loss from accretion                    |      |         | (0.07                                 | ) |      |        | (0.08 | ) |      |        |      |   |   |         |      |   |   |         | (0.27 | )
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      
|                                                                                   | Net loss applicable to common stockholders |      | $       | (2.90                                 | ) |      | $      | (0.25 | ) |      | $      | (0.17 | ) |   | $       | (1.29 | ) |   | $       | (2.67 | )
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      
|Weighted average shares used in computing basic
    and diluted net loss per share |                                            |      | 25,250  |                                       |   |      | 22,851 |       |   |      | 19,707 |       |   |   | 17,468  |       |   |   | 12,547  |      
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      
|Equity compensation included in general and
    administrative expense             |                                            | $    |        |                                       |   | $    | 87     |       |   | $    | 104    |       |   | $ | 446     |       |   | $ | 1,160   |      
|                                                                                   |                                            |      |         |                                       |   |      |        |       |   |      |        |       |   |   |         |       |   |   |         |      

Consolidated Balance Sheet Data:

|                                              |  |                |          |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|--------------------------------------------- |  | -------------- | -------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                              |  | 2003           |          | 2002 |  | 2001 |         | 2000 |  | 1999
|                                              |  |                |          |      |  |      |         |      |  |     
|                                              |  |               
|                                              |  | (In thousands)
|Cash and cash equivalents                     |  | $              | 4,889    |      |  | $    | 9,079   |      |  | $    | 19,378  |   |  | $ | 9,508   |   |  | $ | 32,719  |  
|Working capital (deficit)(1)                  |  |                | (55,966  | )    |  |      | 16,809  |      |  |      | 21,401  |   |  |   | 9,535   |   |  |   | 30,499  |  
|Total assets                                  |  |                | 50,802   |      |  |      | 117,983 |      |  |      | 72,755  |   |  |   | 20,044  |   |  |   | 43,648  |  
|Long term debt, excluding current             |  |                |         |      |  |      | 39,839  |      |  |      | 17,267  |   |  |   |        |   |  |   |        |  
|Senior convertible redeemable preferred stock |  |                | 8,251    |      |  |      | 13,682  |      |  |      |        |   |  |   |        |   |  |   |        |  
|Accumulated deficit                           |  |                | (147,890 | )    |  |      | (74,550 | )    |  |      | (68,886 | ) |  |   | (65,445 | ) |  |   | (42,879 | )
|Total stockholders equity (deficit)          |  |                | (24,317  | )    |  |      | 45,858  |      |  |      | 45,720  |   |  |   | 15,035  |   |  |   | 36,719  |  



---



|    |                                                                   
|--- | ------------------------------------------------------------------
|(1) | 2003 includes the classification of long-term
    debt as current.

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

You should read the following discussion and
analysis in conjunction with Item 8. Financial
Statements and Supplementary Data included below in this
Annual Report on Form 10-K (this Annual
Report). Operating results are not necessarily indicative
of results that may occur in future periods. This discussion and
analysis contains forward-looking statements and involves
numerous assumptions, 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 and we assume no obligation to
update any forward-looking statements contained in this Annual
Report.

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 historically
marketed these products in the United States through a number of
channels including our dedicated sales force, tele-sales and our
direct-to-consumer marketing programs through our Internet
sites, womenfirst.com, and Vaniqa.com.

In March 2004, we announced restructuring plans
in order to conserve cash and laid off 78 employees (80% of
our workforce), including our entire sales force of
44 employees, all 28 employees employed by the As We
Change® mail order catalog business and 6
support employees from our corporate office. In March 2003, we
announced restructuring plans to improve our operating results
and terminated 56 employees (35% of our work force), consisting
primarily of sales and marketing personnel in the pharmaceutical
operation. The Company reported approximately $0.7 million
in costs relating to this restructuring in 2003. The costs
consisted of severance pay and related benefits of
$0.3 million and an estimated $0.4 million in
equipment and early termination fees on automobiles leases
provided to the terminated employees paid in the second quarter
of 2003.

The consolidated financial statements as of
December 31, 2003 and for the twelve months then ended have
been prepared under accounting principles generally accepted in
the United States assuming that the company will continue as a
going concern. We recorded a net loss available to common
stockholders and had negative cash flows from operations of
$73.3 million and $6.5 million, respectively, for the
twelve months ended December 31, 2003. We had negative
working capital and a stockholders deficit of
$56.0 million and $24.3 million, respectively, at
December 31, 2003. As of December 31, 2003, we
remained in compliance with the financial covenants applicable
to our outstanding senior secured notes. However, we do not
anticipate that we will be in compliance with our financial
covenant requirements for the quarter ending March 31,
2004. We also expect that we will not have adequate cash to make
our interest and principal payments due in April 2004 under the
Elan and Wyeth notes payable.

If we fail to comply with the covenants governing
our indebtedness, the lenders may elect to accelerate our
indebtedness and foreclose on the collateral pledged to secure
such indebtedness. We have estimated the timing and amounts of
cash receipts and disbursements over the next twelve months, and
believe that unless we are able to raise additional financing,
we may not have adequate cash to meet our working capital and
debt service needs beyond April 2004. If we are unable to raise
financing, there is a substantial prospect that we and our
subsidiaries would be required to seek protection under the
U.S. Bankruptcy Code. These factors raise substantial doubt
about our ability to continue as a going concern.

In order to address our current debt service
requirements and working capital needs, our strategic priorities
are to: (i) identify an acquisition or merger partner with
interest in acquiring our Company or all or a significant
portion of our assets; (ii) identify and implement measures
to conserve our existing cash resources and substantially reduce
our operating and overhead costs, (iii) restructure our
existing indebtedness and (iv) raise sufficient capital to
satisfy our working capital and debt service requirements for
the foreseeable future. Specifically, we are considering the
sale of any and all product or license rights. No assurance can
be

23



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##### Table of Contents



given that the actions discussed above, or any
future actions taken by us, will improve our cash flows,
liquidity availability or future operating prospects.


The consolidated financial statements as of
December 31, 2003 and for the twelve months then ended do
not include any adjustments to reflect the possible future
effects to the recoverability and classification of assets or
the amounts and classification of liabilities that might result
from the outcome of the uncertainty regarding our ability to
continue as a going concern.

As of March 26, 2004, we offer the following
products for sale:



| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Vaniqa® Cream
    (eflornithine hydrochloride), 13.9%, a topical cream clinically
    proven to slow the growth of unwanted facial hair in women
    acquired in June 2002 from a joint venture formed by BMS and
    Gillette,                                                                         
|
| |  | EsclimTM,
    an estrogen patch system where we acquired the exclusive rights
    (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 Fournier, effective
    July 1999,
|
| |  | Ortho-Est®
    Tablets, an oral estrogen product that we acquired from
    Ortho-McNeil Pharmaceutical in January 2001,                                                                                                                                                                                 
|
| |  | 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 acquired from Hoffman-LaRoche
    in October 2001,                                                                                                                                 
|
| |  | Equagesic®
    Tablets, a pain management product acquired from American Home
    Products Corporation (now known as Wyeth) in November
    2001, and                                                                                                                                                   
|
| |  | Synalgos®-DC
    Capsules, a pain management product for which we acquired all
    rights in the U.S. and Puerto Rico from Wyeth in November 2001.                                                                                                                                                      

All of the above product or license rights are
available for sale.

During 2003, we focused on reducing the amount of
inventory in the distribution channel (channel
inventories) as we experienced a significant and
unexpected decline in our prescription demand across most of our
product lines. We attribute most of the decline in our actual or
forecasted prescription demand to the limited resources
available for our sales and marketing efforts subsequent to our
restructuring in March 2003, a declining hormone replacement
therapy market for our EsclimTM and
Ortho-Est® products due to industry-wide health
concerns over usage of hormone replacement therapy products,
physician or pharmacy substitution for competing products and
our inability to find viable co-promotion partners or
third-party contract sales organizations for any of our product
lines. Such decline in prescription demand resulted in the
return of significant quantities of expired or expiring product
in 2003 and we anticipate that we will experience significant
returns in 2004.

We accept product returns for credit or product
replacement. We have arrangements with three key customers such
that returned product generally is returned for a one-for-one
replacement, or when for credit, replacement purchase orders
approximating the value of the returned products are generally
submitted. At December 31, 2003, the liabilities to
customers was $7.3 million, which compares to
$0.7 million at December 31, 2002. Liabilities to
customers generally are satisfied with our shipment of
replacement product. As a result, we do not receive cash in
connection with supplying replacement product. Such future
shipments cost us the inventory value plus shipping costs and
result in higher levels of channel inventories.

We believe that the channel inventories as of
December 31, 2003 plus quantities owed for replacement were
adequate to fulfill prescription demand across most of the
product lines for the next three to 15 months. We believe
this level of channel inventories will significantly impact our
ability to generate needed cash flows from operations to support
our 2004 debt service and working capital needs. Our 2004
strategy is to reduce our channel inventory levels to be on a
demand basis, which is generally three months. The lay off of
our sales

24



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##### Table of Contents



force in March 2004 will negatively impact
prescription demand, our ability to effectively reduce the
channel inventories to be on a demand basis as planned and
increases our exposure for product returns.


In December 2003, we committed to shutting down
our consumer products subsidiary, As We Change, because we
projected that it would continue to incur losses for the
foreseeable future and does not constitute a core element of our
specialty pharmaceutical business. In addition to the
classification of As We Changes assets and liabilities as
held for sale, we recognized an impairment charge of
$2.7 million associated with the write-off of the goodwill
and other intangible assets, which is included in the
Results of Discontinued Operations in our financial
statements. Our discussion of results of operations separates
continuing operations from the As We Change discontinued
operations for each year reported.

As a result of our inability to execute on the
sale of any of our pharmaceutical product rights in 2003, the
declining prescription demand for our products and shift of all
strategic sales and marketing focus to Vaniqa® Cream during
the fourth quarter of 2003, we evaluated the recoverability of
our product rights carrying values and determined that our
product rights for BactrimTM, Midrin®,
Synalgos® and Equagesic® were impaired and,
accordingly, we recognized impairment charges totaling
$19.2 million in the fourth quarter of 2003. For 2003, we
recognized impairment charges totaling $25.1 million. There
can be no assurance that we will be successful in recovering the
current carrying values of our product and license rights in the
event we sell any or all such rights.

Results of Operations

We have incurred significant losses since being
founded in November 1996 and had accumulated a deficit of
$147.9 million at December 31, 2003. We have not
achieved profitability in any complete fiscal year since our
inception. We may continue to encounter problems, delays and
expenses that including but not limited to, unanticipated
problems and additional costs related to marketing, competition,
manufacturing and product acquisitions and development. These
problems have caused significant losses and/or volatility in our
operations and could continue to adversely affect your
investment in our stock.

Year ended December 31, 2003 compared
to year ended December 31, 2002

Net product revenue.Net product revenues (net revenues) for 2003 were
$1.4 million, a 97% decrease from our net revenues of
$41.0 million in 2002. Net revenues equal invoiced sales
plus: (i) amounts recorded in prior periods as deferred
revenue for which revenue recognition criteria has been
satisfied in the current period, and (ii) the shipment of
replacement product during the current period relating to
product returned in a prior period; minus: (i) invoiced
sales that do not satisfy revenue recognition criteria in the
current period, (ii) product returned for replacement that
is not replaced within the same period, and (iii) reserve
provisions established for product returns, rebates, chargebacks
and cash discounts. For more information about these
adjustments, see Critical Accounting Policies
described below. During 2003, our net revenues equaled invoiced
sales plus $0.3 million from the recognition of deferred
revenue from the prior period, minus $6.0 million for
product returned for replacement that was not replaced during
2003 and $8.3 million for reserve provisions recorded for
product returns, rebates, chargebacks and cash discounts.

The decreases related to product returned for
replacement and reserve provisions recorded for future product
returns and replacements, rebates and chargebacks are
attributable to the adequacy of the channel inventories in 2003,
due primarily to the significant and unexpected decline in our
prescription demand across most of our product lines. We
attribute most of the decline in our actual or forecasted
prescription demand to: (i) the limited resources available
for our sales and marketing efforts subsequent to our
restructuring in March 2003, (ii) a declining hormone
replacement therapy market for our EsclimTM and
Ortho-Est® products due to industry-wide health concerns
over usage of hormone replacement therapy products,
(iii) physician or pharmacy substitution for competing
products or generic intrusion, (iv) our failed launch of
Synalgos®, (v) our failure to retain a major
government contract for EsclimTM sales that was
substantially negotiated in the latter part of 2002, and
(vi) our inability to find viable co-promotion partners or
third-party contract sales organizations for any of our product
lines. At the end of 2002 and during the early part of 2003, we
entered into two contract sales organization agreements and
expected to sign a third contract for the promotion of

25



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##### Table of Contents



Vaniqa® Cream or EsclimTM. The
two signed agreements were terminated due to significantly lower
results than expected and the third contract was abandoned. Such
decline in prescription demand resulted in the return of
significant quantities of expired or expiring product in 2003
and we anticipate that we will experience significant returns in
2004. Our reserves for rebates and chargebacks required
incremental reserves in 2003 due to product price increases made
effective in 2003 or January 2004.


Cost of Sales.Cost
of sales consisted primarily of amounts paid for the supply of
products, distribution costs, royalties, the amortization of
product rights and reserves for excess, dated and obsolete
inventories. Cost of sales for 2003 was $12.3 million, or
879% of net revenues, which compares to $14.4 million or
35% of net revenues during 2002. The cost of sales associated
with the amortization of acquired product rights and the
reserves for excess, dated and obsolete inventories bear no
relationship to the amount of product shipped and associated net
revenues. The amortization of product rights in 2003 totaled
$5.3 million, or 379% of net revenues, as compared to
$4.1 million, or 10% of net revenues for 2002. Reserves for
excess, dated and obsolete inventories are based on an analysis
of expected future sales that will occur before the inventory on
hand or under a firm purchase commitment will expire. Due to the
unexpected decline in prescription demand for our products, we
recorded estimated reserves of $4.3 million, or 307% of net
revenues for excess, dated or obsolete inventories in 2003.
During 2002, the recorded reserves for excess, dated or obsolete
inventories were $1.2 million, or 2.9% of net revenues.
Other costs included in cost of sales are variable in nature and
will normally increase proportionately to changes in sales
volume. These costs amounted to $2.8 million and
$9.2 million during 2003 and 2002, respectively, or 200%
and 22.4% of net revenues in each respective year. The high
amount in 2003 is primarily caused by the substantial increase
in reserves against revenues, thereby reducing net revenues to
an extraordinarily low level. Our mix of product sales that
include royalties increased to 57% of gross revenues, which
compares to 33% of gross revenues in 2002, resulting in an
increase in the overall cost of sales as a percentage of net
revenues. Distribution costs also increased as a percentage of
net revenue, as handling costs for returns activity is included
in this amount.

Sales and Marketing
Expenses.Sales and marketing expenses
decreased to $15.2 million in 2003 from $20.8 million
in 2002. Expenses incurred during 2002 included amounts
associated with the initiation of promotion efforts for
Vaniqa® Cream and Synalgos® Painpak and marketing
efforts that were focused on our response to the Womens
Health Institution report on hormone replacement therapy issued
in August of 2002. Spending during 2002 also included the
building of our sales force throughout the year. In connection
with our restructuring in March 2003, we terminated more than
60% of our sales force and had no new product launches in 2003.
Promotional marketing expenses of $1.9 million reflected an
increase of 34.8% from 2002, incurred primarily in the first
half of 2003.

General and Administrative
Expenses.General and administrative
expenses were $7.0 million in 2003 and $5.5 million in
2002. The increase of $1.5 million or 27.3% primarily
relates to higher legal, accounting and auditing fees of
$1.2 million incurred in connection with our 2003 debt
restructuring activities, stand alone audits of acquired
products for purposes of registering common shares issued in
2003 and increased accounting and audit fees. Insurance expense
increased $0.3 million, primarily for increased
Directors & Officers insurance, and reserves for bad
debt expenses increased by $0.4 million. These increases
were offset by reductions in staffing costs of $0.3 million
and lower information technology expenses of $0.1 million.

Regulatory and Development
Expenses.Regulatory and development
expenses were $1.8 million, an increase 200% over the
$0.6 million incurred in 2002. The increase is associated
primarily with material samples pending FDA approval and
corresponding samples inventory that has not as yet been
approved for use. The costs also include expenses for
establishing the ability to market Vaniqa® Cream in
the European Union and other geographic territories outside of
the United States.

Restructuring
Charges.In March 2003, we announced
restructuring plans in order to improve our operating results
and terminated 56 employees (35% of our work force), consisting
primarily of sales and marketing personnel in the pharmaceutical
division. Under the provisions of SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities, we
accrued $0.7 million in costs relating to this
restructuring in the first quarter of 2003. All costs associated
with this restructuring have been incurred. There were no such
charges in 2002.

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Impairment of Product
Rights.As part of our restructuring
plan, we announced plans to divest our product rights to
pharmaceutical products that are non-strategic and no longer
relate to our core mission of improving the health and
well-being of midlife women. We re-evaluate the carrying value
and estimated useful lives of product rights periodically. In
2003, we reported impairment charges totaling
$25.1 million. Impairment charges of $11.4 were recorded on
Midrin®, $9.7 million on Equagesic® Tablets and
Synalgos® DC Capsules, and $4.0 million on
BactrimTM. There were no such charges during 2002. In
March 2004, we further announced that we also may divest core
product rights.

Loss from
Operations.The loss from operations
in 2003 was $60.6 million compared to $0.2 million in
2002. The increase in the amount of loss is primarily
attributable to the decrease in net revenues and gross margin
and the impairment of product rights and restructuring charges.

Interest Expense.Interest expense consists of cash and non-cash interest,
amortization of debt issuance costs and amortization of original
issue discount costs related to the senior secured notes issued
to finance the acquisition of Vaniqa® Cream (including the
issuance costs incurred with the debt restructuring in May
2003). Interest expense was $6.4 million and
$3.9 million for the years ended December 31, 2003 and
2002, respectively. The $2.5 million increase is due
primarily to a full year of interest and amortization of
issuance costs being recorded in 2003 for the notes issued in
June 2002. The cash interest paid during 2003 and 2002 was
$3.4 million and $1.6 million, respectively.

Discontinued
Operations.In December 2003, we
committed to sell or shut down the As We Change® mail order
catalog operations. We have reported the historical results of
operations for As We Change on a net basis as a single line
item, Net loss from discontinued operations. The
total loss for the discontinued operations of $4.5 million
for 2003 compares to a net loss of $0.1 million in 2002. In
2003, we recognized an impairment charge of $2.7 million
associated with the write-off of goodwill and other intangible
assets. All other assets were reduced to their estimated net
realizable value. No such charges were recorded for 2002. The
net cash used for discontinued operations was $0.4 million
in 2003. We estimated a larger use of cash in 2004, which helped
drive our decision to shut down such operations.

Income Taxes.As of
December 31, 2003, we had federal and state net operating
loss carryforwards of approximately $109.8 million and
$98.8 million, respectively. The federal tax loss
carryforwards will begin to expire in 2018, unless previously
utilized. The California tax loss carryforwards will begin to
expire in 2008, unless previously utilized. The tax loss
carryforwards for other states begin to expire at other dates.
We also have federal and state research and development credit
carryforwards of approximately $.2 million and
$.1 million, respectively, which begin to expire in 2019,
unless previously utilized. We have recognized a valuation
allowance for the net deferred tax assets as realization of such
assets does not meet the more likely than not
standard of SFAS No. 109.

Net Loss.Our net
loss for 2003 was $71.4 million compared to our net loss of
$4.0 million in 2002.

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 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
Preferred Stock.For the years ended
December 31, 2003 and 2002, we recorded preferred stock
accretion charges of $1.9 million and $0.7 million,
respectively. The accretion charges for 2003 include a full year
of accretion totaling $1.4 million as well as an early
redemption premium of 8%, or $0.5 million, associated with
our 2003 redemption of redeemable convertible preferred stock.
Accretion represents 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
issued in June 2002.

Net Loss Available to Common
Stockholders.For the reasons set
forth above, specifically, our lower than anticipated sales and
corresponding requirements to increase our reserve provisions
for product related activity, our impairment reserve on product
rights of $25.1 million and our loss from discontinued
operations

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of $4.5 million, our net loss applicable to
common stockholders was $73.3 million in 2003, compared to
a loss of $5.7 million for 2002.


Year ended December 31, 2002 compared
to year ended December 31, 2001

Net revenue.Net
revenues for 2002 were $41.0 million, a 94.3% increase over
our net revenue in 2001 of $21.1 million. During 2002,
Sixty-seven percent of our net revenues in 2002 were derived
from products acquired during 2001 or 2002, compared to 19%
during 2001.

Cost of Sales.Cost
of sales for 2002 was $14.4 million, or 35.1% of net
revenue, an increase of 11.4% as a percent of net revenue from
$5.0 million, or 23.7% of net revenue in 2001. The dollar
increase was attributable to the increase in revenues reported
above. Amortization of product rights was 10.0% of net revenue
in 2002 versus 2.6% of net revenue in 2001. Amortization in 2002
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,
dated and obsolete inventories added during 2002 were
$1.2 million, or 2.7% 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 $6.6 million, or 16.1% of
net revenue in 2002 and $3.6 million, or 17.1% of net
revenue in 2001.

Sales and Marketing
Expenses.Sales and marketing expenses
increased to $20.8 million in 2002 from $12.8 million
in 2001. 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 marketing spending in
support of EsclimTM and our two new products,
Vaniqa® Cream and Synalgos®-DC Painpak,
and expenses for marketing programs in support of our
products formulary listings with Advanced PCS, Caremark
and Express Scripts.

General and Administrative
Expenses.General and administrative
expenses were $5.4 million in 2002 and $6.4 million in
2001. The 15.7% reduction was primarily the result of lower bad
debt expenses, reduced travel and supplies and an increase in
allocations to sales and marketing expenses.

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

Loss from
Operations.The loss from operations
was $0.2 million for the year ended December 31, 2002,
a $3.4 million improvement from the loss of
$3.6 million in 2001. The improvement was driven by the
94.3% increase in revenue during the year, attributable
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 $3.4 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 of 2001) and of
Equagesic® and Synalgos® (acquired in
November of 2001). The cash interest paid in 2002 was
$1.6 million; no cash interest was paid in 2001.

Net Loss.Our net
loss from continuing operations for 2002 increased to
$3.9 million from $3.1 million in 2001. Our net loss
from discontinued operations was $0.1 million, an
improvement of $0.3 million from 2001. Our combined net
loss was $4.0 million, an increase of $0.6 million
over 2001s net loss of $3.4 million.

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The $3.4 million improvement in loss from
operations discussed above was offset by the $3.4 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 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. There were no such charges in 2001.

Accretion of Stated Value of Convertible
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.

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##### Table of Contents



Quarterly Comparisons

The table below 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.

|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |        | 
|----------------------------------------------------------------------------- | ------------------ | ----------------------------------- | ------- | ------------------------ |  | -- | ------- | ----- |  | -- | ------ | ----- |  | -- | ------- | ------ |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                              |                    |                                    
|                                                                              |                    | In thousands, except per share data
|                                                                              |                    |                                    
|                                                                              |                    |                                     |         |                         
|                                                                              |                    | Quarterly Period in 2003            |         | Quarterly Period in 2002
|                                                                              |                    |                                     |         |                         
|                                                                              |                    | Q1                                  |         | Q2                       |  | Q3 |         | Q4    |  | Q1 |        | Q2    |  | Q3 |         | Q4    
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |       
|Net revenue                                                                   |                    | $                                   | (1,244  | )                        |  | $  | (1,154  | )     |  | $  | 3,302  |       |  | $  | 527     |        |  | $ | 7,434  |       |  | $ | 9,855  |       |  | $ | 14,035 |        |  | $ | 9,714  |       
|                                                                              | Costs and expenses |                                     |         | 18,056                   |  |    |         | 9,364 |  |    |        | 6,062 |  |    |         | 28,534 |  |   |        | 6,907 |  |   |        | 8,469 |  |   |        | 11,276 |  |   |        | 14,579 | 
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Income (loss) from operations                                                 |                    |                                     | (19,300 | )                        |  |    | (10,518 | )     |  |    | (2,760 | )     |  |    | (28,007 | )      |  |   | 527    |       |  |   | 1,386  |       |  |   | 2,759  |        |  |   | (4,865 | )     
|Interest income & expense net                                                 |                    |                                     | (1,630  | )                        |  |    | (1,530  | )     |  |    | (1,559 | )     |  |    | (1,613  | )      |  |   | (324   | )     |  |   | (337   | )     |  |   | (1,499 | )      |  |   | (1,542 | )     
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Net income (loss) from continuing operations                                  |                    |                                     | (20,930 | )                        |  |    | (12,048 | )     |  |    | (4,319 | )     |  |    | (29,620 | )      |  |   | 203    |       |  |   | 1,049  |       |  |   | 1,260  |        |  |   | (6,407 | )     
|Net income (loss) from discontinued operations                                |                    |                                     | (140    | )                        |  |    | (245    | )     |  |    | (264   | )     |  |    | (3,835  | )      |  |   | 40     |       |  |   | 54     |       |  |   | (109   | )      |  |   | (48    | )     
|Accretion expenses associated with convertible
    redeemable preferred stock |                    |                                     | (337    | )                        |  |    | (350    | )     |  |    | (362   | )     |  |    | (890    | )      |  |   |       |       |  |   | (1,042 | )     |  |   | (325   | )      |  |   | (339   | )     
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Net income (loss) available to common stockholders                            |                    | $                                   | (21,407 | )                        |  | $  | (12,643 | )     |  | $  | (4,945 | )     |  | $  | (34,345 | )      |  | $ | 243    |       |  | $ | 61     |       |  | $ | 826    |        |  | $ | (6,794 | )     
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Basic EPS(1)                                                                  |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Continuing operations                                                         |                    | $                                   | (0.91   | )                        |  | $  | (0.50   | )     |  | $  | (0.16  | )     |  | $  | (1.11   | )      |  | $ | 0.01   |       |  | $ | 0.05   |       |  | $ | 0.05   |        |  | $ | (0.28  | )     
|Discontinued operations                                                       |                    |                                     | (0.01   | )                        |  |    | (0.01   | )     |  |    | (0.01  | )     |  |    | (0.15   | )      |  |   | 0.00   |       |  |   | 0.00   |       |  |   | (0.00  | )      |  | $ | (0.00  | )     
|Accretion expense per share                                                   |                    |                                     | (0.01   | )                        |  |    | (0.01   | )     |  |    | (0.02  | )     |  |    | (0.03   | )      |  |   |       |       |  |   | (0.05  | )     |  |   | (0.01  | )      |  | $ | (0.02  | )     
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Net income available to common stockholders                                   |                    | $                                   | (0.93   | )                        |  | $  | (0.52   | )     |  | $  | (0.19  | )     |  | $  | (1.29   | )      |  | $ | 0.01   |       |  | $ | 0.00   |       |  | $ | 0.04   |        |  | $ | (0.30  | )     
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Fully diluted EPS(1)                                                          |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Continuing operations                                                         |                    | $                                   | (0.91   | )                        |  | $  | (0.50   | )     |  | $  | (0.16  | )     |  | $  | (1.11   | )      |  | $ | 0.01   |       |  | $ | 0.04   |       |  | $ | 0.05   |        |  | $ | (0.28  | )     
|Discontinued operations                                                       |                    |                                     | (0.01   | )                        |  |    | (0.01   | )     |  |    | (0.01  | )     |  |    | (0.15   | )      |  |   | 0.00   |       |  |   | 0.00   |       |  |   | (0.00  | )      |  |   | (0.00  | )     
|Accretion expense per share                                                   |                    |                                     | (0.01   | )                        |  |    | (0.01   | )     |  |    | (0.02  | )     |  |    | (0.03   | )      |  |   |       |       |  |   | (0.04  | )     |  |   | (0.01  | )      |  |   | (0.02  | )     
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Net income available to common stockholders                                   |                    | $                                   | (0.93   | )                        |  | $  | (0.52   | )     |  | $  | (0.19  | )     |  | $  | (1.29   | )      |  | $ | 0.01   |       |  | $ | 0.00   |       |  | $ | 0.04   |        |  | $ | (0.30  | )     
|                                                                              |                    |                                     |         |                          |  |    |         |       |  |    |        |       |  |    |         |        |  |   |        |       |  |   |        |       |  |   |        |        |  |   |        |       
|Weighted average shares  basic                                               |                    |                                     | 22,960  |                          |  |    | 24,094  |       |  |    | 26,508 |       |  |    | 26,571  |        |  |   | 22,637 |       |  |   | 22,866 |       |  |   | 22,941 |        |  |   | 22,950 |       
|Weighted average shares  fully diluted                                       |                    |                                     | 22,960  |                          |  |    | 24,094  |       |  |    | 26,508 |       |  |    | 26,571  |        |  |   | 23,972 |       |  |   | 23,885 |       |  |   | 23,536 |        |  |   | 22,950 |       



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| |     |                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The sum of EPS for the four quarters may differ
    from the annual EPS due to the required method of computing
    weighted average number of shares in the respective periods.

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Critical Accounting Policies and Management
Estimates

The SEC defines critical accounting policies as
those that are, in managements view, important to the
portrayal of our financial condition and results of operations
and demanding of managements judgment. Our discussion and
analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have
been prepared in accordance with accounting standards generally
accepted in the United States (GAAP). The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. We base our
estimates on experience and on various assumptions that we
believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from those
estimates.

Our critical accounting policies include:



| |                                                
| | -----------------------------------------------
| | Revenue Recognition and Deferral of
    Revenue

We recognize revenue when the following criteria
are met: (i) persuasive evidence that an arrangement
exists; (ii) delivery of the products or services has
occurred; (iii) the selling price is fixed or determinable;
(iv) collectibility is reasonably assured; and
(v) title has passed and we have received customer
acceptance.

We offer sales incentives to customers, including
prompt pay discounts on all sales activity, and may also provide
discounts for larger volume transactions. Other incentives
offered periodically include sales billback
incentives, wherein customers will be paid upon their sale to
their customer. Incentive discounts are recorded net within
accounts receivable and net revenues.

We defer revenue recognition if in our judgment,
we determine there is excess channel inventory for our products,
(i.e., our wholesale customers inventory of our products
exceeds our estimates of demand at the retail level after
considering factors such as product shelf-life and prescription
activity and trends). We purchase inventory data from nationally
recognized providers of this information and obtain detailed
inventory information from certain key customers to provide more
detailed information regarding the channel inventory at specific
customer locations. We defer sales, net of the related product
acquisition costs we pay to our suppliers, associated with the
estimated excess channel inventory. The actual amounts could be
different from the estimates and differences are accounted for
in the period they become known.



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Liabilities to Customers, Reserves for Product
    Returns, Rebates and Chargebacks

Liabilities to customers primarily arise from
customer returns received for expired or expiring product, for
which we generally expect to satisfy liability by shipping
replacement product (some of which are already in stock) or by
issuing credits against future sales/receivables. Upon our
receipt of product returns for replacement, we record a
reduction in revenue and a corresponding liability to customer.

We report revenue net of estimated reserve for
product returns, rebates, chargebacks and prompt pay discounts.
We estimate out reserve requirements utilizing historical data,
industry information and information obtained from key
customers. We generally accept for credit or exchange
pharmaceutical products that have become unsaleable or unusable
due to expiration dating, drug recall or discontinuance. If
actual results differ from the estimates, the reserves are
adjusted in the period the difference is known. Based on our
agreements with our customers and our historical experience with
actual product returns for replacement or credit, we estimate
the amount of product that we expect to be returned for
replacement or credit. The estimated product to be returned for
replacement is provided for at our inventory value (actual
replacement cost), and the estimated product to be returned for
credit is provided for at our sales price. The actual amounts
could be different from the estimates and differences are
accounted for in the period they become known.

Certain insurance providers, as well as hospitals
and clinics that are members of group purchasing organizations,
may be contractually entitled to price discounts and rebates on
our products used by those organizations and their patients.
When recording sales, we estimate the likelihood that products
sold to wholesale distributors will ultimately be subject to a
rebate or price discount and book our sales net of estimated
discounts and rebates. This estimate is based on historical
trends and industry data on the utilization

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of our products. The actual amounts could be
different from the estimates and differences are accounted for
in the period they become known.


Chargeback arrangements exist wherein discounts
offered to pharmacies or chains upon their purchase of our
products from our wholesaler customers will be honored and paid
by us. The wholesaler is reimbursed for these chargebacks upon
verification of discounts earned by their customer. When
recording sales, we estimate the likelihood that products sold
to wholesale distributors will ultimately be subject to a
chargeback and record our sales net of estimated chargebacks.
This estimate is based on historical trends and industry data on
the utilization of our products. The actual amounts could be
different from the estimates and differences are accounted for
in the period in which they become known.



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

We provide reserves for potentially excess, dated
or otherwise impaired inventories based on an analysis of
inventories on hand or under a firm purchase commitment,
inventories in the distribution channel (channel
inventories), forecasts of future sales, promotional focus
and prescription activity. In addition, we obtain detailed
inventory information from key customers to provide more
meaningful analysis of the channel inventories. Judgment is
required in estimating the inventories reserve. The actual
reserves required could be significantly different from the
estimates and differences are accounted for in the period they
become known.



| |                                                  
| | -------------------------------------------------
| | Amortization and Impairment of Product
    Rights

We periodically evaluate the recoverability of
our long-lived assets, as well as the related useful lives to
determine whether facts and circumstances warrant adjustments to
the carrying values and/or estimates of useful lives. An
impairment loss is measured and recognized if the carrying
amount of the asset is 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, offers
received from third parties that are deemed by management, in
its judgment, to represent a fair value or an estimated fair
value determined through other valuation techniques. Other
valuation techniques include: (i) estimated discounted cash
flows to reflect the expected technical, commercial, competitive
and other factors related to acquiring technologies or products,
(ii) comparisons to similar asset sales, and
(iii) valuations prepared by reputable third parties.



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

In 2002, we adopted Statement of Financial
Accounting Standard 142, Goodwill and Other Intangible Assets(SFAS 142). Under these rules, goodwill and intangible
assets deemed to have indefinite lives are not amortized but are
subject to annual impairment tests. In June 2002, we determined
the $2.7 million of goodwill and other intangible assets
associated with our acquisition of As We Change was subject to
these guidelines. In December 2003, management decided to sell
or close down As We Change. Our application of SFAS 142
resulted in recording an impairment for the $2.7 million of
goodwill and other intangible assets. The impairment is included
as a component of the costs reported as discontinued operations.

Recent Accounting Pronouncements

In May 2003, the FASB issued Statement
No. 150 (SFAS 150), Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. The Statement addresses the
classification of certain financial instruments embodying
obligations that could be settled by the issuance of an
entitys own shares. SFAS 150 improves the accounting
for certain financial instruments that, under previous guidance,
issuers could account for as equity and requires that those
instruments be classified as liabilities (or assets in certain
circumstances) in the consolidated balance sheets. SFAS 150
is generally effective for all financial instruments entered
into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS No. 150
has not had, nor do we believe it will have, a material impact
on our current or prospective financial statements.

32



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Factors Affecting Results of
Operations

We incurred net losses of $73.3 million,
$5.7 million and $3.4 million in the years ended
December 31, 2003, 2002 and 2001, respectively. Our revenue
is largely dependent on our ability to pull pharmaceutical
products through the inventory channel to the retail level. We
have not been as successful in achieving this as we projected,
in part, due to our limited resources available for sales and
marketing activities and inability to secure viable contract
sales organization arrangements. 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:



| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our ability to raise sufficient capital needed to
    satisfy our debt service and working capital needs by mid-April
    2004,                                                                              
|
| |  | Our ability to significantly restructure our long
    term debt on favorable terms to us,                                                                                                                    
|
| |  | Our ability to successfully obtain relief from
    our lenders with respect to anticipated defaults of our debt
    covenants under our senior secured notes for the quarter ending
    March 31, 2004,      
|
| |  | Our ability to effectively work with our
    customers to reduce the level of our product in the channel and
    to convert our sales and marketing strategy to become a
    demand-based sales organization,
|
| |  | Following the sales force being laid off in
    March, 2004, we do not know the impact on the demand for our
    products generated through their efforts,                                                   
|
| |  | Our ability to maintain our products in a
    preferred formulary position with managed care organizations,                                                                                                  
|
| |  | The success or failure in the markets
    acceptance of our products,                                                                                                                                       
|
| |  | Our success or failure of obtaining FDA approval
    of Ortho-Est® at a new dosage,                                                                                                                          
|
| |  | The success or failure of our marketing efforts
    in generating prescriptions for the products we offer,                                                                                                   
|
| |  | Variations in returns of excess inventory from
    our customers, which may exceed the reserves we have established,                                                                                         
|
| |  | 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 sell or divest or license our
    existing product rights,                                                                                                                                    
|
| |  | Our ability to acquire new products,                                                                                                                                                                         
|
| |  | Legislative changes that affect our products,
    including 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,                                                                                            
|
| |  | Changes in the competitive environment that could
    cause us to change our pricing or marketing strategy, and                                                                                              
|
| |  | Changes in the economic and market environment
    generally or in the health care industry.                                                                                                                 

33



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It is essential we arrange for funding of our
operations immediately. Whether this is arranged though
additional equity investment or additional debt financing, we
believe this is critical to maintain operations beyond the
middle of April 2004.

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 near term or future periods
may fail to meet the expectations of investors.

Liquidity and Capital Resources

Since our inception, we have funded our operating
losses, acquisitions of product rights and working capital
requirements primarily from proceeds received from net revenues,
sales of equity securities and issuances of debt. As of
December 31, 2003, we had cash and cash equivalents of
$4.9 million, a working capital deficit of
$56.0 million and an accumulated deficit of
$147.9 million. As of March 26, 2004, we had cash and
cash equivalents of approximately $1.1 million.

Net cash used for operating activities in 2003 of
$6.5 million resulted from our net loss of
$71.4 million, which was offset primarily by
$34.0 million of non-cash items (consisting principally of
impairment charges, amortization of product rights and debt
issuance costs), and a $26.2 million change in accounts
receivable, inventories, prepaid expenses, accounts payable,
accrued liabilities, deferred revenue, liabilities to customers
and reserves for returns, rebates and chargebacks.

Net accounts receivable decreased
$14.3 million from $16.5 million at December 31,
2002 to $2.2 million at December 31, 2003 due to cash
collections coupled with the decline in net revenues in 2003
from 2002.

Liabilities to customers increased
$6.6 million during 2003. Such liabilities primarily arise
from customer product returns received for expired or expiring
product, for which we generally expect to satisfy the liability
by shipping replacement product (some of which is already in
stock) or by issuing credits against future sales/receivables.
The liability to customers is recorded at the sales value which
would be payable in cash unless we replace their returned
product, in which case our cost is the purchased cost of the
product and the shipping costs.

Reserves for product returns, rebates and
chargebacks and deferred revenue increased $2.0 million
from $7.1 million at December 31, 2002 to
$9.1 million at December 31, 2003, primarily due to an
increase in our customer returns reserves recorded throughout
2003 because of declining prescription demand, and the
recognition of an increased liability for rebates and
chargebacks due to scheduled price increases, effective in
January 2004, and product shipments for replacement. The
remaining deferred revenue balance of $1.8 million is
expected to be recognized as revenue in 2004 without any
increase in our cash and cash equivalents. If such products is
returned for replacement, the cost we will incur is for the
purchased cost of the product and shipping costs.

Net cash provided by investing activities in 2003
was $9.5 million, which resulted from the sub-licensing of
distribution and manufacturing rights to Vaniqa® Cream for
certain international markets to Shire Pharmaceuticals Limited
(Shire). Net cash used in investing activities in
2002 was $47.0 million, and consisted of $39.2 million
for the purchase of Vaniqa® Cream, manufacturing licenses
of $3.0 million and $0.4 million of loans to officers.

Net cash used for financing activities during
2003 was $6.8 million. During 2003, we raised
$2.6 million through a $2.5 million private offering
of our common stock and the exercise of options. Primary uses of
cash include the redemption of convertible redeemable preferred
stock of $7.4 million, required pursuant to our
restructuring agreement, and payment on a note payable of
$1.6 million. Financing activity in 2002 provided
$36.8 million, primarily from the financing of
$39.2 million arranged for the acquisition of the
Vaniqa® Cream rights and stock purchases of
$0.5 million. These were in turn offset by the loan payment
of $3.0 million.

Our operating results during the fourth quarter
of 2002 and the first half of 2003 caused us to fall out of
compliance with certain financial covenants applicable to our
senior secured notes. In 2003, we amended and

34



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restructured the senior secured notes and
convertible redeemable preferred stock agreements, among other
things, to: (i) waive these past defaults,
(ii) institute new financial covenants, (iii) pledge
additional security interests in certain assets, (iv) grant
new warrants to replace canceled warrants, (v) provide for
an apportionment of net proceeds from future asset sales and/or
the license and sale of international rights to
Vaniqa® Cream, if any, based on a pre-determined
formula, and (vi) exchange shares of a new series of
convertible redeemable preferred stock for the same number of
shares of the series of convertible redeemable preferred stock
previously issued. The new series of convertible redeemable
preferred stock has the same terms as the prior series, except
that it requires proceeds of specified asset sales to be used to
redeem the shares of convertible redeemable preferred stock and
granted us the right to redeem the convertible redeemable
preferred stock at our option at a premium equal to 108% of the
accreted stated value of the convertible redeemable preferred
stock through November 30, 2003, at which time the
redemption premium increased based on a formula that took into
account the number of shares redeemed before December 19,
2003.


Any future default under the senior secured or
other notes payable would allow the respective note holders to
accelerate our indebtedness. There is no provision for
acceleration of the convertible redeemable preferred stock, and
the convertible redeemable preferred stock does not contain
financial covenants. However, if we fail to make a purchase,
redemption, liquidation or other payment due under the terms of
the convertible redeemable preferred stock, the holders, voting
as a separate class, will be entitled to elect two directors to
our board of directors until such purchase, redemption,
liquidation or other payment is made. Also, if we fail to make a
purchase, redemption, liquidation or other payment due under the
terms of the convertible redeemable preferred stock, or breach
or violate any other provision of the convertible redeemable
preferred stock, the accretion rate will be increased to
18% per annum until such breach is cured. We currently
anticipate breaching at least one of our debt covenants during
the first quarter of 2004.

We currently do not have adequate liquidity or
available sources of financing to meet our contractual
obligations and settle our operating liabilities. Without an
infusion of cash, we estimate that we may not have adequate cash
to meet our working capital and debt service needs beyond
mid-April 2004. If we are unable to raise sufficient capital and
generate sufficient cash flow from future operations, there is a
substantial prospect that we would be required to seek
protection under the U.S. Bankruptcy Code. These factors
raise substantial doubt about our ability to continue as a going
concern. Should we fail to comply with the covenants governing
our indebtedness, the lenders may elect to accelerate our
indebtedness and foreclose on the collateral pledged to secure
the indebtedness. All of our assets (other than our license
rights interest in the EsclimTM patch) have
been pledged to secure our obligations under our various debt
agreements.

In order to address our current debt service
requirements and working capital needs, our strategic priorities
are to: (i) identify an acquisition or merger partner with
interest in acquiring the Company or all or a significant
portion of our assets; (ii) identify and implement measures
to conserve cash resources and implement stricter controls over
our operating costs (including the layoff and discontinuance of
the As We ChangeTM mail order and internet catalog
operations by March 29, 2004), (iii) restructure our
existing indebtedness and (iv) raise sufficient capital to
satisfy our working capital and debt service requirements for
the foreseeable future. Specifically, we are considering the
sale of any and all products.

We retained Miller Buckfire Lewis Ying &
Co., LLC (MBLY) to assist in exploring opportunities
to sell our Company or some or all of our pharmaceutical
products or license rights, to restructure our significant
outstanding indebtedness and to obtain new sources of financing.
We and MBLY have begun discussions with the holders of our $28.0
original principal amount of senior secured notes to obtain a
forbearance agreement to defer near-term interest payments,
address likely future covenant violations and additional
financing needs, but there can be no assurance that the senior
lenders will grant such forbearance or that such additional
financing will be available. If we are unsuccessful in promptly
implementing a transaction to sell our Company or some or all of
our assets or in obtaining additional financing, we may be
forced to withhold payment to suppliers, debt holders and
others. In such a case, we could be required to file for
bankruptcy protection. Although we have received indications of
interest from potential acquirers of one or more of our
pharmaceutical products and potential sources of financing, we
do not have any definitive agreements in place. There can be no
assurance that a sale of assets or a financing on terms
acceptable to us or our creditors can be agreed to and
implemented.

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Achievement of these priorities is essential to
the continuation of our Company. If we are unsuccessful in
promptly implementing a transaction to sell the Company or some
or all of its assets or in obtaining additional financing, we
may be forced to withhold payments to suppliers, debt holders
and others. If we were required to file for bankruptcy
protection, there can be no assurance that the Companys
stockholders would retain any value.

The following table highlights our contractual
and commercial obligations as of December 31, 2003 and when
they are due:

|                                              |  |                |        |           |  |           |        |           |  |         |        |  |  |   |   |  |  |   |   | 
|--------------------------------------------- |  | -------------- | ------ | --------- |  | --------- | ------ | --------- |  | ------- | ------ |  |  | - | - |  |  | - | - | 
|                                              |  |                |        | Less than |  |           |        |           |  | After  
|Contractual Obligations                       |  | Total          |        | 1 Year    |  | 1-3 Years |        | 4-5 Years |  | 5 Years
|                                              |  |                |        |           |  |           |        |           |  |        
|                                              |  |               
|                                              |  | (In thousands)
|Notes payable                                 |  | $              | 45,515 |           |  | $         | 45,515 |           |  | $       |       |  |  | $ |  |  |  | $ |  | 
|Inventory commitments                         |  |                | 1,255  |           |  |           | 1,255  |           |  |         |       |  |  |   |  |  |  |   |  | 
|Senior convertible redeemable preferred stock |  |                | 11,165 |           |  |           |       |           |  |         | 11,165 |  |  |   |  |  |  |   |  | 
|Operating lease obligations                   |  |                | 1,573  |           |  |           | 603    |           |  |         | 970    |  |  |   |  |  |  |   |  | 
|                                              |  |                |        |           |  |           |        |           |  |         |        |  |  |   |   |  |  |   |   | 
|Total contractual obligations                 |  | $              | 59,508 |           |  | $         | 47,373 |           |  | $       | 12,135 |  |  | $ |  |  |  | $ |  | 
|                                              |  |                |        |           |  |           |        |           |  |         |        |  |  |   |   |  |  |   |   | 

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.

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, foreign currency risk,
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 and
schedule being filed with this report.






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

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the timelines specified in the
Securities and Exchange Commissions rules and forms, and
that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decision
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 only provide reasonable assurance of achieving the
desired

36



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control objectives, and in reaching a reasonable
level of assurance, management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.


As required by SEC Rule 13a-15(b), the
Company carried out an evaluation, under the supervision and
with the participation of the Companys management,
including the Companys Chief Executive Officer and the
Companys Chief Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure
controls and procedures as of the end of the year covered by
this report. Based on the foregoing, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure
controls and procedures were effective at the reasonable
assurance level.

There has been no change in our internal controls
over financial reporting during our most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial
reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Our directors and executive officers are listed
below:

|                     |  |     |    |                                   |  |                                                                 
|-------------------- |  | --- | -- | --------------------------------- |  | ----------------------------------------------------------------
|Name                 |  | Age |    | Present Position with our Company
|                     |  |     |    |                                  
|Edward F. Calesa     |  |     | 62 |                                   |  | President, Chief Executive Officer and Chairman
    of the Board
|Nathan Kase, M.D.    |  |     | 74 |                                   |  | Director                                                        
|Patricia Nasshorn    |  |     | 47 |                                   |  | Director                                                        
|Richard L. Rubin     |  |     | 74 |                                   |  | Director                                                        
|Richard G. Vincent   |  |     | 40 |                                   |  | Vice President, Chief Financial Officer                         
|Randi C. Crawford    |  |     | 35 |                                   |  | Vice President  Consumer Business                              
|Saundra L. Pelletier |  |     | 34 |                                   |  | Vice President  Pharmaceuticals                                

Edward F. Calesaco-founded our company in November
1996 and has served as a director since that time. His current
term as director expires at our 2005 annual meeting of
stockholders. Mr. Calesa has served as Chairman of our
Board of Directors since December 1996. Mr. Calesa also
served as our President and Chief Executive Officer from
November 1996 to January 1998 and was reappointed President and
Chief Executive Officer effective June 2000. Mr. Calesa has
an extensive background in innovative healthcare marketing. In
1971, he co-founded and served as Chairman of the Board of
Health Learning Systems Inc. During his tenure at Health
Learning Systems, Mr. Calesa developed working
relationships with many academic medical specialists and medical
organizations, including the National Institutes of Health,
National Board of Medical Examiners, Educational Testing
Services, Washington Business Group on Health, Voluntary
Hospitals of America and numerous pharmaceutical companies.
Mr. Calesa sold Health Learning Systems in December 1988 to
WPP Group, plc. From January 1989 to November 1996,
Mr. Calesa served as General Partner of an investment
partnership, Calesa Associates. Mr. Calesa received an
M.B.A. in marketing from Fairleigh Dickinson University and a
B.A. in economics from Columbia College.

Nathan
Kase, M.D.has served as a
director of our company since June 2000. His current term as
director expires at our 2004 annual meeting of stockholders.
Dr. Kase is Professor, Department of Obstetrics, Gynecology
and Reproductive Science and Dean Emeritus, Mount Sinai School
of Medicine. From August 2001 until March 2002, Dr. Kase
was interim president and chief executive officer of the Mount
Sinai Medical Center. From 1985 to 1997, Dr. Kase was Dean
of the Mount Sinai School of Medicine. From 1989 to 1991, he
served as President of the Associated Medical Schools of
New York. Dr. Kases major clinical and research
achievements are focused in reproductive endocrinology. He has
authored over 100 scientific articles and co-authored two
textbooks in his field. Dr. Kase received his residency
training in obstetrics and gynecology at the Mount Sinai Medical
Center. Dr. Kase subsequently joined the faculty of the
Yale University School of Medicine, serving for nearly twenty
years, where he rose from instructor to Professor and Chairman
of the

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Department of Obstetrics and Gynecology. In 1981,
he returned to Mount Sinai as Professor and Chairman of the
Department of Obstetrics, Gynecology and Reproductive Science.
Dr. Kase serves as Chairman and Executive Editor of The
Women First Health Advisory Board.


Patricia Nasshornhas served as a director of our
company since May 2002. Her current term as director expires at
our 2006 annual meeting of stockholders. Since 2002, she has
been the head of business development for various Care Capital
portfolio companies and is currently focused on heading business
development for Vanda Pharmaceuticals. She was president of
Unilevers womens health, Unipath division, from 1997
to 2002. In addition, she has held a diverse range of senior
executive positions with Johnson & Johnson,
Merck & Company, Inc. and Bristol-Myers Squibb.
Ms. Nasshorn holds an M.B.A., Marketing and Finance, and a
B.B.A., Marketing and Management, both from Temple University.

Richard L.
Rubin, Ph.D.has served as a
director of our company since November 1996. His current term as
director expires at our 2006 annual meeting of stockholders. He
held the positions of Vice President from December 1996 to March
1998, Secretary from December 1996 to January 1997 and Treasurer
from December 1996 to August 1997. Dr. Rubin is Chairman of
the Dedalus Foundation, Chairman of New Dimensions in Education
and a Professor of Political Science and Public Policy at
Swarthmore College. Since 1968, Dr. Rubin has served as a
business and investment consultant for various companies. From
1963 to 1968, Dr. Rubin was the Director of
Planning & Research for United Merchants &
Manufacturers, Inc. In 1957, Dr. Rubin was appointed
Chairman and Chief Executive Officer of Dorman Mills where he
served until 1962. Dr. Rubin holds a Ph.D. in political
science from Columbia University and a B.A. in economics from
Brown University.

Richard G. Vincentjoined our Company in October 2003 as
Chief Financial Officer. Prior to joining our Company,
Mr. Vincent served as a Senior Director of Finance with
Elan Pharmaceuticals, Inc., a subsidiary of Elan
Corporation, plc, from 2001 to 2003. From 1995 to 2001,
Mr. Vincent held various senior management positions with
multi-national technology companies and was involved in a number
of acquisitions and integrations. From 1987 to 1995,
Mr. Vincent held various positions with Deloitte &
Touche LLP, the last of which was senior manager, where he
specialized in emerging growth companies and
U.S. Securities and Exchange Commission registrants
(primarily in life sciences and technology companies).
Mr. Vincent became a Certified Public Accountant in
California in 1988 and holds a Bachelor of Science in Accounting
from San Diego State University.

Randi C. Crawfordco-founded our company and served as
Vice President, Marketing Research from February 1997 to
February 1998. She served as Secretary of our company from
January 1997 through March 1998. She assumed the role of Vice
President, Educational Program Development in February 1998,
which she held until July 2001. Since July 2001,
Ms. Crawford has served as Vice President 
Consumer Business. From November 1995 until joining our company,
Ms. Crawford was a research analyst with Calesa Associates
specializing in investment opportunities in health care
companies. From October 1991 to November 1995, Ms. Crawford
worked as a consultant engaging in the creation and production
of childrens television programming for Fox Television,
Lifetime Television, DIC Entertainment and Saban
Entertainment, Inc. Ms. Crawford received a B.A. in
liberal arts from Villanova University. Ms. Crawford is the
daughter of Edward F. Calesa.

Saundra L. Pelletierjoined our Company in December 1999
and served as Director of National Accounts until June 2000.
Since June 2000, Ms. Pelletier has served as Vice
President  Pharmaceuticals. From 1992 until she
joined our company, Ms. Pelletier was employed by Searle
Laboratories. From 1992 through 1994 she was a sales
representative. From 1995 to 1996, she was National Sales
Trainer. From 1997 to 1998, she was Global Product Manager,
Womens Healthcare Division. Her final position with Searle
was Worldwide Womens Health Franchise Leader.
Ms. Pelletier holds a B.S. in business from Husson College.

Audit Committee

The Audit Committee, established by the Board of
Directors in accordance with requirements of
Section 3(a)(58)(A) of the Exchange Act, operates pursuant
to a written charter adopted by the Board of Directors. The
Audit Committee selects and engages our independent auditors,
reviews the scope of audit

38



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engagements, reviews comment letters of such
auditors and managements response thereto, approves
professional services provided by such auditors, reviews the
independence of such auditors, reviews any major accounting
changes made or contemplated, considers the range of audit and
non-audit fees, conferred with Company management and its
outside auditors regarding the adequacy of our internal
accounting controls and annually reviews its charter and submits
recommended changes to the Board of Directors for its
consideration. The Audit Committee consists of the following two
members: Patricia Nasshorn and Richard L. Rubin. All members of
the Audit Committee are independent directors, as defined in the
Nasdaq Stock Market qualification standards. The Board has
determined that none of the directors serving on the Audit
Committee qualifies as an audit committee financial
expert as that term is defined in the rules and
regulations established by the SEC. We do not have an
audit committee financial expert at this time. We
have interviewed a number of potential director candidates, but,
in light of the substantial doubt raised with respect to our
ability to continue as a going concern, we have been unable to
attract an individual with these qualifications to serve on the
Board of Directors.


Beneficial Ownership Reporting
Compliance

Under Section 16(a) of the Exchange Act,
directors, officers and beneficial owners of ten percent or more
of our common stock (Reporting Persons) are required to report
to the SEC on a timely basis the initiation of their status as a
Reporting Person and any changes regarding their beneficial
ownership of our common stock. Based solely on our review of
such forms received and the written representations of our
Reporting Persons, we have determined that no Reporting Person
known to us was delinquent with respect to their reporting
obligations as set forth in Section 16(a) of the Exchange
Act.

Code of Ethics

We have adopted a Code of Business Conduct and
Ethics Policy that applies to our directors, officers and
employees. We have posted the text of the policy on our website
at www.womenfirst.com. We intend to satisfy the disclosure
requirements under Item 10 of Form 8-K regarding
amendments to, and waivers from, a provision of our Code of
Business Conduct and Ethics Policy by posting such information
on our website.

39



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##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The following table sets forth information
concerning compensation for each of the three years ended
December 31, 2003 received by our Chief Executive Officer
and all of our executive officers other than our Chief Executive
Officer who were serving as executive officers at
December 31, 2003:

Summary Compensation Table

|                            |                        |                     |      |              |  |                   |         |              |  |         |   |              |  |  |   |   |  |  |         |         |  |  |   |   | 
|--------------------------- | ---------------------- | ------------------- | ---- | ------------ |  | ----------------- | ------- | ------------ |  | ------- | - | ------------ |  |  | - | - |  |  | ------- | ------- |  |  | - | - | 
|                            |                        |                     |      | Long-Term    |  |                  
|                            |                        | Annual Compensation |      | Compensation |  |                  
|                            |                        |                     |      |              |  |                  
|                            |                        |                     |      | Other Annual |  | Shares Underlying |         | All Other   
|Name and Principal Position |                        | Year                |      | Salary       |  | Bonus             |         | Compensation |  | Options |   | Compensation
|                            |                        |                     |      |              |  |                   |         |              |  |         |   |             
|Edward F. Calesa            |                        |                     | 2003 |              |  | $                 | 256,769 |              |  |         |  |              |  |  |  |   |  |  |        |         |  |  |  |  
|                            | Chairman of the Board, |                     |      | 2002         |  |                   |         | 375,000      |  |         |   |             |  |  |   |  |  |  |         |        |  |  |   |  | 
|                            | President, and Chief   |                     |      | 2001         |  |                   |         | 375,000      |  |         |   |             |  |  |   |  |  |  |         | 100,000 |  |  |   |  | 
|                            | Executive Officer      |                     |      |              |  |                   |         |              |  |         |   |              |  |  |   |   |  |  |         |         |  |  |   |   | 
|Charles M. Caporale         |                        |                     | 2003 |              |  |                   | 173,772 | (1)          |  |         |  |              |  |  |  |   |  |  | 25,000  |         |  |  |  |  
|                            | Vice President, CFO,   |                     |      | 2002         |  |                   |         | 190,000      |  |         |   |             |  |  |   |  |  |  |         | 25,000  |  |  |   |  | 
|                            | Treasurer and          |                     |      | 2001         |  |                   |         | 190,000      |  |         |   |             |  |  |   |  |  |  |         | 50,000  |  |  |   |  | 
|                            | Secretary              |                     |      |              |  |                   |         |              |  |         |   |              |  |  |   |   |  |  |         |         |  |  |   |   | 
|Michael T. Sember           |                        |                     | 2003 |              |  |                   | 177,345 | (2)          |  |         |  |              |  |  |  |   |  |  | 350,000 | (3)     |  |  |  |  
|                            | President, COO         |                     |      | 2002         |  |                   |         |             |  |         |   |             |  |  |   |  |  |  |         | 3,000   |  |  |   |  | 
|Richard G. Vincent          |                        |                     | 2003 |              |  |                   | 35,321  |              |  |         |  |              |  |  |  |   |  |  | 150,000 |         |  |  |  |  
|                            | Vice President, CFO    |                     |      |              |  |                   |         |              |  |         |   |              |  |  |   |   |  |  |         |         |  |  |   |   | 
|Randi C. Crawford           |                        |                     | 2003 |              |  |                   | 179,583 |              |  |         |  |              |  |  |  |   |  |  | 125,000 |         |  |  |  |  
|                            | Vice President        |                     |      | 2002         |  |                   |         | 165,000      |  |         |   |             |  |  |   |  |  |  |         |        |  |  |   |  | 
|                            | Consumer Business      |                     |      | 2001         |  |                   |         | 165,000      |  |         |   |             |  |  |   |  |  |  |         | 50,000  |  |  |   |  | 
|Saundra L. Pelletier        |                        |                     | 2003 |              |  |                   | 190,000 |              |  |         |  |              |  |  |  |   |  |  | 125,000 |         |  |  |  |  
|                            | Vice President        |                     |      | 2002         |  |                   |         | 190,000      |  |         |   |             |  |  |   |  |  |  |         | 25,000  |  |  |   |  | 
|                            | Pharmaceuticals        |                     |      | 2001         |  |                   |         | 169,167      |  |         |   |             |  |  |   |  |  |  |         | 50,000  |  |  |   |  | 



---



|    |                                                                       
|--- | ----------------------------------------------------------------------
|(1) | Mr. Caporales termination date:
    October 31, 2003                 
|   
|(2) | Mr. Sembers termination date:
    December 31, 2003                  
|   
|(3) | Granted in 2002, in his role as a member of the
    Board of Directors

Option Grants During Fiscal Year
2003

The following table sets forth information
regarding options to purchase our common stock granted during
the year ended December 31, 2003 to each of the executive
officers named in the Summary Compensation Table. We do not have
any outstanding stock appreciation rights.

The potential realizable values are based on an
assumption that the price of our common stock will appreciate at
the annual rate shown (compounded annually) from the date of
grant until the end of the option term. These values do not take
into account amounts required to be paid as income taxes under
the Internal Revenue Code and any applicable state laws or
option provisions providing for termination of an option
following termination of employment, non-transferability or
vesting. These amounts are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth of the shares
of our common stock.

40



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##### Table of Contents



|                     |  |                   |         |                         |  |             |      |                        |  |             |      |     |  |  |          |  |  |   |         |  |  |   |         | 
|-------------------- |  | ----------------- | ------- | ----------------------- |  | ----------- | ---- | ---------------------- |  | ----------- | ---- | --- |  |  | -------- |  |  | - | ------- |  |  | - | ------- | 
|                     |  |                   |         |                        
|                     |  | Individual Grants |         | Potential Realizable   
|                     |  |                   |         | Value at Assumed Annual
|                     |  | Number of         |         | % of Total              |  |             |      | Rates of Stock        
|                     |  | Securities        |         | Options                 |  |             |      | Price Appreciation for
|                     |  | Underlying        |         | Granted to              |  | Exercise or |      |                        |  | Option Term
|                     |  | Options           |         | Employees in            |  | Base Price  |      | Expiration             |  |            
|Name                 |  | Granted           |         | Fiscal Year             |  | per Share   |      | Date                   |  | 5%          |      | 10%
|                     |  |                   |         |                         |  |             |      |                        |  |             |      |    
|Edward F. Calesa     |  |                   |        |                         |  |             |     |                        |  |             |     |     |  |  |         |  |  |   |        |  |  |   |        | 
|Richard G. Vincent   |  |                   | 150,000 |                         |  |             | 9.3  | %                      |  | $           | 1.33 |     |  |  | 12/16/13 |  |  | $ | 140,586 |  |  | $ | 317,154 | 
|Randi C. Crawford    |  |                   | 125,000 |                         |  |             | 7.7  | %                      |  | $           | 1.19 |     |  |  | 12/16/13 |  |  | $ | 105,591 |  |  | $ | 238,209 | 
|Saundra L. Pelletier |  |                   | 125,000 |                         |  |             | 7.7  | %                      |  | $           | 1.19 |     |  |  | 12/16/13 |  |  | $ | 105,591 |  |  | $ | 238,209 | 
|Charles M. Caporale  |  |                   | 25,000  |                         |  |             | 1.5  | %                      |  | $           | 0.63 |     |  |  | 03/20/13 |  |  | $ | 9,905   |  |  | $ | 25,101  | 
|Michael T. Sember    |  |                   | 350,000 |                         |  |             | 21.7 | %                      |  | $           | 1.57 |     |  |  | 08/04/13 |  |  | $ | 389,260 |  |  | $ | 877,152 | 

Option Exercises and Fiscal Year-End
Values

The following table sets forth certain
information with respect to the exercise of options to purchase
our common stock during the year ended December 31, 2003,
and the unexercised options held and the value thereof at that
date, for each of the executive officers named in the Summary
Compensation Table.

Aggregated Option Exercises In Last Fiscal
Year and Fiscal Year-End Option Values

|                     |  |             |   |          |  |                       |   |                      |  |             |         |               |  |  |         |  |  |   |        |  |  |   |        | 
|-------------------- |  | ----------- | - | -------- |  | --------------------- | - | -------------------- |  | ----------- | ------- | ------------- |  |  | ------- |  |  | - | ------ |  |  | - | ------ | 
|                     |  |             |   |          |  |                       |   |                      |  |            
|                     |  |             |   |          |  | Number of             |   |                     
|                     |  |             |   |          |  | Securities Underlying |   | Value of Unexercised
|                     |  |             |   |          |  | Unexercised           |   | In-the-Money        
|                     |  |             |   |          |  | Options at Fiscal     |   | Options at Fiscal   
|                     |  | Shares      |   |          |  | Year End              |   | Year End(1)         
|                     |  | Acquired on |   | Value    |  |                       |   |                     
|Name                 |  | Exercise    |   | Realized |  | Exercisable           |   | Unexercisable        |  | Exercisable |         | Unexercisable
|                     |  |             |   |          |  |                       |   |                      |  |             |         |              
|Edward F. Calesa     |  |             |  |          |  |                       |  |                      |  |             | 54,141  |               |  |  | 45,859  |  |  |   |       |  |  |   |        | 
|Richard G. Vincent   |  |             |  |          |  |                       |  |                      |  |             |        |               |  |  | 150,000 |  |  |   |       |  |  | $ | 24,500 | 
|Randi C. Crawford    |  |             |  |          |  |                       |  |                      |  |             | 148,716 |               |  |  | 138,734 |  |  | $ | 64,670 |  |  | $ | 32,576 | 
|Saundra L. Pelletier |  |             |  |          |  |                       |  |                      |  |             | 144,684 |               |  |  | 157,816 |  |  | $ | 40,172 |  |  | $ | 38,938 | 
|Charles M. Caporale  |  |             |  |          |  |                       |  |                      |  |             | 89,500  |               |  |  |        |  |  | $ | 22,964 |  |  |   |       | 
|Michael T. Sember    |  |             |  |          |  |                       |  |                      |  |             |        |               |  |  |        |  |  |   |       |  |  |   |       | 



---



|    |                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on the closing sale price of our common
    stock on December 31, 2003 ($1.49), as reported by the
    Nasdaq National Market, less the option exercise price.

Compensation of Directors

Our directors have never received any regular
cash compensation from us for services rendered as directors;
however, we do reimburse directors for their travel expenses
incurred in attending meetings of our board. Nathan
Kase, M.D., one of our directors, served as a consultant to
us and during 2003 he received a fee of $4,000.

Our outside directors who are not our employees
are entitled to receive initial one-time grants of non-qualified
stock options upon their appointment to our board and grants of
additional non-qualified stock options upon the conclusion of
each regular annual meeting of our stockholders for so long as
they remain on our board. Our board of directors has the
discretion to determine the amount to be granted upon
appointment and annually. Notwithstanding the foregoing, total
grants to directors under the 1998 Long-Term Incentive Plan may
not exceed 15% of the maximum number of shares available for
grant under the 1998 Plan (subject to adjustment).

Employment Contracts and Change-in-Control
Agreements

On January 8, 1998, we entered into an
employment agreement with Edward F. Calesa, setting forth his
duties, compensation, employee benefits and other terms of
employment. Pursuant to this agreement,

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##### Table of Contents



Mr. Calesa was entitled to receive a base
annual salary of $150,000, which was increased by the
Compensation Committee of our board on July 16, 1998 to
$350,000 per year, effective July 1, 1998. On
July 7, 1999, the Compensation Committee approved an
increase in Mr. Calesas annual base salary to
$375,000. Effective May 1, 2000, Mr. Calesa agreed to
a compensation reduction in the amount of $56,250. Our board
approved returning Mr. Calesas annual base salary to
$375,000 per year on August 10, 2000. Our board
appointed Mr. Calesa as President and Chief Executive
Officer effective June 30, 2000. Upon a termination of
Mr. Calesas employment for permanent disability or
for good reason (as defined in the employment
agreement), Mr. Calesa will be entitled to salary
continuation for the shorter of twelve months or the remainder
of the agreement term.


On March 7, 2001, we entered into Change of
Control and Severance Agreements (the Change of Control
Agreements) with each of Edward F. Calesa, Randi C.
Crawford and Saundra L. Pelletier. The Change of Control
Agreements provide each of our executive officers with severance
pay benefits in the event of a change in control of our company.
Under the Change of Control Agreements, in the event of a change
in control, if one of our executive officers voluntarily resigns
his or her employment for good reason or is terminated for any
reason other than death, disability or for cause within two
years of the change in control, then that executive officer is
entitled to receive severance pay. The Change of Control
Agreements provide for twelve months after such a termination of
the executive officers employment, the executive officer
will be entitled to receive severance pay at an annual rate
equal to the sum of: (a) the greater of the executive
officers: (i) annual base salary on the effective
date of his or her termination, or (ii) annual base salary
immediately before the change of control; plus (b) the
average of the executive officers annual bonuses for the
last two calendar years. The severance shall, at our
companys election, be paid in a lump sum or at periodic
intervals in accordance with the companys standard payroll
procedures. For twelve months after termination, our company
will also pay the costs of premiums due under our companys
life, disability, accident, health and dental insurance
programs. In the event the executive officer becomes eligible
for comparable group insurance coverage in connection with new
employment, our companys obligation to pay the costs of
premiums will terminate. The Change of Control Agreements
terminate on March 7, 2006, unless terminated earlier
pursuant to their terms.

In January 2004, we entered into a Change of
Control and Severance Agreement with Richard G. Vincent, our
newly appointed Chief Financial Officer. The Change of Control
Agreement contains the same provisions as those indicated above.
Under the Change of Control Agreements, in the event of a change
in control, if one of our executive officers voluntarily resigns
his or her employment for good reason or is terminated for any
reason other than death, disability or for cause within two
years of the change in control, then that executive officer is
entitled to receive severance pay. For twelve months after
termination of the executive officers employment, the
executive office is entitled to receive severance pay at an
annual rate equal to the sum of: (a) the greater of the
executive officers (i) annual base salary on the
effective date of his or her termination, or (ii) annual
base salary immediately before the change in control; plus
(b) the average of the executive officers annual
bonuses for the last two calendar years. The severance pay
shall, at our companys election, be paid in a lump sum or
at periodic intervals in accordance with our companys
standard payroll procedures. For twelve months after
termination, our company will also pay the costs of premiums due
under our companys life, disability, accident, health and
dental insurance programs. In the event the executive officer
becomes eligible for comparable group insurance coverage in
connection with new employment, our companys obligation to
pay the costs of premiums will terminate. The Change of Control
Agreements terminate on March 7, 2006, unless terminated
earlier pursuant to their terms.

Compensation Committee Interlocks and Insider
Participation

Richard L. Rubin and Dr. Nathan Kase, both
of who are outside directors of our company, serve on the
Compensation Committee of our board. Mr. Rubin has served
since March 1999 and Dr. Kase has served since November
2000. Mr. Rubin previously held the positions of our Vice
President, Secretary and Treasurer. Dr. Kase also serves as
our consultant and received a fee of $4,000 during 2003.

No interlocking relationship exists between any
member of the Compensation Committee and any member of any other
companys board of directors or compensation committee.

42



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##### Table of Contents








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

The following table sets forth information as of
March 26, 2004 regarding the beneficial ownership of our
common stock by (a) each person known to our board to own
beneficially 5% or more of our common stock; (b) each
director of our company; (c) the executive officers named
in the Summary Compensation Table; and (d) all our
directors and executive officers as a group. Information with
respect to beneficial ownership has been furnished by each
director, officer or 5% or more stockholder, as the case may be.
The address for all executive officers and directors is
c/o Women First HealthCare, Inc., 5355 Mira Sorrento
Boulevard, Suite 700, San Diego, California 92121.

Beneficial ownership is determined in accordance
with the rules of the SEC which generally attribute beneficial
ownership of securities to persons who possess sole or shared
voting power or investment power with respect to those
securities and includes shares of our common stock issuable
pursuant to the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days.
Unless otherwise indicated, the persons or entities identified
in this table have sole voting and investment power with respect
to all shares shown as beneficially owned by them.
Percentage of Common Stock Beneficially Owned is
based on 26,611,226 shares of our common stock outstanding
on December 31, 2003.

Security Ownership of Certain Beneficial
Owners and Management

|                                                               |  |                       |           |                    |  |  |       |  
|-------------------------------------------------------------- |  | --------------------- | --------- | ------------------ |  |  | ----- | -
|                                                               |  | Number of Shares      |           | Percentage of     
|                                                               |  | of Common Stock       |           | Common Stock      
|Name and Address                                               |  | Beneficially Owned(1) |           | Beneficially Owned
|                                                               |  |                       |           |                   
|Edward F. Calesa                                               |  |                       | 7,914,406 |                    |  |  | 29.74 | %
|Richard G. Vincent                                             |  |                       |          |                    |  |  | *     |  
|Randi C. Crawford(2)                                           |  |                       | 1,201,166 |                    |  |  | 4.50  | %
|Saundra L. Pelletier                                           |  |                       | 151,457   |                    |  |  | *     |  
|Charles M. Caporale                                            |  |                       |           |                    |  |  |       |  
|Michael T. Sember                                              |  |                       |           |                    |  |  |       |  
|Nathan Kase, M.D.                                              |  |                       | 122,606   |                    |  |  | *     |  
|Patricia Nasshorn                                              |  |                       | 9,057     |                    |  |  | *     |  
|Richard L. Rubin                                               |  |                       | 275,510   |                    |  |  | 1.04  | %
|CIBC WMC Inc.(3)                                               |  |                       | 1,766,104 |                    |  |  | 6.24  | %
|Whitney & Co., LLC(4)                                          |  |                       | 1,595,131 |                    |  |  | 5.67  | %
|Johnson & Johnson Development
    Corporation(5)               |  |                       | 1,428,292 |                    |  |  | 5.34  | %
|Élan Pharma International Limited(6)                           |  |                       | 1,625,758 |                    |  |  | 5.86  | %
|Executive officers and directors as a group (7
    persons)(7) |  |                       | 9,674,202 |                    |  |  | 35.88 | %



---



|  |              
|- | -------------
|* | Less than 1%.



|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The following table indicates those people whose
    total number of beneficially owned shares include shares subject
    to options and warrants exercisable within 60 days of
    March 26, 2004:

|                     |  |                |         |                |  |  |       | 
|-------------------- |  | -------------- | ------- | -------------- |  |  | ----- | 
|                     |  | Shares Subject |         | Shares Subject
|                     |  | to Options     |         | to Warrants   
|                     |  |                |         |               
|Edward F. Calesa     |  |                | 64,203  |                |  |  | 2,758 | 
|Richard G. Vincent   |  |                |        |                |  |  |      | 
|Randi C. Crawford    |  |                | 157,269 |                |  |  |      | 
|Saundra L. Pelletier |  |                | 146,563 |                |  |  |      | 
|Nathan Kase, M.D.    |  |                | 18,526  |                |  |  |      | 
|Patricia Nasshorn    |  |                | 9,057   |                |  |  |      | 
|Richard L. Rubin     |  |                | 18,088  |                |  |  |      | 

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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Randi C. Crawford is Edward F.
    Calesas daughter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(3) | Represents 837,704 shares of common stock
    issuable upon conversion of convertible redeemable preferred
    stock and 928,400 shares issuable upon exercise of
    warrants. The address for CIBC WMC Inc. is 425 Lexington
    Avenue, New York, NY 10017.                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) | Represents 314,119 shares issuable to Broad
    Street Associates, LLC, an affiliate of Whiney & Co.,
    upon conversion of convertible redeemable preferred stock;
    455,206 shares issuable to J.H. Whitney Mezzanine
    Fund, L.P., an affiliate of Whitney & Co., upon
    exercise of warrants; 535,800 shares issuable to Whitney
    Private Debt Fund, an affiliate of Whitney & Co., upon
    exercise of warrants; and 209,413 shares issuable to
    Greenleaf Capital, L.P., an affiliate of Whitney & Co.,
    upon conversion of convertible redeemable preferred stock. The
    address for each of the above named entities is 177 Broad
    Street, Stamford, CT 06901.
|   
|(5) | Includes 218,042 shares subject to currently
    exercisable warrants. The address for Johnson & Johnson
    Development Corporation is One Johnson & Johnson Plaza,
    New Brunswick, New Jersey 08933.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(6) | Includes 1,203,291 shares issuable upon
    conversion of a convertible note payable, including accrued
    interest thereon, held by Elan Pharma International Limited.
    Also includes 422,467 shares held by Elan International
    Services, Ltd., an affiliate of Elan Pharma International
    Limited. The address for Élan Pharma International Limited
    is WIL House, Shannon Business Park, Shannon, County
    Clare, Ireland.                                                                                                                                                                                                                                              
|   
|(7) | Excludes shares owned by Mr. Caporale and
    Mr. Sember as they are no longer executive officers of the
    Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

The following table sets forth certain equity
compensation plan information for our company as of
December 31, 2003.

|                                                                  |       |                         |           |                   |  |                     |      |      |  |  |           |           | 
|----------------------------------------------------------------- | ----- | ----------------------- | --------- | ----------------- |  | ------------------- | ---- | ---- |  |  | --------- | --------- | 
|                                                                  |       |                         |           | Weighted Average  |  | Remaining Available
|                                                                  |       | Number of Securities to |           | Exercise Price of |  | for Future Issuance
|                                                                  |       | be Issued upon Exercise |           | Outstanding       |  | under Equity       
|Plan Category                                                     |       | of Outstanding Options  |           | Options           |  | Compensation Plans 
|                                                                  |       |                         |           |                   |  |                    
|Equity compensation plans approved by security
    holders        |       |                         | 1,810,636 | (1)               |  | $                   | 2.63 |      |  |  | 1,516,862 | (2)      
|Equity compensation plans not approved by
    security holders(3) |       |                         | 59,825    |                   |  | $                   | 2.17 |      |  |  | 119,400   |          
|                                                                  |       |                         |           |                   |  |                     |      |      |  |  |           |          
|                                                                  | Total |                         |           | 1,870,461         |  |                     | $    | 2.62 |  |  |           | 1,632,262 | 
|                                                                  |       |                         |           |                   |  |                     |      |      |  |  |           |          



---



|    |                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of (A) 1,783,186 shares of our
    common stock to be issued upon exercise of outstanding options
    under the 1998 Long-Term Incentive Plan and
    (B) 27,450 shares of our common stock to be issued
    upon exercise of outstanding options under the Incentive Stock
    Plan.
|   
|(2) | Consists of 1,516,862 shares of our common
    stock reserved for issuance under the 1998 Long-Term Incentive
    Plan.                                                                                                                                                                       
|   
|(3) | Consists of shares of our common stock issuable
    under the 1999 Non-Qualified Stock Option Plan, which does not
    require the approval of, and has not been approved by, our
    companys stockholders. See the description below of the
    1999 Non-Qualified Stock Option Plan.      

Description of the 1999 Non-Qualified Stock
Option Plan

On March 7, 2000, our companys board
of directors adopted the 1999 Non-Qualified Stock Option Plan of
Women First HealthCare, Inc. (the 1999 Plan),
under which 250,000 shares of our common stock were
reserved for issuance upon the exercise of non-qualified stock
options. The 1999 Plan is administered by the Compensation
Committee of our companys board of directors (or another
committee or subcommittee of the board assuming the functions of
the Compensation Committee under the 1999 Plan) (the
Committee). The principal purpose of the 1999 Plan
is to further our companys growth, development and
financial success by providing additional incentives to key
employees and independent consultants who have been or will be

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##### Table of Contents



given responsibility for the management or
administration of our companys business affairs.
Non-qualified stock options may be granted under the 1999 Plan
to:




| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | key employees who are not officers or directors
    of our company,                                                                                                                          
|
| |  | newly hired employees who (i) have not
    previously been employed by our company, and (ii) with
    respect to whom options are to be granted as an inducement to
    join our company, and
|
| |  | consultants who are not officers or directors of
    our company.                                                                                                                            

The exercise price of the non-qualified stock
options must be at least 85% of the fair market value on the
date of the grant. The term of each option shall be ten years
from date of grant, unless otherwise set by the Committee in its
discretion. However, such term shall not exceed ten years. In
consideration for the granting of an option, the optionee must
agree to remain in the employ of (or to consult for) our company
or any subsidiary of our company for a period of at least one
year after the option is granted, unless otherwise provided by
the Committee or the stock option agreement.

In the event of a change in control, all options
outstanding under the 1999 Plan shall be fully vested and
exercisable as to all shares covered thereby, notwithstanding
anything to the contrary in the 1999 Plan or the provisions of
any option granted under the 1999 Plan. The Committee may offer
the optionees the right to exchange their vested options for
fully vested and exercisable options covering the stock of the
successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind
of shares and prices. The board or the Committee may amend,
suspend or modify the 1999 Plan at any time.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

In February 2002, we loaned Charles M.
Caporale, our former Chief Financial Officer, and
Saundra L. Pelletier, Vice-President of the Pharmaceutical
Division, $0.1 million and $0.3 million, respectively.
The non-interest bearing notes require payment in full at the
earlier of: (i) the executives termination of
employment; (ii) the sale of the Company; or
(iii) February 2017. There is no provision for forgiveness
of the loans, and the notes are only secured by the
executives vested stock options. Mr. Caporales
note became payable upon his termination on October 31,
2003. As part of the Companys severance agreement with
Mr. Caporale, we forgave the payment obligation for this
note. Ms. Pelletiers outstanding note receivable was
fully reserved in December 2003 as the Companys current
stock price was below the value of Ms. Pelletiers
vested options. In 2003, the Company imputed, and recorded
compensation expense, interest at 5% on the outstanding note
balances.

In June 2002, we entered into a note and warrant
purchase agreement, preferred stock purchase agreement, security
agreement and registration rights agreements with CIBC WMC Inc.
and affiliates of Whitney & Co., LLC. We entered into
these agreements in connection with our private placement of our
convertible redeemable preferred stock, senior secured notes and
warrants. Under these agreements, CIBC WMC Inc. purchased from
us $13.0 million of our senior secured notes and
accompanying warrants to purchase common stock and
$8.0 million in initial stated value of our convertible
redeemable preferred stock. Affiliates of Whitney &
Co., LLC purchased from us $15.0 million of our senior
secured notes and accompanying warrants to purchase common stock
and $5.0 million in initial stated value of our convertible
redeemable preferred stock. Whitney purchased these securities
from us through the following affiliated entities: Broad Street
Associates, LLC, J.H. Whitney Mezzanine Fund, L.P.,
Whitney Private Debt Fund and Greenleaf Capital, L.P. The
note and warrant purchase agreement, preferred stock purchase
agreement, security agreement and registration rights
agreements, together with the certificate of designations
relating to our convertible redeemable preferred stock, set
forth the terms of our senior secured notes and convertible
redeemable preferred stock and include a number of affirmative
and negative covenants. We paid fees aggregating
$0.8 million to the investors in the financing and their
legal counsel. Our operating results during the fourth quarter
of 2002 and the first half of 2003 caused us to fall out of
compliance with certain financial covenants applicable to our
senior secured notes. In 2003, we amended and restructured the
senior secured notes and convertible redeemable preferred stock
agreements, among other things, to: (i) waive these past
defaults, (ii) institute new financial covenants,
(iii) pledge additional security interests in certain
assets,

45



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##### Table of Contents



(iv) grant new warrants to replace canceled
warrants, (v) provide for an apportionment of net proceeds
from future asset sales and/or the license and sale of
international rights to Vaniqa® Cream, if any, based
on a pre-determined formula, and (vi) exchange shares of a
new series of convertible redeemable preferred stock for the
same number of shares of the series of convertible redeemable
preferred stock previously issued. The new series of convertible
redeemable preferred stock has the same terms as the prior
series, except that it requires proceeds of specified asset
sales to be used to redeem the shares of convertible redeemable
preferred stock and granted us the right to redeem the
convertible redeemable preferred stock at our option at a
premium equal to 108% of the accreted stated value of the
convertible redeemable preferred stock through November 30,
2003, at which time the redemption premium increased based on a
formula that took into account the number of shares redeemed
before December 19, 2003. In December 2003, we sub-licensed
the rights to manufacture, market and distribute
Vaniqa® Cream for the European Union and
certain other international markets for approximately
$10.0 million. We used $7.4 million of the proceeds to
redeem the convertible redeemable preferred stock outstanding,
including accrued dividends of $0.9 million and
$0.5 million of redemption premium. As a result of the
transactions described above, CIBC WMC Inc. beneficially owned
approximately 6.2% of our common stock as of March 26, 2004
and Whitney & Co., LLC beneficially owned approximately
5.7% of our common stock as of March 26, 2004.


In June 2002, we paid approximately
$2.0 million to CIBC World Markets Corp., an affiliate of
CIBC WMC Inc., for its role as our financial advisor and
placement agent in connection with the private placement of our
convertible redeemable preferred stock, senior secured notes and
warrants. In January 2004, our agreement with CIBC as a
financial advisor was terminated.

Dr. Kase, one of our directors, serves as a
consultant to us, and during 2003 he received fees of $4,000.

We reimburse a company owned by Mr. Calesa
for the use of his personal jet aircraft to transport our
employees, including Mr. Calesa, on business trips. The
reimbursements totaled $40,635 in 2003. The reimbursement is
equal to the amount of first class airfare when our officers use
the aircraft or coach fare when other employees use the aircraft.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Audit and Fee Information

The aggregate fees billed to our company by
Ernst & Young LLP, our principal accountants, for the
indicated services for each of the last two fiscal years were as
follows (in thousands):

|                      |  |      |     |      |  |   |     | 
|--------------------- |  | ---- | --- | ---- |  | - | --- | 
|                      |  | 2002 |     | 2003
|                      |  |      |     |     
|Audit Fees(1)         |  | $    | 459 |      |  | $ | 444 | 
|Audit Related Fees(2) |  | $    | 74  |      |  | $ | 0   | 
|Tax Fees              |  | $    | 0   |      |  | $ | 0   | 
|All Other Fees        |  | $    | 0   |      |  | $ | 0   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit Fees consist of fees for professional
    services performed by Ernst & Young LLP for the audit
    of our annual financial statements and review of financial
    statements included in our 10-Q filings, and services that are
    normally provided in connection with statutory and regulatory
    filings or engagements.                    
|   
|(2) | Audit Related Fees consist of fees for assurance
    and related services performed by Ernst & Young LLP
    that are reasonably related to the performance of the audit or
    review of our financial statements. This includes: due diligence
    related to mergers and acquisitions, and consulting on financial
    accounting/reporting standards.

The Audit Committee has considered whether the
provision of non-audit services is compatible with maintaining
the independence of Ernst & Young LLP, and has
concluded that the provision of such services is compatible with
maintaining the independence of our auditors. All of the
services rendered by Ernst & Young LLP were
pre-approved by the Audit Committee in accordance with the Audit
Committee pre-approval policy described below.

46



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##### Table of Contents






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                                                                                                                                                                                                                                                                               

(a) 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  | .2(13)      |  | 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(15)      |  | Amended and Restated 1998 Long-Term Incentive
    Plan, as amended.                                                                                                                              
|        | 10 | .3(1)       |  | Distribution and License Agreement dated as of
    July 19, 1999 between Women First HealthCare, Inc. and
    Laboratoires Fournier S.A.*                                                        
|        | 10 | .4(5)       |  | 1999 Non-Qualified Stock Option Plan.                                                                                                                                                            
|        | 10 | .5(6)       |  | Ortho-Est® Asset Transfer and Supply
    Agreement effective September 30, 2000 between Women First
    HealthCare, Inc. and Ortho-McNeil Pharmaceutical, Inc.                                   
|        | 10 | .6(7)       |  | Amendment No. 1 to Distribution and License
    Agreement dated November 3, 2000 between Laboratoires
    Fournier S.A. and Women First HealthCare, Inc.*                                        
|        | 10 | .7(8)       |  | 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 | .8(8)       |  | Securities Purchase Agreement dated June 29,
    2001 among Women First HealthCare, Inc., Élan
    International Services, Ltd., and Élan Pharma International
    Limited.                      
|        | 10 | .9(8)       |  | Convertible Secured Promissory Note dated
    June 29, 2001.                                                                                                                                     
|        | 10 | .10(9)      |  | Manufacturing Site Transfer Agreement dated as of
    June 22, 2001 between Women First HealthCare, Inc. and
    Pharmaceutics International, Inc.*                                              
|        | 10 | .11(10)     |  | Warrant Agreement by and between Women First
    HealthCare, Inc. and Gruntal & Co., L.L.C. dated
    as of August 8, 2001.                                                                      
|        | 10 | .12(11)     |  | Asset Purchase Agreement dated November 15,
    2001 by and between American Home Products Corporation and Women
    First Health Care, Inc.*                                                    

47



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .13(11)     |  | Manufacturing and Supply Agreement dated
    November 15, 2001 by and between American Home Products
    Corporation and Women First Health Care, Inc.*                                                                                                             
|        | 10 | .14(11)     |  | Trademark License Agreement dated
    November 15, 2001 by and between American Home Products
    Corporation and Women First Health Care, Inc.*                                                                                                                    
|        | 10 | .15(11)     |  | Senior Secured Promissory Note dated
    November 15, 2001.*                                                                                                                                                                                                        
|        | 10 | .16(14)     |  | Amendment No. 1 to Senior Secured Promissory
    Note dated November 25, 2002.                                                                                                                                                                                      
|        | 10 | .17(11)     |  | Security Agreement dated November 15, 2001
    by and between American Home Products Corporation and Women
    First Health Care, Inc.                                                                                                                              
|        | 10 | .18(12)     |  | Manufacturing and Supply Agreement between Mutual
    Pharmaceutical Company, Inc. and Women First
    HealthCare, Inc. made on January 24, 2002.*                                                                                                                  
|        | 10 | .19(12)     |  | Promissory Note Dated February 26, 2002
    between Women First HealthCare, Inc. and Saundra Childs.                                                                                                                                                                
|        | 10 | .20(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 | .21(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 | .22(2)      |  | Supply Agreement, dated as of June 25, 2002,
    by and between Bristol-Myers Squibb Company and Women First
    HealthCare, Inc.*                                                                                                                                  
|        | 10 | .23(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 | .24(2)      |  | Form of Senior Secured Note dated June 25,
    2002.                                                                                                                                                                                                                
|        | 10 | .25(2)      |  | Form of Common Stock Purchase Warrant dated
    June 25, 2002.                                                                                                                                                                                                      
|        | 10 | .26(2)      |  | Preferred Stock Purchase Agreement, dated
    June 25, 2002, by and among Women First
    HealthCare, Inc. and the Purchasers named therein.                                                                                                                        
|        | 10 | .27(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 | .28(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 | .29(13)     |  | 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 | .30(13)     |  | Common Stock Purchase Agreement, dated as of
    May 12, 2003, by and among Women First
    HealthCare, Inc. and the Investors named therein.                                                                                                                       
|        | 10 | .31(13)     |  | Amendment No. 1 to Note and Warrant Purchase
    Agreement, dated as of May 12, 2003, by and among Women
    First HealthCare, Inc. and the Purchasers named therein.                                                                                               
|        | 10 | .32(13)     |  | Amendment No. 1 to Preferred Stock Purchase
    Agreement, dated as of May 12, 2003, by and among Women
    First HealthCare, Inc. and the Purchasers named therein.                                                                                                
|        | 10 | .33(13)     |  | Form of Common Stock Purchase Warrant dated
    May 12, 2003.                                                                                                                                                                                                       
|        | 10 | .34(13)     |  | Amendment No. 1 to Registration Rights
    Agreement, dated as of May 12, 2003, related to the
    Warrants by and among Women First HealthCare, Inc. and the
    holders of Senior Secured Notes and Warrants named therein.                                       
|        | 10 | .35(13)     |  | Amendment No. 1 to Registration Rights
    Agreement, dated as of May 12, 2003, related to the
    Convertible Redeemable Preferred Stock by and among Women First
    HealthCare, Inc. and the holders of Convertible Redeemable
    Preferred Stock named therein.
|        | 10 | .36(13)     |  | Amended and Restated Security Agreement, dated as
    of May 12, 2003, by and among Women First
    HealthCare, Inc. and the holders of Senior Secured Notes
    and Convertible Preferred Stock named therein.                                                     

48



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                    
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .37(16)     |  | Office Lease Agreement with WCB Five Limited
    Partnership dated June 20, 2003, for New Corporate
    Headquarters                                                                                                                                                                               
|        | 10 | .38(16)     |  | Amendment No. 2 to Note and Warrant Purchase
    Agreement, dated as of September 22, 2003 by and among
    Women first HealthCare, Inc. and the Purchasers named
    therein                                                                                                                      
|        | 10 | .39(17)     |  | License and Supply Agreement, dated as of
    December 15, 2003, by and between Women First
    HealthCare, Inc. and Shire Pharmaceuticals Ireland
    Limited.**                                                                                                                                  
|        | 10 | .40(17)     |  | Collateral Release and Non-Disturbance Agreement,
    dated as of December 15, 2003, by and among Women First
    HealthCare, Inc., Shire Pharmaceuticals Ireland Limited,
    CIBC WMC, Inc. and the Holders of Senior Secured Notes and
    Convertible Redeemable Preferred Stock named therein.
|        | 10 | .41(18)     |  | Amendment No. 2 to Senior Secured Promissory
    Note, dated as November 25, 2003, by and among Women First
    HealthCare, Inc. and Wyeth.                                                                                                                                                        
|        | 21 | .1(18)      |  | Subsidiaries.                                                                                                                                                                                                                                                                                      
|        | 23 | .1(18)      |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                      
|        | 31 | .1          |  | Certification of Chief Executive Officer pursuant
    to Rules 13a-14 and 15d-14 promulgated under the Securities
    Exchange Act of 1934.                                                                                                                                                        
|        | 31 | .2          |  | Certification of Chief Financial Officer pursuant
    to Rules 13a-14 and 15d-14 promulgated under the Securities
    Exchange Act of 1934.                                                                                                                                                        
|        | 32 | .1          |  | Certifications of Chief Executive Officer and
    Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.***                                                                                                     



---



|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(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 the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2000 filed November 14, 2000.
|   
|(7) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-K for the year ended
    December 31, 2000 filed March 30, 2001.       
|   
|(8) | Incorporated by reference to the Companys
    Current Report on Form 8-K filed July 3, 2001.                                                     
|   
|(9) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2001 filed August 13, 2001.       



|     |                                                                                                                                            
|---- | -------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Companys
    Registration Statement on Form S-3 filed September 4,
    2001.                             
|    
|(11) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 2001 filed March 27, 2002.   
|    
|(12) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2002 filed May 10, 2002.  
|    
|(13) | Incorporated by reference to the Companys
    Current Report on Form 8-K filed May 15, 2003.                                              
|    
|(14) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 2002 filed April 15, 2003.   
|    
|(15) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2003 filed August 14, 2003.

49



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##### Table of Contents





|     |                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(16) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2003 filed November 14, 2003.
|    
|(17) | Incorporated by reference to the Companys
    Current Report on Form 8-K filed January 2, 2004.                                                  
|    
|(18) | Filed herewith.                                                                                                                                   



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| | * | Women First has been granted confidential
    treatment with respect to portions of this Exhibit.



| |    |                                                                                               
| | -- | ----------------------------------------------------------------------------------------------
| | ** | Women First has requested confidential treatment
    with respect to portions of this Exhibit.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*** | These certifications are being furnished solely
    to accompany this annual report pursuant to 18. U.S.C.
    Section 1350, and are not being filed for purposes of
    Section 18 of the Securities Exchange Act of 1934 and are
    not to be incorporated by reference into any filing of Women
    First HealthCare, Inc., whether made before or after the date
    hereof, regardless of any general incorporation language in such
    filing.

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

50



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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: March 30, 2004

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) |  | March 26, 2004
|                                        
|/s/ RICHARD G. VINCENTRichard G. Vincent |  | Vice President, Chief Financial Officer,
    (Principal Financial Officer)                     |  | March 29, 2004
|                                        
|/s/ NATHAN KASE, M.D.Nathan Kase, M.D.   |  | Director                                                                                       |  | March 29, 2004
|                                        
|/s/ PATRICIA NASSHORNPatricia Nasshorn   |  | Director                                                                                       |  | March 29, 2004
|                                        
|/s/ RICHARD L. RUBINRichard L. Rubin     |  | Director                                                                                       |  | March 26, 2004

51



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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 (Deficit) |  |  | F-5 | 
|Consolidated Statements of Cash Flows                         |  |  | F-6 | 
|Notes to Consolidated Financial Statements                    |  |  | F-7 | 
|Schedule II  Valuation and
    Qualifying Accounts           |  |  | S-1 | 

F-1



---



##### 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, 2003 and 2002, and the related consolidated
statements of operations, stockholders equity (deficit),
and cash flows for each of the three years in the period ended
December 31, 2003. Our audits also included the financial
statement schedule listed in the index at Item 15. These
financial statements and the financial statement schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule 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, 2003 and 2002, and
the consolidated results of its operations and its cash flows
for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States. 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.

The accompanying financial statements have been
prepared assuming that Women First HealthCare, Inc. will
continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring
operating losses since inception, has an accumulated deficit and
the Companys current cash balances are not sufficient to
fund its planned operating activities through 2004. These
matters raise substantial doubt about the Companys ability
to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

San Diego, California

March 16, 2004


Except for Note 15, as to which the date is
March 30, 2004.

F-2



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share
amounts)


|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |          |         |   |        |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ------ | -------- | ------- | - | ------ | ------- | ------- | 
|                                                                                                                                                                                                   |                                                                                                                                |                                                         
|                                                                                                                                                                                                   |                                                                                                                                | December 31,                                            
|                                                                                                                                                                                                   |                                                                                                                                |                                                         
|                                                                                                                                                                                                   |                                                                                                                                | 2003                                                     |        | 2002    
|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |         
|ASSETS                                                                                                                                                                                            
|Current assets:                                                                                                                                                                                    |                                                                                                                                |                                                          |        |          |         |   |        |        
|                                                                                                                                                                                                   | Cash and cash equivalents                                                                                                      |                                                          | $      | 4,889    |         |   | $      | 9,079   |        
|                                                                                                                                                                                                   | Accounts receivable, net                                                                                                       |                                                          |        | 2,193    |         |   |        | 16,542  |        
|                                                                                                                                                                                                   | Inventories, net                                                                                                               |                                                          |        | 1,122    |         |   |        | 3,018   |        
|                                                                                                                                                                                                   | Prepaid expenses and other current assets                                                                                      |                                                          |        | 953      |         |   |        | 2,524   |        
|                                                                                                                                                                                                   | Current debt issuance costs, net                                                                                               |                                                          |        | 1,083    |         |   |        |        |        
|                                                                                                                                                                                                   | Assets held for sale                                                                                                           |                                                          |        | 662      |         |   |        | 4,250   |        
|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |          |         |   |        |        
|                                                                                                                                                                                                   |                                                                                                                                | Total current assets                                     |        |          | 10,902  |   |        |         | 35,413  | 
|Property and equipment, net                                                                                                                                                                        |                                                                                                                                |                                                          | 520    |          |         |   | 771    |        
|Product rights, net                                                                                                                                                                                |                                                                                                                                |                                                          | 37,513 |          |         |   | 77,432 |        
|Intangible assets, net                                                                                                                                                                             |                                                                                                                                |                                                          | 106    |          |         |   | 122    |        
|Notes receivable from officers, net                                                                                                                                                                |                                                                                                                                |                                                          |       |          |         |   | 450    |        
|Restricted cash                                                                                                                                                                                    |                                                                                                                                |                                                          | 175    |          |         |   | 100    |        
|Debt issuance costs, net                                                                                                                                                                           |                                                                                                                                |                                                          |       |          |         |   | 1,503  |        
|Other assets, net                                                                                                                                                                                  |                                                                                                                                |                                                          | 1,586  |          |         |   | 2,192  |        
|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |          |         |   |        |        
|                                                                                                                                                                                                   |                                                                                                                                | Total assets                                             |        | $        | 50,802  |   |        | $       | 117,983 | 
|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |          |         |   |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)                                                                                                                                                
|Current liabilities:                                                                                                                                                                               |                                                                                                                                |                                                          |        |          |         |   |        |        
|                                                                                                                                                                                                   | Accounts payable                                                                                                               |                                                          | $      | 4,433    |         |   | $      | 2,914   |        
|                                                                                                                                                                                                   | Payable to related party                                                                                                       |                                                          |        |         |         |   |        | 772     |        
|                                                                                                                                                                                                   | Accrued salaries, payroll taxes and employee
    benefits                                                                      |                                                          |        | 208      |         |   |        | 565     |        
|                                                                                                                                                                                                   | Other accrued liabilities                                                                                                      |                                                          |        | 1,775    |         |   |        | 2,613   |        
|                                                                                                                                                                                                   | Liabilities to customers                                                                                                       |                                                          |        | 7,325    |         |   |        | 746     |        
|                                                                                                                                                                                                   | Reserve for product returns, rebates and
    chargebacks                                                                       |                                                          |        | 7,336    |         |   |        | 2,926   |        
|                                                                                                                                                                                                   | Deferred revenue                                                                                                               |                                                          |        | 1,760    |         |   |        | 4,204   |        
|                                                                                                                                                                                                   | Current portion of long-term debt                                                                                              |                                                          |        | 42,730   |         |   |        | 3,018   |        
|                                                                                                                                                                                                   | Liabilities held for sale                                                                                                      |                                                          |        | 1,301    |         |   |        | 846     |        
|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |          |         |   |        |        
|                                                                                                                                                                                                   |                                                                                                                                | Total current liabilities                                |        |          | 66,868  |   |        |         | 18,604  | 
|Long-term debt, excluding current portion                                                                                                                                                          |                                                                                                                                |                                                          |       |          |         |   | 39,839 |        
|Senior convertible redeemable preferred stock,
    $1,161 and $1,052 per share accreted stated value; 7.1 and
    13 shares authorized, issued, and outstanding in 2003 and
    2002, respectively |                                                                                                                                |                                                          | 8,251  |          |         |   | 13,682 |        
|Commitments and contingencies                                                                                                                                                                      |                                                                                                                                |                                                          |        |          |         |   |        |        
|                                                                                                                                                                                                   | Stockholders equity (deficit):                                                                                                |                                                          |        |          |         |   |        |         |        
|                                                                                                                                                                                                   | Preferred stock, $.001 par value;
    5,000 shares authorized                                                                  |                                                          |        |         |         |   |        |        |        
|                                                                                                                                                                                                   | Common stock, $.001 par value;
    40,000 shares authorized; 26,611 and 22,956 shares
    issued and outstanding, respectively |                                                          |        | 27       |         |   |        | 22      |        
|                                                                                                                                                                                                   | Treasury stock at cost, 340 shares                                                                                             |                                                          |        | (100     | )       |   |        | (100    | )      
|                                                                                                                                                                                                   | Additional paid-in capital                                                                                                     |                                                          |        | 123,646  |         |   |        | 120,486 |        
|                                                                                                                                                                                                   | Accumulated deficit                                                                                                            |                                                          |        | (147,890 | )       |   |        | (74,550 | )      
|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |          |         |   |        |        
|                                                                                                                                                                                                   |                                                                                                                                | Total stockholders equity (deficit)                     |        |          | (24,317 | ) |        |         | 45,858  | 
|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |          |         |   |        |        
|                                                                                                                                                                                                   |                                                                                                                                | Total liabilities and stockholders equity
    (deficit) |        | $        | 50,802  |   |        | $       | 117,983 | 
|                                                                                                                                                                                                   |                                                                                                                                |                                                          |        |          |         |   |        |        

See accompanying notes.

F-3



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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,                  
|                                                                                                    |                                                                                                 |                                           
|                                                                                                    |                                                                                                 | 2003                                       |         | 2002   |        | 2001
|                                                                                                    |                                                                                                 |                                            |         |        |        |     
|Net Revenues:                                                                                       |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|                                                                                                    | Net product revenue                                                                             |                                            | $       | 1,431  |        |      | $      | 41,038 |        |   | $      | 21,019 |       
|                                                                                                    | Net service revenue from related party                                                          |                                            |         |        |        |      |        |        |        |   |        | 44     |       
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|                                                                                                    |                                                                                                 | Total net revenues                         |         |        | 1,431  |      |        |        | 41,038 |   |        |        | 21,063 |  
|                                                                                                    | Cost of sales (including purchases from related
    party of $0, $457 and $1,276, respectively) |                                            |         | 12,316 |        |      |        | 14,443 |        |   |        | 5,023  |       
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|Gross margin (loss)                                                                                 |                                                                                                 |                                            | (10,885 | )      |        |      | 26,595 |        |        |   | 16,040 |       
|Operating Expenses:                                                                                 |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|                                                                                                    | Marketing and sales                                                                             |                                            |         | 15,155 |        |      |        | 20,766 |        |   |        | 12,783 |       
|                                                                                                    | General and administrative                                                                      |                                            |         | 7,038  |        |      |        | 5,454  |        |   |        | 6,358  |       
|                                                                                                    | Regulatory and development                                                                      |                                            |         | 1,767  |        |      |        | 568    |        |   |        | 465    |       
|                                                                                                    | Restructuring charges                                                                           |                                            |         | 653    |        |      |        |       |        |   |        |       |       
|                                                                                                    | Impairment of product rights                                                                    |                                            |         | 25,087 |        |      |        |       |        |   |        |       |       
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|                                                                                                    |                                                                                                 | Total operating expenses                   |         |        | 49,700 |      |        |        | 26,788 |   |        |        | 19,606 |  
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|Loss from operations                                                                                |                                                                                                 |                                            | (60,585 | )      |        |      | (193   | )      |        |   | (3,566 | )     
|Interest and other income                                                                           |                                                                                                 |                                            | 62      |        |        |      | 204    |        |        |   | 972    |       
|Interest expense                                                                                    |                                                                                                 |                                            | (6,394  | )      |        |      | (3,906 | )      |        |   | (465   | )     
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|Net loss from continuing operations                                                                 |                                                                                                 |                                            | (66,917 | )      |        |      | (3,895 | )      |        |   | (3,059 | )     
|Loss from discontinued operations                                                                   |                                                                                                 |                                            | (4,484  | )      |        |      | (63    | )      |        |   | (382   | )     
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|Net loss                                                                                            |                                                                                                 |                                            | (71,401 | )      |        |      | (3,958 | )      |        |   | (3,441 | )     
|Accretion of beneficial conversion feature
    related to convertible redeemable preferred stock    |                                                                                                 |                                            |        |        |        |      | (1,024 | )      |        |   |       |       
|Accretion of stated value and redemption premium
    paid on convertible redeemable preferred stock |                                                                                                 |                                            | (1,939  | )      |        |      | (682   | )      |        |   |       |       
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|Net loss applicable to common stockholders                                                          |                                                                                                 | $                                          | (73,340 | )      |        | $    | (5,664 | )      |        | $ | (3,441 | )     
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|Basis and diluted net loss per common share
    applicable to common stockholders:                  |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|                                                                                                    | Net loss from continuing operations                                                             |                                            | $       | (2.65  | )      |      | $      | (0.17  | )      |   | $      | (0.15  | )     
|                                                                                                    | Net loss from discontinued operations                                                           |                                            |         | (0.18  | )      |      |        |       |        |   |        | (0.02  | )     
|                                                                                                    | Net loss from accretion                                                                         |                                            |         | (0.07  | )      |      |        | (0.08  | )      |   |        |       |       
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|                                                                                                    |                                                                                                 | Net loss applicable to common stockholders |         | $      | (2.90  | )    |        | $      | (0.25  | ) |        | $      | (0.17  | )
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       
|Weighted average shares used in computing basic
    and diluted net loss per share                  |                                                                                                 |                                            | 25,250  |        |        |      | 22,851 |        |        |   | 19,707 |       
|                                                                                                    |                                                                                                 |                                            |         |        |        |      |        |        |        |   |        |       

See accompanying notes.

F-4



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)

(In thousands)


|                             |                                                                                       |              |        |          |  |            |    |          |  |         |      |               |  |           |         |        |   |   |      |     |  |   |          |         |   |   |         |         |  
|---------------------------- | ------------------------------------------------------------------------------------- | ------------ | ------ | -------- |  | ---------- | -- | -------- |  | ------- | ---- | ------------- |  | --------- | ------- | ------ | - | - | ---- | --- |  | - | -------- | ------- | - | - | ------- | ------- | -
|                             |                                                                                       |              |        |          |  |            |    |          |  |         |      |               |  | Total    
|                             |                                                                                       |              |        |          |  |            |    |          |  |         |      | Stock-       
|                             |                                                                                       | Common Stock |        |          |  | Additional |    | Deferred |  |         |      | holders     
|                             |                                                                                       |              |        | Treasury |  | Paid-In    |    | Compen-  |  | Accumu- |      | Equity       
|                             |                                                                                       | Shares       |        | Amount   |  | Stock      |    | Capital  |  | sation  |      | lated Deficit |  | (Deficit)
|                             |                                                                                       |              |        |          |  |            |    |          |  |         |      |               |  |          
|Balance at 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 at 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 preferred stock |              |        |         |  |            |    |         |  |         |      |              |  |           |         | 1,024  |   |   |      |    |  |   |          | (1,024  | ) |   |         |        |  
|                             | Accretion of stated value of convertible
    preferred stock                          |              |        |         |  |            |    |         |  |         |      |              |  |           |         |       |   |   |      |    |  |   |          | (682    | ) |   |         | (682    | )
|                             | Valuation of warrants issued with senior secured
    notes                            |              |        |         |  |            |    |         |  |         |      |              |  |           |         | 4,131  |   |   |      |    |  |   |          |        |   |   |         | 4,131   |  
|                             | Net loss                                                                              |              |        |         |  |            |    |         |  |         |      |              |  |           |         |       |   |   |      |    |  |   |          | (3,958  | ) |   |         | (3,958  | )
|                             |                                                                                       |              |        |          |  |            |    |          |  |         |      |               |  |           |         |        |   |   |      |     |  |   |          |         |   |   |         |        
|Balance at December 31, 2002 |                                                                                       |              | 22,956 |          |  |            | 22 |          |  |         | (100 | )             |  |           | 120,486 |        |   |   |     |     |  |   | (74,550  | )       |   |   | 45,858  |        
|                             | Issuance of common stock upon exercise of options
    and warrants                    |              |        | 134      |  |            |    | 2        |  |         |      |              |  |           |         | 59     |   |   |      |    |  |   |          |        |   |   |         | 61      |  
|                             | Issuance of common stock from private offering
    (note 9)                           |              |        | 3,521    |  |            |    | 3        |  |         |      |              |  |           |         | 2,497  |   |   |      |    |  |   |          |        |   |   |         | 2,500   |  
|                             | Valuation of warrants issued with restructured
    senior secured notes               |              |        |         |  |            |    |         |  |         |      |              |  |           |         | 604    |   |   |      |    |  |   |          |        |   |   |         | 604     |  
|                             | Accretion of stated value of convertible
    preferred stock                          |              |        |         |  |            |    |         |  |         |      |              |  |           |         |       |   |   |      |    |  |   |          | (1,393  | ) |   |         | (1,393  | )
|                             | Redemption premium paid on convertible preferred
    stock                            |              |        |         |  |            |    |         |  |         |      |              |  |           |         |       |   |   |      |    |  |   |          | (546    | ) |   |         | (546    | )
|                             | Net loss                                                                              |              |        |         |  |            |    |         |  |         |      |              |  |           |         |       |   |   |      |    |  |   |          | (71,401 | ) |   |         | (71,401 | )
|                             |                                                                                       |              |        |          |  |            |    |          |  |         |      |               |  |           |         |        |   |   |      |     |  |   |          |         |   |   |         |        
|Balance at December 31, 2003 |                                                                                       |              | 26,611 |          |  | $          | 27 |          |  | $       | (100 | )             |  | $         | 123,646 |        |   | $ |     |     |  | $ | (147,890 | )       |   | $ | (24,317 | )      
|                             |                                                                                       |              |        |          |  |            |    |          |  |         |      |               |  |           |         |        |   |   |      |     |  |   |          |         |   |   |         |        

See accompanying notes.

F-5



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)


|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |         |       |        |         |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------------- | ------ | ------ | ------- | ------- | ----- | ------ | ------- | ------- | ----- | ------ | ------- | -
|                                                         |                                                                                                                        |                                                                                            
|                                                         |                                                                                                                        | December 31,                                                                               
|                                                         |                                                                                                                        |                                                                                            
|                                                         |                                                                                                                        | 2003                                                                                        |                                                          | 2002                                                                |        | 2001  
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |       
|Operating activities                                     |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|                                                         | Net loss from continuing operations                                                                                    |                                                                                             | $                                                        | (66,917                                                             | )      |        | $       | (3,895  | )     |        | $       | (3,059  | )    
|                                                         | Adjustments to reconcile net loss from continuing
    operations to net cash used for continuing operating activities: |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |         |      
|                                                         |                                                                                                                        | Depreciation                                                                                |                                                          |                                                                     | 290    |        |         |         | 309   |        |         |         | 244   |       
|                                                         |                                                                                                                        | Amortization of product rights, licenses and
    intangibles                                |                                                          |                                                                     | 5,494  |        |         |         | 4,295 |        |         |         | 1,019 |       
|                                                         |                                                                                                                        | Amortization of original issue discount, imputed
    interest and financing expenses        |                                                          |                                                                     | 2,853  |        |         |         | 2,261 |        |         |         | 465   |       
|                                                         |                                                                                                                        | Impairment of product rights                                                                |                                                          |                                                                     | 25,087 |        |         |         |      |        |         |         |      |       
|                                                         |                                                                                                                        | Reserve for note receivable and related
    forgiveness from officer                        |                                                          |                                                                     | 450    |        |         |         |      |        |         |         |      |       
|                                                         |                                                                                                                        | Amortization of deferred compensation and
    compensation expense related to stock options |                                                          |                                                                     |       |        |         |         | 87    |        |         |         | 154   |       
|                                                         |                                                                                                                        | Loss on disposal of property and equipment                                                  |                                                          |                                                                     | 80     |        |         |         |      |        |         |         |      |       
|                                                         |                                                                                                                        | Changes in operating assets and liabilities:                                                |                                                          |                                                                     |        |        |         |         |       |        |         |         |       |       
|                                                         |                                                                                                                        |                                                                                             | Accounts receivable                                      |                                                                     |        | 14,349 |         |         |       | (7,219 | )       |         |       | (8,953 | )      
|                                                         |                                                                                                                        |                                                                                             | Inventories                                              |                                                                     |        | 1,896  |         |         |       | (2,396 | )       |         |       | 475    |        
|                                                         |                                                                                                                        |                                                                                             | Prepaid expenses and other assets                        |                                                                     |        | 1,860  |         |         |       | (1,700 | )       |         |       | (801   | )      
|                                                         |                                                                                                                        |                                                                                             | Accounts payable                                         |                                                                     |        | 1,519  |         |         |       | 1,242  |         |         |       | 913    |        
|                                                         |                                                                                                                        |                                                                                             | Receivable from related party                            |                                                                     |        |       |         |         |       |       |         |         |       | 2,682  |        
|                                                         |                                                                                                                        |                                                                                             | Payable to related party                                 |                                                                     |        | (772   | )       |         |       | 353    |         |         |       | (574   | )      
|                                                         |                                                                                                                        |                                                                                             | Reserve for product returns, rebates and
    chargebacks |                                                                     |        | 4,410  |         |         |       | 1,209  |         |         |       | 1,717  |        
|                                                         |                                                                                                                        |                                                                                             | Deferred revenue                                         |                                                                     |        | (2,444 | )       |         |       | 4,204  |         |         |       |       |        
|                                                         |                                                                                                                        |                                                                                             | Liabilities to customers                                 |                                                                     |        | 6,579  |         |         |       | 746    |         |         |       |       |        
|                                                         |                                                                                                                        |                                                                                             | Other liabilities                                        |                                                                     |        | (1,195 | )       |         |       | 626    |         |         |       | 178    |        
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|                                                         |                                                                                                                        |                                                                                             |                                                          | Net cash used for continuing operating activities                   |        |        | (6,461  | )       |       |        | 122     |         |       |        | (5,540  | )
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|Investing activities                                     |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|                                                         | Acquisition of product rights, licenses and other
    intangibles                                                      |                                                                                             |                                                          | (156                                                                | )      |        |         | (46,446 | )     |        |         | (14,026 | )    
|                                                         | Loans to officers                                                                                                      |                                                                                             |                                                          |                                                                    |        |        |         | (450    | )     |        |         |        |      
|                                                         | Restricted cash                                                                                                        |                                                                                             |                                                          | (75                                                                 | )      |        |         |        |       |        |         | 100     |      
|                                                         | Net proceeds from sale of product rights                                                                               |                                                                                             |                                                          | 9,827                                                               |        |        |         |        |       |        |         |        |      
|                                                         | Purchase of property and equipment                                                                                     |                                                                                             |                                                          | (119                                                                | )      |        |         | (112    | )     |        |         | (342    | )    
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|                                                         |                                                                                                                        |                                                                                             |                                                          | Net cash provided by (used for) continuing
    investing activities |        |        | 9,477   |         |       |        | (47,008 | )       |       |        | (14,268 | )
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|Financing activities                                     |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|                                                         | Issuance of notes payable                                                                                              |                                                                                             |                                                          |                                                                    |        |        |         | 28,000  |       |        |         |        |      
|                                                         | Financing costs                                                                                                        |                                                                                             |                                                          | (331                                                                | )      |        |         | (1,771  | )     |        |         |        |      
|                                                         | Payment on notes payable                                                                                               |                                                                                             |                                                          | (1,625                                                              | )      |        |         | (3,000  | )     |        |         |        |      
|                                                         | Issuance (redemption) of senior convertible
    redeemable preferred stock                                             |                                                                                             |                                                          | (7,370                                                              | )      |        |         | 13,000  |       |        |         |        |      
|                                                         | Issuance of common stock                                                                                               |                                                                                             |                                                          | 2,561                                                               |        |        |         | 560     |       |        |         | 29,971  |      
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|                                                         |                                                                                                                        |                                                                                             |                                                          | Net provided by (used for) continuing financing
    activities      |        |        | (6,765  | )       |       |        | 36,789  |         |       |        | 29,971  |  
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|Net cash used for discontinued
    operations            |                                                                                                                        |                                                                                             | (441                                                     | )                                                                   |        |        | (202    | )       |       |        | (293    | )      
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|Net increase (decrease) in cash and cash
    equivalents |                                                                                                                        |                                                                                             | (4,190                                                   | )                                                                   |        |        | (10,299 | )       |       |        | 9,870   |        
|Cash and cash equivalents at beginning of the
    period |                                                                                                                        |                                                                                             | 9,079                                                    |                                                                     |        |        | 19,378  |         |       |        | 9,508   |        
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|Cash and cash equivalents at the end of the period       |                                                                                                                        | $                                                                                           | 4,889                                                    |                                                                     |        | $      | 9,079   |         |       | $      | 19,378  |        
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|Supplemental cash flow disclosures:                      |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        
|                                                         | Interest paid on debt (excluding accreted
    interest)                                                                |                                                                                             | $                                                        | 3,362                                                               |        |        | $       | 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
    restructured debt agreement                                                |                                                                                             | $                                                        | 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                                                |                                                                                             | $                                                        | 1,393                                                               |        |        | $       | 682     |       |        | $       |        |      
|                                                         |                                                                                                                        |                                                                                             |                                                          |                                                                     |        |        |         |         |       |        |         |        

See accompanying notes.

F-6



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2003




|   |                                                                                             
|-- | --------------------------------------------------------------------------------------------
|1. | Basis of Presentation, Current Operating
    Environment and Significant Accounting Policies



| |                             
| | ----------------------------
| | The Company and its Business

Women First HealthCare, Inc. (the
Company or Women First) is a specialty
pharmaceutical company dedicated to improving the health and
well-being of midlife women. Its corporate offices are located
in San Diego, California. The Company originally
incorporated under the name Healthy Living for Women, Inc.,
was incorporated in Delaware on November 1, 1996.
Operations commenced in 1997, and on July 1, 1999, the
Company completed its initial public offering. The
Companys 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
historically has marketed these products in the United States
through a number of channels including its dedicated sales
force, tele-sales and its direct-to-consumer marketing programs,
through our Internet sites, womenfirst.com, and
vaniqa.com. In March 2004, the Company announced
restructuring plans to conserve cash and laid off 78 employees
(80% of its workforce), including its entire sales force of 44
employees, 28 employees of As We Change®, a mail order
catalog business and 6 support employees from its corporate
office.



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

The consolidated financial statements as of
December 31, 2003 and for the twelve months then ended have
been prepared under accounting principles generally accepted in
the United States assuming that the Company will continue as a
going concern. The Company recorded a net loss applicable to
common stockholders and had negative cash flows from operations
of $73.3 million and $6.5 million, respectively, for
the twelve months ended December 31, 2003. The Company had
negative working capital and a stockholders deficit of
$56.0 million and $24.3 million, respectively, at
December 31, 2003. As of December 31, 2003, the
Company remained in compliance with the financial covenants
applicable to its outstanding senior secured notes. However, the
Company does not anticipate that it will be in compliance with
its financial covenant requirements on its senior secured notes
for the quarter ending March 31, 2004. If the Company fails
to comply with the covenants governing its indebtedness, the
lenders may elect to accelerate its indebtedness and foreclose
on the collateral pledged to secure the indebtedness. The
consolidated financial statements as of December 31, 2003
and for the twelve months then ended do not include any
adjustments to reflect the possible future effects to the
recoverability and classification of assets or the amounts and
classification of liabilities that might result from the outcome
of the uncertainty regarding our ability to continue as a going
concern. In addition, the Company has estimated the timing and
amounts of cash receipts and disbursements over the next twelve
months and believes that unless it is able to raise additional
financing it may not have adequate cash to meet its working
capital and debt service needs beyond April 2004.

The report of Ernst & Young
LLP, Independent Auditors on the Companys financial
statements for the year ended December 31,2003 contains an
explanatory paragraph regarding the insufficiency of the
Companys current cash balances to fund planned operating
activities through fiscal year 2004 and indicated substantial
doubt about the Companys ability to continue as a going
concern. The Companys inability to secure the necessary
financing would have a material adverse effect on the
Companys financial condition and results of operations.

To address the Companys current debt
service requirements and working capital needs, its strategic
priorities are to: (i) identify an acquisition or merger
partner with interest in acquiring the Company or all or a
significant portion of the Companys assets;
(ii) identify and implement measures to conserve the
Companys existing cash resources and implement stricter
spending controls over operating activities,
(iii) restructure its existing indebtedness and
(iv) raise sufficient capital to satisfy its working
capital and debt service

F-7



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

requirements for the foreseeable future.
Specifically, the Company is considering the sale of any and all
product and license rights.



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

The consolidated financial statements presented
herein include the accounts of the Company, As We Change, L.L.C.
(As We Change) and Women First HealthCare Limited.
In December 2003, the Company committed to sell or discontinue
the As We Change operation, and accordingly, its operations have
been classified and reported as discontinued operations (see
Note 3).



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

The preparation of financial statements in
conformity with generally accepted accounting principles in the
United States 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 consolidated financial statements, as well as
the reported amounts of revenues and expenses during the
reporting period. The Companys significant estimates
include the allowance for doubtful accounts and cash discounts,
the reserve for excess, dated and obsolete inventories, and the
reserve for product returns, rebates and chargebacks. Actual
results could differ significantly from those estimates.



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

Certain previously reported amounts have been
reclassified to conform to the current period presentation,
including the presentation of the As We Change operating results
as discontinued operations.



| |                                               
| | ----------------------------------------------
| | Cash, Cash Equivalents and Restricted
    Cash

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.
Restricted cash represents a security deposit on our corporate
headquarters.



| |                                                                           
| | --------------------------------------------------------------------------
| | Concentration of Credit Risk and
    Collectibility of Accounts Receivable

Financial instruments that potentially subject
the Company to concentrations of credit risk are primarily cash
and cash equivalents and trade receivables. Cash equivalents
consist of money market funds with high credit quality and are
maintained with financial institutions that management believes
are creditworthy. Trade receivables typically are unsecured and
are concentrated with well-established distributors and large
retailers.

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. For the year ended December 31,
2003, the Company had four customers whose revenues exceeded 10%
of gross revenues. As disclosed in Note 12, the
Companys liabilities to these customers, due to product
returned for replacement and not replaced as of
December 31, 2003, exceeded the amount due the Company for
recent sales. As of December 31, 2003, the Companys
trade receivables from these customers totaled
$2.0 million, and the Companys liabilities to these
same customers for returns and other credits totaled
$7.0 million. The Company has no long-term purchase
commitments from these customers.

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 allowance for doubtful accounts to reduce the related
receivable to the estimated collectible amount. The

F-8



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Company continually monitors all customer
balances and records allowances for doubtful accounts 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. Actual losses
are written-off against the allowance for doubtful accounts.
Reserves for doubtful accounts were $0.6 million and
$0.5 million at December 31, 2003 and 2002,
respectively.



| |                  
| | -----------------
| | Segment Reporting

The Companys continuing operations are a
single segment focused on the sale and marketing of prescription
drugs.



| |            
| | -----------
| | Inventories

Purchased product inventories are valued at the
lower of cost or market, cost being determined on a first-in,
first-out basis. The Companys products have shelf lives
ranging from 18 to 60 months.

The Company provides reserves for potentially
excess, dated or obsolete inventories based on an analysis of
inventories on hand or under a firm purchase commitment,
inventories in the distribution channel, forecasts of future
sales, promotional focus and prescription activity. In addition,
the Company obtains detailed inventory information from key
customers to provide more meaningful analysis of channel
inventories. This is used to develop estimates of the
Companys potential excess inventory, or inventory that
might reach its expiration date before it is used. Judgment is
required in estimating the inventories reserve. The actual
reserves required could be significantly different from the
estimates, and differences are accounted for in the period in
which they become known. Sample inventories are reported in
prepaid expenses and other current assets and are expensed upon
distribution.



| |                       
| | ----------------------
| | Property and Equipment

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.



| |                           
| | --------------------------
| | Product and License Rights

The costs of acquiring the Companys
products are capitalized and amortized on a straight-line basis
over the estimated periods to be benefited, generally
15 years. Product rights include trade names, trademarks,
patents and other acquisition costs. The useful lives are
estimated by management based on factors such as forecasted
discounted cash flows, market size and growth trends, barriers
to competitive entry, stability of the therapeutic class, and
strength of competing products.

The Companys license rights for
EsclimTM have a net carrying value of
$0.5 million and $0.7 million at December 31,
2003 and 2002, respectively, and are being amortized on a
straight-line basis over the seven-year license term. The
carrying value is included in other assets.



| |                          
| | -------------------------
| | Technology Transfer Costs

The Company capitalizes costs incurred to
transfer the production and supply of certain products from
prior suppliers to a new third-party supplier. The costs pertain
primarily to third-party project management, preparation of test
batches and supplemental filings with the Food and Drug
Administration (FDA). These costs are amortized from
the start of commercial production through the term of the
supply agreement, generally ten years. Capitalized technology
transfer costs of $1.1 million are included in other assets
as of December 31, 2003 and 2002.

F-9



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets

The Company periodically evaluates the
recoverability of its long-lived assets, as well as the related
useful lives to determine whether facts and circumstances
warrant adjustments to the carrying values and/or estimates of
useful lives. An impairment loss is measured and recognized if
the carrying amount of the asset is 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
or offers received from third parties that are deemed by
management, in its judgment, to represent a fair value or an
estimated fair value determined through other valuation
techniques. Other valuation techniques include:
(i) estimated discounted cash flows to reflect the expected
technical, commercial, competitive and other factors related to
acquired technologies or products, (ii) comparisons to
similar asset sales, and (iii) valuations prepared by
reputable third parties.

Performance in future periods may result in
products not meeting expected cash flows, in which case product
rights carrying values are re-assessed and an impairment charge
recorded. In 2003, the Company recorded impairment charges of
$11.4 million, $4.0 million, and $9.7 million,
related to Midrin®, Bactrimtm and
Equagesic®/Synalgos®, respectively.



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

Goodwill and other intangible assets resulted
primarily from the 1998 acquisition of As We Change. Capitalized
trademark-filing costs are amortized on a straight-line basis
over the estimated economic life of the trademarks, generally
15 years. Goodwill and intangible assets deemed to have
indefinite lives are not amortized, but are subject to periodic
impairment tests. As of December 31, 2002, the Company had
determined that $2.7 million of the goodwill associated
with the acquisition of As We Change was deemed to have an
indeterminate life. In December 2003, the Company committed to
discontinue the As We Change operation, due to a deterioration
in its actual and forecasted operating results. Accordingly, the
Company recorded an impairment charge of $2.7 million in
December 2003. The assets associated with As We Change have been
reclassified and reported as held for sale for all periods
presented (see Note 3).



| |                         
| | ------------------------
| | 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 require the Company to recognize compensation expense on
the grant date if the current market price of the stock exceeds
the exercise price.

In December 2002, the Financial Accounting
Standards Board (FASB) issued the Statement of
Financial Accounting Standard No. SFAS 148
(SFAS No. 148), Accounting for
Stock-Based Compensation  Transition and
Disclosure. SFAS No. 148 amended
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 amended 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. SFAS No. 148
became effective for fiscal years ending after December 15,
2002. The Company chose not to adopt the voluntary change to the
fair value based method of accounting for stock-based employee
compensation. If the Company chose to adopt such a method in the

F-10



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

future, its implementation pursuant to
SFAS No. 148 could have a material effect on its
consolidated financial position and results of operations.

|                                                                                        |  |                          |         |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                        |  |                         
|                                                                                        |  | Years ended December 31,
|                                                                                        |  |                         
|                                                                                        |  | 2003                     |         | 2002 |  | 2001
|                                                                                        |  |                          |         |      |  |     
|Net loss applicable to common stockholders, as
    reported                             |  | $                        | (73,340 | )    |  | $    | (5,664 | ) |  | $ | (3,441 | )
|Add: total stock-based employee compensation                                            |  |                          | (1,114  | )    |  |      | (1,482 | ) |  |   | (1,220 | )
|                                                                                        |  |                          |         |      |  |      |        |   |  |   |        |  
|Pro forma net loss                                                                      |  | $                        | (74,454 | )    |  | $    | (7,146 | ) |  | $ | (4,661 | )
|                                                                                        |  |                          |         |      |  |      |        |   |  |   |        |  
|Basic and diluted net loss per share applicable
    to common stockholders, as reported |  | $                        | (2.90   | )    |  | $    | (0.25  | ) |  | $ | (0.17  | )
|Effect of stock-based compensation expense per
    share                                |  |                          | (0.05   | )    |  |      | (0.06  | ) |  |   | (0.07  | )
|                                                                                        |  |                          |         |      |  |      |        |   |  |   |        |  
|Pro forma net loss available to common
    stockholders per share (basic and diluted)   |  | $                        | (2.95   | )    |  | $    | (0.31  | ) |  | $ | (0.24  | )
|                                                                                        |  |                          |         |      |  |      |        |   |  |   |        |  

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

|                                      |  |                          |         |      |  |      |         |   |  |  |         |  
|------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                      |  |                         
|                                      |  | Years ended December 31,
|                                      |  |                         
|                                      |  | 2003                     |         | 2002 |  | 2001
|                                      |  |                          |         |      |  |     
|Risk-free interest rate               |  |                          | 3.3     | %    |  |      | 3.0     | % |  |  | 4.5     | %
|Dividend yield                        |  |                          | 0       | %    |  |      | 0       | % |  |  | 0       | %
|Volatility factor                     |  |                          | 150     | %    |  |      | 361     | % |  |  | 105     | %
|Weighted-average expected option life |  |                          | 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 2003, 2002
and 2001 was $1.07,$6.97 and $4.67, respectively.



| |                                             
| | --------------------------------------------
| | Revenue Recognition and Deferred
    Revenue

The Company recognizes revenue when all of the
following criteria are met: (i) persuasive evidence that an
arrangement exists; (ii) delivery of the product has
occurred; (iii) the selling price is fixed or determinable;
(iv) collectibility is reasonably assured; and
(v) title has passed and the Company has received customer
acceptance.

The Company offers sales incentives to customers,
including prompt pay discounts on all sales activity, and may
also provide discounts for larger volume transactions. Other
incentives offered periodically include sales
billback incentives, wherein customers will be paid
upon their sale to their customer. Incentive discounts are
recorded net within accounts receivable and net revenues.

The Company defers revenue recognition, net of
direct cost of sales, if, in its judgment, it estimates that its
key wholesale customers have excess channel inventory (i.e., if
wholesale customers inventories exceed the Companys
estimates of demand at the retail level, after considering
factors such as product shelf-life, prescription activity and
trends). As of December 31, 2003 and 2002, the Company had
deferred net revenue of approximately $1.8 million and
$4.2 million, respectively. The actual amounts could be
different from the estimates, and differences are accounted for
in the period 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 sale 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.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Liabilities to Customers and Reserves for
    Product Returns, Rebates and Chargebacks

Liabilities to customers primarily arise from
customer returns received for expired or expiring product for
which the Company generally expects to satisfy the liability by
shipping replacement product (some of which is already in stock)
or by issuing credits against future sales/receivables. The
liabilities to customers were $7.3 million and
$0.7 million at December 31, 2003 and 2002,
respectively.

The Company reports revenue net of estimated
reserve for product returns, rebates, chargebacks and prompt pay
discounts. The Company estimates its reserve requirements
utilizing historical data, industry information and information
obtained from key customers. The Company generally accepts for
credit or exchange pharmaceutical products that have become
unsaleable or unusable due to expiration dating, drug recall or
discontinuance. If actual results differ from the estimates, the
reserves are adjusted in the period the difference is known.
Based on our agreements with the Companys customers and
our historical experience, we estimate the amount of product
that we expect to be returned for replacement or credit. The
estimated product to be returned for replacement is provided for
at our inventory value (actual replacement cost), and the
estimated product to be returned for credit is provided for at
our sales price.

Certain governmental health insurance providers,
as well as hospitals and clinics that are members of group
purchasing organizations, may be contractually entitled to price
discounts and rebates to the Companys products used by
those organizations and their patients. The Company estimates
the likelihood that products sold to wholesale distributors will
ultimately be subject to a rebate or price discount and records
revenue net of estimated discounts for rebates and chargebacks.
This estimate is based on historical trends and industry data
regarding the utilization of the Companys products.

Reserves of $8.3 million, $4.3 million
and $2.1 million were recorded in the year ended
December 31, 2003, 2002 and 2001, respectively. Actual
product returns, rebates and chargebacks applied during these
same periods were $5.6 million, $3.1 million and
$1.0 million, respectively.



| |                     
| | --------------------
| | Advertising Expenses

The Company expenses advertising costs when
incurred. Total advertising expenses were $1.9 million,
$1.2 million and $0.5 million for the years ended
December 31, 2003, 2002 and 2001, respectively.



| |                                    
| | -----------------------------------
| | Regulatory and Development Expenses

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



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

The Company incurred original issue discount and
debt issuance costs of $4.1 million and $1.7 million,
respectively, related to the valuation of the warrants issued in
connection with senior secured notes issued to finance the
acquisition of Vaniqa® Cream in June 2002.
Additional issue discount costs of $0.6 million and debt
issuance costs of $0.2 million were incurred when the
Company restructured such warrants and notes in May 2003 (see
Note 6). These costs are amortized to interest expense over
the life of the senior secured notes. At December 31, 2003
and 2002, the accumulated amortization of the total original
issue discount costs was

F-12



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

$2.1 million and $0.7 million,
respectively, and the accumulated amortization of the debt
issuance costs was $0.8 million and $0.3 million,
respectively. As of December 31, 2003, these balances were
considered current as a result of the classification of the
long-term debt as current. (See Note 6.)



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

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 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 accreted
interest at a rate of 10% per annum through December 2003,
calculated quarterly, which increases to 11.5% per annum in
January 2004 and to 12.5% per annum in July 2004. The
accretion expense is added to the stated value of the
convertible redeemable preferred stock. Accretion expense was
$1.4 million and $0.7 million for the years ended
December 31, 2003 and 2002, respectively.



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

The Company provides for income taxes under the
asset and liability method of SFAS No. 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 13).



| |                   
| | ------------------
| | Comprehensive Loss

Under SFAS No. 130, Reporting
Comprehensive Income or Loss, the reporting and display of
comprehensive loss and its components is required in the
financial statements. For the periods presented in the
accompanying consolidated 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 per share applicable to common
stockholders is calculated by dividing the net loss applicable
to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted net loss per share
applicable to common stockholders, which would include
additional common shares issuable for the exercise or conversion
of outstanding options, warrants, convertible redeemable
preferred stock and a note payable, if dilutive, is unchanged
from basic loss per share due to the Companys net loss,
making the effect of these common share equivalents
anti-dilutive.

The following table sets forth potential shares
of common stock that are not included in the computation of
diluted net loss per share because to do so would be
antidilutive for the year ended December 31, 2003:

|                                                         |  |  |           | 
|-------------------------------------------------------- |  |  | --------- | 
|Options to purchase common stock                         |  |  | 1,870,461 | 
|Warrants to purchase common stock                        |  |  | 2,361,629 | 
|Conversion of Élan note                                  |  |  | 1,203,291 | 
|Conversion of convertible redeemable preferred
    stock |  |  | 1,759,008 | 
|                                                         |  |  |           | 
|                                                         |  |  | 7,194,389 | 
|                                                         |  |  |           | 

F-13



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



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

The carrying amount of cash and cash equivalents,
trade receivables, 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. Based on the Companys current financial
condition, there are indications that the fair value of all of
the Companys debt and convertible redeemable preferred
stock, as of December 31, 2003, would be different than the
$51.0 million carrying value. However, the Company believes
it is not practical to estimate the fair value of these
securities at this time (see Note 6 and Note 15).

At December 31, 2003, the Company had
outstanding a note receivable from an officer totaling
$0.3 million (see Note 11). The note was fully
reserved in 2003 as the fair value of the officers stock
options used to secure this note was insufficient to cover the
face amount of the note.

In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, the Company has classified the revenues, expenses
and related assets and liabilities of the Companys
consumer products subsidiary, As We Change, as discontinued
operations in the accompanying financial statements (see
Note 3).



| |                                
| | -------------------------------
| | Recent Accounting Pronouncement

In May 2003, the FASB issued Statement
No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity. The
Statement addresses the classification of certain financial
instruments embodying obligations that could be settled by the
issuance of an entitys own shares. SFAS 150 improves
the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity and
requires that those instruments be classified as liabilities (or
assets in certain circumstances) in the consolidated balance
sheets. SFAS 150 is generally effective for all financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of
SFAS No. 150 has not had, nor do we believe it will
have, a material impact on our current or prospective financial
statements.



|   |                                     
|-- | ------------------------------------
|2. | Balance Sheet Details (in thousands)

|                                                   |                          |              |       |       |  |   |        |        | 
|-------------------------------------------------- | ------------------------ | ------------ | ----- | ----- |  | - | ------ | ------ | 
|                                                   |                          |             
|                                                   |                          | December 31,
|                                                   |                          |             
|                                                   |                          | 2003         |       | 2002 
|                                                   |                          |              |       |      
|Accounts receivable:                               |                          |              |       |       |  |   |        |       
|Trade receivables                                  |                          | $            | 2,750 |       |  | $ | 17,044 |       
|Allowance for doubtful accounts and cash discounts |                          |              | (557  | )     |  |   | (502   | )     
|                                                   |                          |              |       |       |  |   |        |       
|                                                   | Accounts receivable, net |              | $     | 2,193 |  |   | $      | 16,542 | 
|                                                   |                          |              |       |       |  |   |        |       

|                                           |                                           |              |     |      |  |   |       |       | 
|------------------------------------------ | ----------------------------------------- | ------------ | --- | ---- |  | - | ----- | ----- | 
|                                           |                                           |             
|                                           |                                           | December 31,
|                                           |                                           |             
|                                           |                                           | 2003         |     | 2002
|                                           |                                           |              |     |     
|Prepaid expenses and other current assets: |                                           |              |     |      |  |   |       |      
|Inventory samples, net                     |                                           | $            | 197 |      |  | $ | 902   |      
|Prepaid insurance                          |                                           |              | 378 |      |  |   | 352   |      
|Other                                      |                                           |              | 378 |      |  |   | 1,270 |      
|                                           |                                           |              |     |      |  |   |       |      
|                                           | Prepaid expenses and other current assets |              | $   | 953  |  |   | $     | 2,524 | 
|                                           |                                           |              |     |      |  |   |       |      

F-14



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                         |                             |              |        |      |  |   |        |     | 
|------------------------ | --------------------------- | ------------ | ------ | ---- |  | - | ------ | --- | 
|                         |                             |             
|                         |                             | December 31,
|                         |                             |             
|                         |                             | 2003         |        | 2002
|                         |                             |              |        |     
|Property and equipment:  |                             |              |        |      |  |   |        |    
|Furniture and fixtures   |                             | $            | 614    |      |  | $ | 614    |    
|Office equipment         |                             |              | 1,083  |      |  |   | 1,111  |    
|Leasehold improvements   |                             |              | 43     |      |  |   | 138    |    
|                         |                             |              |        |      |  |   |        |    
|                         |                             |              | 1,740  |      |  |   | 1,863  |    
|Accumulated depreciation |                             |              | (1,220 | )    |  |   | (1,092 | )  
|                         |                             |              |        |      |  |   |        |    
|                         | Property and equipment, net |              | $      | 520  |  |   | $      | 771 | 
|                         |                             |              |        |      |  |   |        |    

|                         |                   |              |        |       |  |   |       |       | 
|------------------------ | ----------------- | ------------ | ------ | ----- |  | - | ----- | ----- | 
|                         |                   |             
|                         |                   | December 31,
|                         |                   |             
|                         |                   | 2003         |        | 2002 
|                         |                   |              |        |      
|Other assets:            |                   |              |        |       |  |   |       |      
|Licenses                 |                   | $            | 1,100  |       |  | $ | 1,100 |      
|Technology transfer fees |                   |              | 1,100  |       |  |   | 1,100 |      
|Deposits                 |                   |              | 52     |       |  |   | 144   |      
|Website development      |                   |              | 605    |       |  |   | 602   |      
|Other                    |                   |              |       |       |  |   | 199   |      
|                         |                   |              |        |       |  |   |       |      
|                         |                   |              | 2,857  |       |  |   | 3,145 |      
|Accumulated amortization |                   |              | (1,271 | )     |  |   | (953  | )    
|                         |                   |              |        |       |  |   |       |      
|                         | Other assets, net |              | $      | 1,586 |  |   | $     | 2,192 | 
|                         |                   |              |        |       |  |   |       |      

|                               |                           |              |     |       |  |   |       |       | 
|------------------------------ | ------------------------- | ------------ | --- | ----- |  | - | ----- | ----- | 
|                               |                           |             
|                               |                           | December 31,
|                               |                           |             
|                               |                           | 2003         |     | 2002 
|                               |                           |              |     |      
|Other accrued liabilities:     |                           |              |     |       |  |   |       |      
|Accrued legal fees             |                           | $            | 502 |       |  | $ | 47    |      
|Accrued audit and tax services |                           |              | 259 |       |  |   | 46    |      
|Accrued royalties              |                           |              | 196 |       |  |   | 945   |      
|Accrued rent                   |                           |              | 68  |       |  |   |      |      
|Accrued interest payable       |                           |              | 258 |       |  |   | 61    |      
|Other                          |                           |              | 492 |       |  |   | 1,514 |      
|                               |                           |              |     |       |  |   |       |      
|                               | Other accrued liabilities |              | $   | 1,775 |  |   | $     | 2,613 | 
|                               |                           |              |     |       |  |   |       |      



|   |                        
|-- | -----------------------
|3. | Discontinued Operations

In December 2003, the Company committed to
shutting down its consumer products subsidiary, As We Change,
because the Company projected it would incur losses for the
foreseeable future and does not constitute a core element of the
Companys specialty pharmaceutical business. As We Change
sells self-care products including a broad array of nutritional,
skin, beauty, herbal, exercise, libido, wellness and other
products through a national mail-order catalog. In addition to
the classification in the accompanying consolidated balance
sheet of As We Changes assets and liabilities as
held for sale, the Company recognized an impairment
charge of $2.7 million associated with the write-off of
goodwill and other intangibles, which is included in the loss
from discontinued operations.

F-15



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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 following table presents selected balance
sheet information for As We Change at December 31 (in
thousands):

|                                          |  |              |       |      |  |   |       | 
|----------------------------------------- |  | ------------ | ----- | ---- |  | - | ----- | 
|                                          |  |             
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2003         |       | 2002
|                                          |  |              |       |     
|Assets:                                   |  |              |       |      |  |   |       | 
|Inventory, net                            |  | $            | 181   |      |  | $ | 685   | 
|Prepaid expenses and other current assets |  |              | 386   |      |  |   | 685   | 
|Intangible assets, net                    |  |              |      |      |  |   | 2,691 | 
|Other assets                              |  |              | 95    |      |  |   | 189   | 
|                                          |  |              |       |      |  |   |       | 
|Assets held for sale                      |  | $            | 662   |      |  | $ | 4,250 | 
|                                          |  |              |       |      |  |   |       | 
|Liabilities:                              |  |              |       |      |  |   |       | 
|Accounts payable                          |  | $            | 1,014 |      |  | $ | 595   | 
|Accrued salaries and employee benefits    |  |              | 77    |      |  |   | 86    | 
|Other current liabilities                 |  |              | 210   |      |  |   | 165   | 
|                                          |  |              |       |      |  |   |       | 
|Liabilities held for sale                 |  | $            | 1,301 |      |  | $ | 846   | 
|                                          |  |              |       |      |  |   |       | 

The following table presents summary operating
results for As We Change (in thousands):

|                                                                       |  |                          |        |      |  |      |       |   |  |   |       |  
|---------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                       |  |                         
|                                                                       |  | Years ended December 31,
|                                                                       |  |                         
|                                                                       |  | 2003                     |        | 2002 |  | 2001
|                                                                       |  |                          |        |      |  |     
|Net revenue                                                            |  | $                        | 8,783  |      |  | $    | 7,580 |   |  | $ | 7,344 |  
|Costs and expenses                                                     |  |                          | 13,267 |      |  |      | 7,643 |   |  |   | 7,726 |  
|                                                                       |  |                          |        |      |  |      |       |   |  |   |       |  
|Net loss applicable to common stockholders                             |  | $                        | (4,484 | )    |  | $    | (63   | ) |  | $ | (382  | )
|                                                                       |  |                          |        |      |  |      |       |   |  |   |       |  
|Basic and diluted loss per share applicable to
    common stockholders |  | $                        | (0.18  | )    |  | $    | (0.00 | ) |  | $ | (0.02 | )
|                                                                       |  |                          |        |      |  |      |       |   |  |   |       |  

As shown above, the assets of As We Change
included $2.7 million of intangible assets at
December 31, 2002 associated with the acquisition of this
subsidiary. In December 2003, the Company recorded an impairment
charge to fully reserve such intangibles in conjunction with its
decision to discontinue the As We Change operations.

F-16



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |               
|-- | --------------
|4. | Product Rights

|                                                              |                     |              |        |        |  |   |        |        | 
|------------------------------------------------------------- | ------------------- | ------------ | ------ | ------ |  | - | ------ | ------ | 
|                                                              |                     |             
|                                                              |                     | December 31,
|                                                              |                     |             
|                                                              |                     | 2003         |        | 2002  
|                                                              |                     |              |        |       
|Product rights, net of related impairment (in
    thousands): |                     |              |        |        |  |   |        |       
|Midrin®                                                       |                     | $            | 3,741  |        |  | $ | 15,116 |       
|BactrimTM                                                     |                     |              | 1,921  |        |  |   | 5,890  |       
|Equagesic®and
    Synalgos®                                   |                     |              | 6,643  |        |  |   | 16,386 |       
|Vaniqa®                                                       |                     |              | 32,746 |        |  |   | 43,676 |       
|Ortho-Est®                                                    |                     |              | 1,327  |        |  |   | 1,170  |       
|                                                              |                     |              |        |        |  |   |        |       
|                                                              |                     |              | 46,378 |        |  |   | 82,238 |       
|Accumulated amortization                                      |                     |              | (8,865 | )      |  |   | (4,806 | )     
|                                                              |                     |              |        |        |  |   |        |       
|                                                              | Product rights, net |              | $      | 37,513 |  |   | $      | 77,432 | 
|                                                              |                     |              |        |        |  |   |        |       

During 2003, the Company recorded impairment
charges against these product rights and other assets of
$25.1 million. Amortization expense of product rights
totaled $5.2 million, $4.0 million, and
$0.7 million for the years ended December 31, 2003,
2002 and 2001, respectively. For the above products,
amortization expense will be $3.0 million in each of the
next five years.

Ortho-Est®Tablets.

The Company entered an exclusive distribution
agreement with Ortho-McNeil Pharmaceutical in July 1998 to sell
and distribute Ortho-Est® Tablets. The distribution
agreement required the Company 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. The Company 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 the Company all
of its right, title and interest in Ortho-Est®
Tablets effective January 1, 2001 and granted us an
exclusive license to use the Ortho-Est®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. Ortho-Est® Tablets
are manufactured by Pharmaceutics International, Inc. under
a four-year agreement that expires in February 2007. The Company
incurred expenses of $1.3 million associated with the setup
of Pharmaceutics International Inc. as a supplier of
Ortho-Est®.

Midrin®

On June 29, 2001, the Company and Élan
entered into an asset and inventory purchase agreement whereby
the Company acquired the exclusive U.S. product rights to
Midrin® and finished goods inventory, in exchange
for the issuance of 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, from the date of
acquisition, of up to $5.0 million, capped at
$0.5 million per year. Royalty expense in 2003 and 2002 was
$0.1 million and $0.3 million, respectively. In 2001,
the Company recorded product rights of $15.1 million, which
are being amortized on a straight-line basis over the estimated
useful life of 15 years. During 2003, the Company recorded
impairment charges of $11.4 million related to the
Midrin® product rights.

F-17



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

BactrimTM

On October 12, 2001, the Company and
Hoffmann-La Roche entered into an asset and inventory
purchase agreement whereby the Company acquired the exclusive
U.S. product rights to the BactrimTM
family of antibacterial products and finished goods inventory,
in exchange for $6.0 million in cash. The Company recorded
product rights of $5.9 million, which are being amortized
on a straight-line basis over the estimated useful life of
15 years. The Company also initiated a Supply agreement
with Hoffman-La Roche, a five-year agreement with extension
options up to an additional 5 years. The Company paid
$1.1 million for the Supply agreement, and while classified
in Other Current Assets, is included in any
valuation consideration of BactrimTM. During 2003,
the Company recorded impairment charges of $4.0 million
related to the BactrimTM product rights.

Equagesic®and Synalgos®

On November 15, 2001, the Company acquired
all rights in the U.S. and Puerto Rico to prescription pain
management products Equagesic® Tablets and
Synalgos® DC Capsules, and the relevant trademarks
and the Abbreviated New Drug Application (ANDA) and New Drug
Application (NDA) for Equagesic® and
Synalgos®-DC from American Home Products Corporation
(now known as Wyeth). As amended in November 2002, the Company
paid $17.0 million to acquire the rights and related
inventory, comprised of $7.5 million cash at closing and a
$9.5 million three-year note payable. In 2001, the Company
recorded product rights of $16.1 million, which are being
amortized on a straight-line basis over the estimated useful
life of 15 years. Wyeth continued to manufacture and supply
the Company with Equagesic® Tablets and
Synalgos® DC Capsules through 2003. During 2003, the
Company recorded an impairment charge of $9.7 million
related to the Equagesic®/ Synalgos®
product rights. The Company is currently negotiating with an
alternative supplier and believes it has sufficient inventories
to meet near term demand.

Vaniqa®

On June 25, 2002, the Company acquired
exclusive worldwide rights and title to Vaniqa®
(eflornithine hydrochloride) Cream, 13.9%, from a joint venture
formed by the Bristol-Myers Squibb Company (BMS) and
The Gillette Company (Gillette). BMS and the Company
also entered into a supply agreement, as amended, whereby BMS
will continue to manufacture Vaniqa® Cream
through June 2007. The Company paid $38.5 million for the
product rights, $0.7 million for finished goods inventory
and assumed $3.7 million in liabilities for product returns
related to pre-acquisition Vaniqa® Cream
product sales. As of December 31, 2003 and 2002, the total
cost of the Vaniqa® Cream product rights was
$43.7 million. The Company financed the acquisition with
$28.0 million of Senior secured notes and
$13.0 million of convertible redeemable preferred stock
(see Notes 6 and 7).

In December 2003, the Company entered into an
agreement with Shire Pharmaceuticals Ireland Limited
(Shire), an affiliate of Shire Pharmaceuticals Group
pc, to sub-license exclusive rights to manufacture, market, use,
distribute, and sell Vaniqa® (eflornithine
hydrocholoride) Cream for the European Union, Australia, Canada,
Hong Kong, Israel, New Zealand, South Africa, South Korea,
Singapore, Switzerland Taiwan, and Thailand, in exchange for a
cash payment of $10.0 million (see Note 7).

Under the terms of the license and supply
agreement between the Company and Shire, the Company sold and
transferred to Shire certain trademarks, regulatory
documentation and books and records relating to
Vaniqa® Cream in the licensed territories and
granted sublicenses of certain of the Companys rights
under its license agreement and related agreements with BMS,
Gillette and their former joint venture. Under the terms of the
license and supply agreement between the Company and Shire, for
a limited period of time, Shire may purchase its supply of
Vaniqa® Cream indirectly through the Company
from BMS pursuant to the Companys existing supply
agreement with BMS.

F-18



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Supply
of Pharmaceutical Products

The Company is dependent on single sources of
supply for each of the pharmaceutical products it sells 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.



|   |                                   
|-- | ----------------------------------
|5. | 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. The license fee is recorded in other assets
and is amortized on a straight-line basis over the seven-year
term of the agreement. The Company is also required to pay
Fournier a royalty, which includes manufacturing costs, based
upon the net sales of the product. The agreement expires in July
2006. Total royalty expenses were $0.4 million,
$0.9 million and $0.6 million for the years ended
December 31, 2003, 2002 and 2001, respectively.



|   |                                                    
|-- | ---------------------------------------------------
|6. | Notes Payable and Line of Credit (in
    thousands)

|                                                                                                            |  |      |        |      |  |   |        | 
|----------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                                                            |  | 2003 |        | 2002
|                                                                                                            |  |      |        |     
|7% Convertible Promissory Note Payable to
    Élan                                                          |  | $    | 12,623 |      |  | $ | 12,196 | 
|Note Payable to Wyeth                                                                                       |  |      | 4,757  |      |  |   | 6,139  | 
|11% Senior Secure Notes (net of unamortized
    original issue discount of $2,649 and $3,478, respectively) |  |      | 25,350 |      |  |   | 24,522 | 
|                                                                                                            |  |      |        |      |  |   |        | 
|                                                                                                            |  | $    | 42,730 |      |  | $ | 42,857 | 
|                                                                                                            |  |      |        |      |  |   |        | 

The Company has classified notes payable totaling
$42.7 million as current obligations as of
December 31, 2003 due to anticipated debt covenant defaults
as of March 31, 2004. The notes payable balances were
classified based upon the maturities for the respective
agreements.

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
$10.49 per share, subject to certain adjustments. Interest
was compounded semi-annually and added to the principal through
June 2003; thereafter, interest became payable quarterly.
Interest added to principal totaled $1.6 million as of
December 31, 2003. The Midrin® product rights
secure this note.

The Note Payable to Wyeth was originally issued
as non-interest bearing, and the Company initially recorded the
Note at its discounted present value at an imputed interest rate
of 7%. As of December 31, 2003, the remaining balance of
the Note is currently due in two installments of
$1.6 million in May 2004, and $3.2 million in November
2004. On November 25, 2003, the note was amended to defer
payment of one-half of the $3.2 million due on
November 28, 2003 to May 28, 2004. In consideration of
this deferral, the Company agreed to pay interest quarterly at
12% on the deferred balance of $1.6 million. The
Equagesic® and Synalgos® product rights
secure this note.

The senior secured notes issued in connection
with the acquisition of Vaniqa® 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, except that the Company may pay interest amounts in excess
of 11% per annum in cash or through the issuance of additional
notes. The purchasers of the notes also received warrants
exercisable for 13.7 million shares of common stock at an
exercise price of $5.50 per share. The warrants expire in
December 2006.

F-19



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Companys operating results during the
fourth quarter of 2002 and the first and second quarters of 2003
caused it to fall out of compliance with certain financial
covenants applicable to its senior secured notes. In May and
August 2003, the Company amended and restructured the senior
secured notes and convertible redeemable preferred stock
agreements to waive these past defaults and provide for the
following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | financial covenants requiring minimum cash
    revenue, maximum cash expenditures and minimum cash balances
    through December 31, 2004. Beginning in 2005, the Company
    will be subject to financial covenants setting a maximum ratio
    of net debt (defined as total indebtedness minus cash and cash
    equivalents) to EBITDA, and a minimum ratio of EBITDA to cash
    interest expense. In addition to the financial and other
    covenants provided for in the agreement, the senior secured
    notes prohibit the Company from paying dividends and issuing
    additional indebtedness, subject to certain exceptions,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | in addition to the Vaniqa® Cream
    assets previously pledged as security, the Company granted the
    note holders additional security interest in all of its other
    assets, other than its license rights to
    EsclimTM,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | a second security interest in our
    Equagesic® and Synalgos® product rights,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | the Company granted warrants to purchase
    2.0 million shares of common stock at $0.63 per share to
    the holders of the senior secured notes. Warrants to purchase
    1.7 million shares of the Companys common stock at
    $5.50 per share, previously issued to the note holders, were
    canceled,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | net proceeds from future asset sales and the
    license and/or sale of international rights to
    Vaniqa® Cream, if any, will be apportioned among the
    holders of the convertible redeemable preferred stock and the
    holders of the senior secured notes and the Company according to
    a pre-determined formula, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | the Company exchanged shares of a new series of
    convertible redeemable preferred stock for the same number of
    shares of the series of convertible redeemable preferred stock
    previously issued. The new series of convertible redeemable
    preferred stock has the same terms as the prior series, except
    that it requires proceeds of specified asset sales to be used to
    redeem the shares of convertible redeemable preferred stock and
    grants to the Company the right to redeem the convertible
    redeemable preferred stock at the Companys option at a
    premium equal to 108% of accreted stated value of the
    convertible redeemable preferred stock through November 30,
    2003, at which time the redemption premium will increase based
    on a formula that takes into account the number of shares
    redeemed before November 30, 2003. The convertible
    redeemable preferred stockholders subsequently agreed to extend
    the November 30, 2003 redemption date to December 19,
    2003. Under the terms of the prior series of convertible
    redeemable preferred stock, the Company would have had the
    option to redeem the preferred stock only if the trading price
    of the Companys common stock exceeded three times the
    $6.35 conversion price for 30 consecutive trading days.

Any future default by the Company under the
senior secured notes will allow the note holders to accelerate
the Companys indebtedness under the senior secured notes.
The Company anticipates that it will default on some of its
covenants as of the quarter ending March 31, 2004.

The issuance of the new warrants and
corresponding cancellation of the old warrants resulted in an
additional original debt issue discount of $0.6 million and
debt issuance costs of $0.2 million, which will be
amortized over the remaining term of the debt using the interest
method.

F-20



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Although presently reported as a current
liability due to anticipated debt covenant default, scheduled
long-term debt principal payments per the respective debt
agreements, including imputed interest and assuming no
acceleration of payments, are as follows as of December 31,
2003:

|     |                          |   |        |        | 
|---- | ------------------------ | - | ------ | ------ | 
|2004 |                          | $ | 4,875  |       
|2005 |                          |   | 28,000 |       
|2006 |                          |   |       |       
|2007 |                          |   |       |       
|2008 |                          |   | 12,623 |       
|     |                          |   |        |       
|     | Total scheduled payments |   | $      | 45,498 | 
|     |                          |   |        |       



| |               
| | --------------
| | Line of Credit

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 borrowing
and because the Credit Agreement contained a cross-default
provision with the senior secured note, 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.



|   |                                           
|-- | ------------------------------------------
|7. | Convertible Redeemable Preferred
    Stock

The Company financed its acquisition of the
Vaniqa® Cream product rights in part through
the issuance of 13,000 shares of convertible redeemable
preferred stock (the convertible redeemable preferred
stock) for an aggregate initial stated value equal to
$13.0 million. The stated value of the convertible
redeemable preferred stock accreted at a rate of 10% per
annum through December 2003, increased to 11.5% per annum
in January 2004, and will increase to 12.5% per annum in
July 2004. Concurrent with the preferred stock issuance, the
Company recorded a one-time non-cash charge of $1.0 million
for the beneficial conversion feature as the $6.35 per
share conversion price was less than the existing 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
or redeemed early, 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. Stated value accreted during the years ending
December 31, 2003 and 2002 in the amount of
$1.4 million and $0.7 million, respectively. In June
2006, taking into account the redemption in December 2003
described below, the accreted stated value will be
$11.2 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.

There is no provision for acceleration of the
convertible redeemable preferred stock, and the convertible
redeemable preferred stock does not contain financial covenants.
However, if the Company fails to make a purchase, redemption,
liquidation or other payment due under the terms of the
convertible redeemable preferred stock, the holders, voting as a
separate class, will be entitled to elect two directors to the
Companys board of directors until such purchase,
redemption, liquidation or other payment is made. Also, if the

F-21



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Company fails to make a purchase, redemption,
liquidation or other payment due under the terms of the
convertible redeemable preferred stock, or breaches or violates
any other provision of the convertible redeemable preferred
stock, the accretion rate will be increased to 18% per
annum until such breach is cured.

In December 2003, in connection with the
sub-license agreement entered into with Shire (see
Note 4) and in accordance with the restructured terms
of the Companys convertible redeemable preferred stock,
the Company used 75%, or $7.4 million, of the
$9.8 million of net proceeds from the Shire transaction to
redeem $5.9 million or 5,895 shares of its outstanding
convertible redeemable preferred stock at their stated value,
$0.9 million related to accreted dividends and
$0.5 million related to an 8% mandatory early redemption
premium which has been included in accretion expense. Concurrent
with the transaction, the holders of the Companys senior
secured notes and convertible redeemable preferred stock
consented to the transaction and released their security
interest in certain assets that are transferred to Shire.

If the Company is legally able to and 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 the holders of common stock.



|   |                              
|-- | -----------------------------
|8. | Commitments and Contingencies



| |       
| | ------
| | Leases

The Company leases office space, automobiles and
office equipment under operating leases. Lease expense was
$0.7 million in each of the three years ended
December 31, 2003, 2002 and 2001. The Company has provided
a $0.2 million letter of credit (secured by a
$0.2 million certificate of deposit recorded as restricted
cash) to secure its obligations under its corporate office lease.

Minimum future annual operating lease
obligations, as of December 31, 2003, are as follows:

|                    |  |                |       | 
|------------------- |  | -------------- | ----- | 
|                    |  | (in thousands)
|2004                |  | $              | 602   | 
|2005                |  |                | 548   | 
|2006                |  |                | 422   | 
|2007 and Thereafter |  |                |      | 
|                    |  |                |       | 
|                    |  | $              | 1,572 | 
|                    |  |                |       | 



| |                   
| | ------------------
| | Royalty Agreements

The Company pays 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. Total royalty expenses were $0.4 million,
$1.3 million and $0.6 million in the years ended
December 31, 2003, 2002 and 2001, respectively.

F-22



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                         
| | ------------------------
| | Firm Purchase Commitment

Additional inventories under a firm purchase
commitment totaled $1.3 million as of December 31,
2003.



|   |                               
|-- | ------------------------------
|9. | Stockholders Equity (Deficit)



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

In June 2001, the Company issued 0.4 million
shares of common stock to Élan in connection 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 0.2 million
shares of common stock at $3.50 per share to the placement
agent in the transaction. 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 holders of the senior secured notes
issued in connection with the acquisition of the product rights
for Vaniqa® Cream. In connection with the
debt restructuring in May 2003 (see Note 6), the Company
granted the Note holders warrants to purchase 2.0 million
shares of common stock, at $0.63 per share, and the
previously issued 1.7 million warrants at $5.50 per
share were canceled. The warrants expire in December 2006. The
Company estimated the fair value of both of these warrants at
their respective grant dates using the Black Scholes valuation
model and recorded a discount to the senior secured notes of
$4.1 million and $0.6 million, respectively, with a
corresponding increase to additional paid-in-capital. The
discounts are being amortized to interest expense over the
period the related debt is outstanding (see Note 6). In
addition, the Company has reserved 1.8 million shares of
common stock for issuance upon conversion of the convertible
redeemable preferred stock. The Company intends to file an
amended registration statement to register these shares no later
than the second quarter of 2004.

In May 2003, concurrent with the restructuring of
the Companys senior secured notes and convertible
redeemable preferred stock, the Company received
$2.5 million of new capital through a private placement of
its common stock at $0.71 per share. Edward F. Calesa,
the Companys Chairman of the Board and Chief Executive
Officer, invested $1.0 million and Richard L. Rubin,
one of the Companys directors, invested $50,000. The
Company has agreed to register the shares of common stock issued
in the private placement with the Securities and Exchange
Commission to permit the resale of the shares by the private
placement investors.

The following authorized common stock is reserved
for future issuance as of December 31, 2003:

|                                       |                              |                |       |       | 
|-------------------------------------- | ---------------------------- | -------------- | ----- | ----- | 
|                                       |                              | (In thousands)
|Stock options:                         |                              |                |       |      
|                                       | Granted and outstanding      |                |       | 1,870 | 
|                                       | Reserved for future grants   |                |       | 1,636 | 
|Warrants                               |                              |                | 2,362 |      
|Convertible note payable               |                              |                | 1,203 |      
|Convertible redeemable preferred stock |                              |                | 1,759 |      
|                                       |                              |                |       |      
|                                       | Total common shares reserved |                |       | 8,830 | 
|                                       |                              |                |       |      

F-23



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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, as amended,
4.9 million shares of common stock have been authorized for
issuance upon exercise of incentive and nonstatutory stock
options granted 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 must 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 addition to the above, the Company has options
granted and outstanding as of December 31, 2003, 2002 and
2001 totaling 27,450 under a predecessor plan. No additional
options are available to be granted under the predecessor plan.

A summary of all option activity is presented
below:

|                                    |           |                |       |                |   |   |      |      | 
|----------------------------------- | --------- | -------------- | ----- | -------------- | - | - | ---- | ---- | 
|                                    |           |                |       | Weighted      
|                                    |           | Shares         |       | Average       
|                                    |           | (in thousands) |       | Exercise Price
|                                    |           |                |       |               
|Outstanding as of December 31, 2000 |           |                | 2,246 |                |   | $ | 1.44 |     
|                                    | Granted   |                |       | 832            |   |   | $    | 6.02 | 
|                                    | Exercised |                |       | (886           | ) |   | $    | 0.91 | 
|                                    | 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 |     
|                                    | Granted   |                |       | 1,616          |   |   | $    | 1.07 | 
|                                    | Exercised |                |       | (134           | ) |   | $    | 1.51 | 
|                                    | Cancelled |                |       | (1,185         | ) |   | $    | 2.97 | 
|                                    |           |                |       |                |   |   |      |     
|Outstanding as of December 31, 2003 |           |                | 1,870 |                |   | $ | 2.62 |     
|                                    |           |                |       |                |   |   |      |     

A summary of options outstanding as of
December 31, 2003 is presented below (share information in
thousands):

|                |  |             |       |                |  |                |     |             |  |                |      |  |  |  |     |  |  |   |      | 
|--------------- |  | ----------- | ----- | -------------- |  | -------------- | --- | ----------- |  | -------------- | ---- |  |  |  | --- |  |  | - | ---- | 
|                |  |             |       |                |  |                |     |             |  | 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     |  |             | 513   |                |  |                | 8.1 |             |  | $              | .60  |  |  |  | 299 |  |  | $ | .65  | 
|$0.92-$2.25     |  |             | 799   |                |  |                | 8.1 |             |  | $              | 1.35 |  |  |  | 232 |  |  | $ | 1.37 | 
|$2.26-$6.96     |  |             | 440   |                |  |                | 7.3 |             |  | $              | 5.68 |  |  |  | 283 |  |  | $ | 5.15 | 
|$6.97-$13.81    |  |             | 118   |                |  |                | 7.6 |             |  | $              | 8.75 |  |  |  | 71  |  |  | $ | 8.96 | 
|                |  |             |       |                |  |                |     |             |  |                |      |  |  |  |     |  |  |   |      | 
|                |  |             | 1,870 |                |  |                | 7.9 |             |  | $              | 2.62 |  |  |  | 885 |  |  | $ | 2.95 | 
|                |  |             |       |                |  |                |     |             |  |                |      |  |  |  |     |  |  |   |      | 



|    |                      
|--- | ---------------------
|10. | Restructuring Charges

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 restructuring costs. The statement

F-24



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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.

In March 2003, the Company announced
restructuring plans to improve its operating results and
terminated 56 employees (35% of its work force), consisting
primarily of sales and marketing personnel in the pharmaceutical
operation. Under the provisions of SFAS No. 146, the
Company reported approximately $0.7 million in costs
relating to this restructuring in 2003. The costs consisted of
severance pay and related benefits of $0.3 million and an
estimated $0.4 million in equipment and early termination
fees on automobile leases provided to the terminated employees
paid in the second quarter of 2003.

The following table presents the activity and
balances of the restructuring accrual from January 1, 2003
to December 31, 2003 (in thousands):

|                                |  |                      |      |             |  |       |      |   |  |   |      |  
|------------------------------- |  | -------------------- | ---- | ----------- |  | ----- | ---- | - |  | - | ---- | -
|                                |  | Severance Costs for  |      | Lease       |  |      
|                                |  | Involuntary Employee |      | Termination |  |      
|                                |  | Terminations         |      | Costs       |  | Total
|                                |  |                      |      |             |  |      
|Balance as of January 1, 2003   |  | $                    |     |             |  | $     |     |   |  | $ |     |  
|Charges                         |  |                      | 273  |             |  |       | 380  |   |  |   | 653  |  
|Cash payments                   |  |                      | (238 | )           |  |       | (415 | ) |  |   | (653 | )
|Reclassification of estimates   |  |                      | (35  | )           |  |       | 35   |   |  |   |     |  
|                                |  |                      |      |             |  |       |      |   |  |   |      |  
|Balance as of December 31, 2003 |  | $                    |     |             |  | $     |     |   |  | $ |     |  
|                                |  |                      |      |             |  |       |      |   |  |   |      |  



|    |                                              
|--- | ---------------------------------------------
|11. | Related Party Agreements and
    Transactions



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

In September 2000, the Company entered into an
agreement with Ortho-McNeil Pharmaceutical (Ortho),
a subsidiary of Johnson & Johnson, a principal
stockholder of the Company, that transferred all of Orthos
rights, title, and interest in Ortho-Est® Tablets to
the Company effective January 1, 2001. The agreement
provided for the Company to purchase Ortho-Est®
Tablets at Orthos fully burdened manufacturing costs
through April 2002. The Company has contracted with
Pharmaceutics International, Inc. for the supply of
Ortho-Est® Tablets since 2002.

During 2002 and 2001, $0.5 million and
$1.3 million was recorded as inventory purchases and
$0.2 million and $0.4 million, respectively, was
recorded as samples inventory purchases in the accompanying
financial statements for products purchased from Ortho.



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

In February 2002, the Company loaned Charles M.
Caporale, the Companys former Chief Financial Officer, and
Saundra L. Pelletier, Vice President of the Pharmaceutical
Division, $0.1 million and $0.3 million, respectively.
The non-interest bearing notes were payable in full at the
earlier of: (i) the executives termination of
employment, (ii) the sale of the Company, or
(iii) February 2017. There was no provision for forgiveness
of the loans, and the notes were secured by the executives
vested stock options. Mr. Caporales note became
payable upon his termination on October 31, 2003. As part
of the Companys severance agreement with
Mr. Caporale, he was released from any payment obligation
for this note. Ms. Pelletiers outstanding note
receivable was fully reserved in December 2003 as the
Companys current stock price was below the value of
Ms. Pelletiers vested options. In 2003, the Company
imputed interest and recorded compensation expense at 5% on the
outstanding note balances.

F-25



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                 
|--- | --------------------------------
|12. | Significant Customers Disclosure

The relationships with each of the following key
customers are a significant aspect of our business.

|                         |  |                         |       |                |  |                |      |   |  |  |      |  
|------------------------ |  | ----------------------- | ----- | -------------- |  | -------------- | ---- | - |  |  | ---- | -
|                         |  |                        
|                         |  | Year ended December 31,
|                         |  |                        
|                         |  | 2003                    |       | 2002           |  | 2001          
|                         |  |                         |       |                |  |               
|                         |  | Percent of              |       | Percent of     |  | Percent of    
|                         |  | Consolidated            |       | Consolidated   |  | Consolidated  
|                         |  | Gross Revenues          |       | Gross Revenues |  | Gross Revenues
|                         |  |                         |       |                |  |               
|McKesson Drug            |  |                         | (33.8 | )%             |  |                | 35.8 | % |  |  | 13.4 | %
|QK Healthcare, Inc.      |  |                         | 8.3   | %              |  |                | 23.5 | % |  |  | 33.4 | %
|Cardinal Health, Inc.    |  |                         | 41.8  | %              |  |                | 15.3 | % |  |  | 12.8 | %
|AmeriSource Bergen Corp. |  |                         | 38.7  | %              |  |                | 13.3 | % |  |  | 10.8 | %
|CareMark                 |  |                         | 11.9  | %              |  |                |     |   |  |  |     |  
|                         |  |                         |       |                |  |                |      |   |  |  |      |  
|                         |  |                         | 66.9  | %              |  |                | 87.9 | % |  |  | 70.4 | %
|                         |  |                         |       |                |  |                |      |   |  |  |      |  

During 2003, the Company focused on reducing the
channel inventories as the Company experienced a significant
decline in its prescription demand across most of its product
lines. The Company attributes most of the decline in its actual
or forecasted prescription demand to the limited resources
available for the Companys sales and marketing efforts on
promoted products, a declining hormone replacement therapy
market for its EsclimTM and
Ortho-Est® products due to industry wide health
concerns over usage of hormone replacement therapy products,
physician or pharmacy substitution for competing products and
the Companys inability to find a viable co-promotion
partner or third party contract sales organization. Such decline
in prescription demand resulted in the return of significant
quantities of expired or expiring product. Such returns can be
for credit or product replacement. As shown above, one key
customer returned more product than was purchased and replaced
during 2003, resulting in negative gross revenue for that
customer.

The Company has arrangements with three key
customers such that expired product is generally returned for
replacement. Under these agreements, the Company is required to
supply replacement product within a reasonable amount of time,
generally 90 days, or it can be required to issue a credit
for return. At December 31, 2003, the liabilities to
customers was $7.3 million, which compares to
$0.7 million at December 31, 2002. Liabilities to
customers are generally satisfied with the Companys
shipment of replacement product which is recorded as net
revenues upon shipment (this is non-cash generating revenue).
The liability balance is estimated based on the expected
percentage of customers to receive a full cash credit, plus the
expected percentage of customers to exchange product, which is
accrued at the respective cost of the product.



|    |             
|--- | ------------
|13. | Income Taxes

As of December 31, 2003, the Company has
federal and state tax net operating loss carryforwards of
approximately $109.8 million and $98.8 million,
respectively. The federal tax loss carryforwards will begin to
expire in 2018, unless previously utilized. The California tax
loss carryforwards will begin to expire in 2008, unless
previously utilized. The tax loss carryforwards for other states
begin to expire at other dates. 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 2019, 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. Due to the Companys current financial
condition, the Company believes such limitations could have a
material impact upon the utilization of these carryforwards.

F-26



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Significant components of the Companys
deferred tax assets as of December 31, 2003 and 2002 are
presented below. A valuation allowance of $58.2 million and
$28.9 million has been recognized, as realization of such
assets does not meet the more likely than not
threshold of SFAS No. 109.

|                         |                                  |              |         |        |  |   |         |        | 
|------------------------ | -------------------------------- | ------------ | ------- | ------ |  | - | ------- | ------ | 
|                         |                                  |             
|                         |                                  | December 31,
|                         |                                  |             
|                         |                                  | 2003         |         | 2002  
|                         |                                  |              |         |       
|Deferred tax assets:     |                                  |              |         |        |  |   |         |       
|                         | Net operating loss carryforwards |              | $       | 43,905 |  |   | $       | 26,340 | 
|                         | Allowances and reserves          |              |         | 1,961  |  |   |         | 2,247  | 
|                         | Research and development credits |              |         | 203    |  |   |         | 222    | 
|                         | Asset Impairment                 |              |         | 11,312 |  |   |         |       | 
|                         | Deferred Revenue                 |              |         | 717    |  |   |         |       | 
|                         | Other                            |              |         | 233    |  |   |         | 214    | 
|                         |                                  |              |         |        |  |   |         |       
|                         | Total deferred tax assets        |              |         | 58,331 |  |   |         | 29,023 | 
|Deferred tax liabilities |                                  |              | (101    | )      |  |   | (168    | )     
|Valuation allowance      |                                  |              | (58,230 | )      |  |   | (28,855 | )     
|                         |                                  |              |         |        |  |   |         |       
|Net deferred taxes       |                                  | $            |        |        |  | $ |        |       
|                         |                                  |              |         |        |  |   |         |       



|    |                      
|--- | ---------------------
|14. | Employee Savings Plan

The Companys employee savings plan covers
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. Company contributions to the plan are
discretionary and vest immediately. The Company did not make any
discretionary contributions during the years ended
December 31, 2003, 2002 or 2001.



|    |                  
|--- | -----------------
|15. | Subsequent Events

Restructuring
Activities

In the first quarter of 2004, the Company
announced the following: (i) the Company will discontinue its As
We Change mail order catalog operations, including the lay off
of all 28 employees employed by such operation as of
December 31, 2003, (ii) effective March 20, the
Company laid off all of its 44-member pharmaceutical sales force
and 6 operational and administrative employees, and
(iii) the Company retained Miller Buckfire Lewis
Ying & Co., LLC (MBLY) to assist in
exploring opportunities to sell the Company or some or all of
its product and license rights, to restructure our significant
outstanding indebtedness and to obtain new sources of financing.

The Company and MBLY have begun discussions with
the holders of its $28.0 million senior secured notes to
obtain a forbearance agreement to defer near-term interest
payments, address likely future covenant violations and
additional financing needs. There can be no assurance that the
senior lenders will grant such forbearance or that such
additional financing will be available. If the Company is
unsuccessful in promptly implementing a transaction to sell some
or all of our assets or in obtaining additional financing, the
Company may be forced to withhold payments to suppliers, debt
holders and others. In such a case, the Company may be required
to file for bankruptcy protection. Although the Company has
received indications of interest from potential acquirers of one
or more of our pharmaceutical products and potential sources of
financing, the Company does not have any definitive agreements
in place.

The Company expects to record a restructuring
charge in connection with such restructuring activities in its
first quarter of 2004. Such amount is not estimable at this time.

F-27



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##### Table of Contents



WOMEN FIRST HEALTHCARE, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Fournier
Agreement

On March 30, 2004, the Company received a notice
of default and request for cure from Fournier relating to
$0.2 million due on February 29, 2004. Under the
distribution and license agreement, the Company has 60 days to
cure this breach. Fournier also has asked for adequate
assurances of due performance under the agreement under
Section 2-609 of the Uniform Commercial Code and has
indicated that it will suspend performance under the agreement
until it receives such assurances. Fournier further states that
unless it receives the requested assurances from the Company by
April 30, 2004, it will take the position that the Company
has repudiated the agreement. If not cured, the Company does not
believe Fourniers suspension of performance will have a
material impact on its operations for at least the next two to
four months.

F-28



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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 |   |               |   |              
|                                                          |                                      | Beginning of   |   | Against   |   | Cost of    |   | Bad Debt   |   |               |   | Balance at   
|                                                          |                                      | Period         |   | Revenues  |   | Sales      |   | Expense    |   | Deductions(1) |   | End of Period
|                                                          |                                      |                |   |           |   |            |   |            |   |               |   |              
|                                                          |                                      |               
|                                                          |                                      | (In thousands)
|Allowance for doubtful accounts and cash
    discounts:   |                                      |                |   |           |   |            |   |            |   |               |   |               |   |  |   |      |   |  |   |       |  |  |   |       
|                                                          | For the year ended December 31, 2003 |                | $ | (502      | ) |            | $ | (515       | ) |               | $ |              |   |  | $ | (605 | ) |  | $ | 1,065 |  |  | $ | (557   | )
|                                                          | 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   | )
|Reserve for excess, dated and obsolete
    inventories:   |                                      |                |   |           |   |            |   |            |   |               |   |               |   |  |   |      |   |  |   |       |  |  |   |       
|                                                          | For the year ended December 31, 2003 |                |   | (1,915    | ) |            |   |           |   |               |   | (3,742        | ) |  |   |     |   |  |   | 878   |  |  |   | (4,779 | )
|                                                          | For the year ended December 31, 2002 |                |   | (732      | ) |            |   |           |   |               |   | (1,243        | ) |  |   |     |   |  |   | 60    |  |  |   | (1,915 | )
|                                                          | For the year ended December 31, 2001 |                |   | (1,662    | ) |            |   |           |   |               |   | (79           | ) |  |   |     |   |  |   | 1,009 |  |  |   | (732   | )
|Reserve for product returns, rebates and
    chargebacks: |                                      |                |   |           |   |            |   |            |   |               |   |               |   |  |   |      |   |  |   |       |  |  |   |       
|                                                          | For the year ended December 31, 2003 |                |   | (2,926    | ) |            |   | (10,007    | ) |               |   |              |   |  |   |     |   |  |   | 5,597 |  |  |   | (7,336 | )
|                                                          | 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 | )



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Deductions under allowance for doubtful accounts
    and cash discounts represent receivable write-offs and customer
    cash discounts taken. Deductions under reserve for excess, dated
    and obsolete inventory represent inventory written-off and
    destroyed. Deductions under reserve for product returns,
    exchanges, rebates and chargebacks represent actual product
    returns or replacement and deductions from invoices made for
    rebates and chargebacks.

S-1