**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

| **ý**                                                                                                                                                                                                                                                                                                                 |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                       |   |                                                                                               |
| **For  the quarterly period  ended         March 31,  2004**                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                       |
| **OR**                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                       |
| **o**                                                                                                                                                                                                                                                                                                                      |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                       |   |                                                                                               |
| **For  the transition period  from                       to                       ** |

 

**Commissionfilenumber                1-7335**

 

**LEEPHARMACEUTICALS**

(Exact name of small business issuer as specified inits charter)

 

| **California**                                                                      |   | **95-2680312**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation  or organization)                    |   | (I.R.S. Employer  Identification No.) |
|                                                                                |
| **1444  Santa Anita Avenue, South El Monte, California 91733**                      |
| (Address of  principal executive offices)                                           |
|                                                                                |
| **(626)  442-3141**                                                                 |
| (Issuer’s  telephone number)                                                   |
|                                                                                |
| **N/A**                                                                             |
| (Former name,  former address and former fiscal year, if changed since last report) |

 

As ofMarch 31, 2004 there were outstanding 4,135,162 shares of common stock ofthe registrant.

 

Transitional SmallBusiness Disclosure Format (check one):

Yes           o  No       ý

 

 

----

 

**LEE PHARMACEUTICALS****BALANCESHEET****MARCH 31,2004****(Dollarsin thousands)****(Unaudited)**

 
| **ASSETS**                                                                                            |   |    |      |      |      |
|-------------------------------------------------------------------------------------------------------|--------|---------|-----------|-----------|-----------|
|                                                                                                  |   |    |      |      |      |
| Cash                                                                                                  |   |    |      | **$**     | **4**     |   |
|                                                                                                  |   |    |      |      |      |
| Accounts  and notes receivable (net of allowances: $460)                                              |   |    |      | **710**   |      |
|                                                                                                  |   |    |      |      |      |
| Inventories  (net of reserves: $586)                                                                  |   |    |      |      |      |
| Raw  materials                                                                                        |   | **$**   | **1,789** |      |      |   |
| Work  in process                                                                                      |   | **171** |      |      |      |
| Finished  goods                                                                                       |   | **420** |      |      |      |
|                                                                                                  |   |    |      |      |      |
| Total  inventories                                                                                    |   |    |      | **2,380** |      |
|                                                                                                  |   |    |      |      |      |
| Other  current assets                                                                                 |   |    |      | **455**   |      |
|                                                                                                  |   |    |      |      |      |
| Total  current assets                                                                                 |   |    |      | **3,549** |      |
|                                                                                                  |   |    |      |      |      |
| Property,  plant and equipment (less accumulated depreciation and amortization: $5,553)               |   |    |      | **658**   |      |
|                                                                                                  |   |    |      |      |      |
| Intangibles  and other assets (net of accumulated amortization: $2,419 and  impairment:  $1,042) |   |    |      | **1,741** |      |
|                                                                                                  |   |    |      |      |      |
| **TOTAL**                                                                                             |   |    |      | **$**     | **5,948** |   |
|                                                                                                       |        |         |           |           |           |  |  |

 

See AccompanyingNotes to Financial Statements.

 

2

----

 

**LEE PHARMACEUTICALS****BALANCESHEET****MARCH 31,2004****(Dollarsin thousands)****(Unaudited)**

 
| **LIABILITIES**                                                                                       |   |       | ** ** |
|-------------------------------------------------------------------------------------------------------|--------|------------|------------|
|                                                                                                  |   |       | ** ** |
| Notes  payable - finance company                                                                      |   | **$**      | **1,021**  | ** ** |
| Current  portion - notes payable, other                                                               |   | **1,750**  | ** ** |
| Current  portion - note payable related party                                                         |   | **970**    | ** ** |
| Accounts  payable                                                                                     |   | **1,164**  | ** ** |
| Other  accrued liabilities                                                                            |   | **781**    | ** ** |
| Environmental  cleanup liability                                                                      |   | **366**    | ** ** |
| Due  to related parties                                                                               |   | **1,368**  | ** ** |
| Deferred  income                                                                                      |   | **59**     | ** ** |
|                                                                                                  |   |       | ** ** |
| Total  current liabilities                                                                            |   | **7,479**  | ** ** |
|                                                                                                  |   |       | ** ** |
| Long-term  notes payable to related parties                                                           |   | **1,491**  | ** ** |
| Long-term  notes payable - finance company                                                            |   | **84**     | ** ** |
| Long-term  notes payable, other                                                                       |   | **1,366**  | ** ** |
| Environmental  cleanup liability - Casmalia Site                                                      |   | **374**    | ** ** |
| Deferred  income                                                                                      |   | **212**    | ** ** |
|                                                                                                  |   |       | ** ** |
| Total  long-term liabilities                                                                          |   | **3,527**  | ** ** |
|                                                                                                  |   |       | ** ** |
| Total  liabilities                                                                                    |   | **11,006** | ** ** |
|                                                                                                  |   |       | ** ** |
| **COMMITMENTS AND CONTINGENCIES**                                                                     |   |       | ** ** |
|                                                                                                  |   |       | ** ** |
| **STOCKHOLDERS’ (DEFICIT)**                                                                      |   |       | ** ** |
|                                                                                                  |   |       | ** ** |
| Common  stock, $.10 par value; authorized, 7,500,00 shares; issued and outstanding,  4,135,162 shares |   | **413**    | ** ** |
|                                                                                                  |   |       | ** ** |
| Additional  paid-in capital                                                                           |   | **4,222**  | ** ** |
|                                                                                                  |   |       | ** ** |
| Accumulated  (deficit)                                                                                |   | **(9,693** | **)**      |
|                                                                                                  |   |       | ** ** |
| Total  stockholders’ (deficit)                                                                   |   | **(5,058** | **)**      |
|                                                                                                  |   |       | ** ** |
| **TOTAL**                                                                                             |   | **$**      | **5,948**  | ** ** |

 

See AccompanyingNotes to Financial Statements.

 

3

----

 

**LEEPHARMACEUTICALS**

**STATEMENTSOF OPERATIONS**

**(Dollarsin thousands, except per share amounts)**

**(Unaudited)**

 
|                                |                       | **For the  Three Months  Ended March 31,** |       | **For the  Six Months  Ended March 31,** |   |
|-------------------------------------|----------------------------|-------------------------------------------------|------------|-----------------------------------------------|--------|
|                                |                       | **2004**                                        |       | **2003**                                      |   | **2004** |   | **2003** |   |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Gross  revenues                     |                       | **$**                                           | **2,547**  | ** **                                    | $      | 2,825 |   | **$** | **5,373** | ** ** | $ | 5,516 |   |
| Less:                               | Sales  returns             |                                            | **(407**   | **)**                                         | (269   | ) | **(729** | **)** | (549 | ) |
|                                | Cash  discounts and others |                                            | **(28**    | **)**                                         | (37    | ) | **(59** | **)** | (63 | ) |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Net  revenues                       |                       | **2,112**                                       | ** ** | 2,519                                         |   | **4,585** | ** ** | 4,904 |   |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Costs  and expenses:                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Cost  of sales                      |                       | **1,430**                                       | ** ** | 1,346                                         |   | **2,783** | ** ** | 2,583 |   |
| Selling  and advertising expense    |                       | **748**                                         | ** ** | 746                                           |   | **1,489** | ** ** | 1,467 |   |
| General  and administrative expense |                       | **306**                                         | ** ** | 356                                           |   | **638** | ** ** | 661 |   |
| Interest  expense                   |                       | **237**                                         | ** ** | 240                                           |   | **428** | ** ** | 443 |   |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Total  costs and expenses           |                       | **2,721**                                       | ** ** | 2,688                                         |   | **5,338** | ** ** | 5,154 |   |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Loss  from operations               |                       | **(609**                                        | **)**      | (169                                          | )      | **(753** | **)** | (250 | ) |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Other  income                       |                       | **131**                                         | ** ** | 99                                            |   | **287** | ** ** | 196 |   |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Net  (loss)                         |                       | **$**                                           | **(478**   | **)**                                         | $      | (70 | ) | **$** | **(466** | **)** | $ | (54 | ) |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Per  share:                         |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
|                                |                       |                                            | ** ** |                                          |   |   | ** ** |   |   |
| Basic  and diluted (loss) per share |                       | **$**                                           | **(.11**   | **)**                                         | $      | (.02 | ) | **$** | **(.11** | **)** | $ | (.01 | ) |

 

See AccompanyingNotes to Financial Statements.

 

4

----

 

**LEE PHARMACEUTICALS****STATEMENTSOF CASH FLOWS****(Dollarsin thousands)****(Unaudited)**

 
|                                                                               |   | **For the  Six Months  Ended March 31,** |       |
|------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|
|                                                                               |   | **2004**                                      |       | **2003** |   |
|                                                                               |   |                                          | ** ** |   |   |
| Cash  flows (used in) provided by operating activities:                            |   |                                          | ** ** |   |   |
| Net  (loss)                                                                        |   | **$**                                         | **(466**   | **)** | $ | (54 | ) |
| Adjustments  to reconcile net income to net cash provided by operating activities: |   |                                          | ** ** |   |   |
| Depreciation                                                                       |   | **98**                                        | ** ** | 75 |   |
| Amortization  of intangibles                                                       |   | **233**                                       | ** ** | 99 |   |
| (Decrease)  in deferred income                                                     |   | **(282**                                      | **)**      | (75 | ) |
| Change  in operating assets and liabilities:                                       |   |                                          | ** ** |   |   |
| (Increase)  decrease in accounts receivable, net                                   |   | **(130**                                      | **)**      | 84 |   |
| Decrease  (increase) in inventories                                                |   | **126**                                       | ** ** | (236 | ) |
| (Increase)  in deposits                                                            |   | **(46**                                       | **)**      | (32 | ) |
| (Increase)  in other current assets                                                |   | **(80**                                       | **)**      | (188 | ) |
| (Decrease)  increase in bank overdraft                                             |   | **(100**                                      | **)**      | 19 |   |
| Increase  in accounts payable and accrued liabilities                              |   | **512**                                       | ** ** | 368 |   |
| (Decrease)  increase in due to related parties                                     |   | **(133**                                      | **)**      | 35 |   |
| Net  cash (used in) provided by operating activities                               |   | **(268**                                      | **)**      | 95 |   |
|                                                                               |   |                                          | ** ** |   |   |
| Cash  flows from investing activities:                                             |   |                                          | ** ** |   |   |
| Additions  to property , plant and equipment                                       |   | **(101**                                      | **)**      | (206 | ) |
| (Decrease)  in due on investment acquisitions                                      |   | **—**                                    | ** ** | — |   |
| Net  cash (used in) investing activities                                           |   | **(101**                                      | **)**      | (206 | ) |
|                                                                               |   |                                          | ** ** |   |   |
| Cash  flows from financing activities:                                             |   |                                          | ** ** |   |   |
| Proceeds  from notes payable to related party                                      |   | **—**                                    | ** ** | 25 |   |
| (Payments  on) notes payable to related party                                      |   | **(62**                                       | **)**      | (80 | ) |
| Increase  (decrease) in notes payable, finance company                             |   | **129**                                       | ** ** | (38 | ) |
| Proceeds  from notes payable, other                                                |   | **350**                                       | ** ** | 686 |   |
| (Payments  on) notes payable, other                                                |   | **(60**                                       | **)**      | (474 | ) |
| Net  cash provided by financing activities                                         |   | **357**                                       | ** ** | 119 |   |
|                                                                               |   |                                          | ** ** |   |   |
| Net  (decrease) increase in cash                                                   |   | **(12**                                       | **)**      | 8 |   |
| Cash,  beginning of period                                                         |   | **16**                                        | ** ** | 26 |   |
| Cash,  end of period                                                               |   | **$**                                         | **4**      | ** ** | $ | 34 |   |
|                                                                               |   |                                          | ** ** |   |   |
| **Supplemental disclosures of cash flow information:**                             |   |                                          | ** ** |   |   |
|                                                                               |   |                                          | ** ** |   |   |
| Cash  paid during the year for:                                                    |   |                                          | ** ** |   |   |
| Interest                                                                           |   | **$**                                         | **106**    | ** ** | $ | 410 |   |
| Taxes                                                                              |   | **$**                                         | **1**      | ** ** | $ | 1 |   |
|                                                                               |   |                                          | ** ** |   |   |
| Acquisition  of investment:                                                        |   |                                          | ** ** |   |   |
| Investment  acquired by debt                                                       |   | **$**                                         | **—** | ** ** | $ | 601 |   |

 

See AccompanyingNotes to Financial Statements.

 

5

----

 

LEEPHARMACEUTICALS

 

**Notes to Financial Statements**

**(Unaudited)**

 

1.               Basisof presentation: 

 

The condensedinterim financial statements included herein have been prepared by LeePharmaceuticals without audit, pursuant to the rules and regulations of theSecurities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations, although the Company believes that the disclosures are adequate tomake the information presented not misleading.

 

These statementsreflect all adjustments, consisting of normal recurring adjustments which, inthe opinion of management, are necessary for fair presentation of theinformation contained herein.  It issuggested that these condensed financial statements be read in conjunction withthe financial statements and notes thereto included in the Company’s AnnualReport on Form 10-KSB for the year ended September 30, 2003.  The Company follows the same accountingpolicies in preparation of interim reports.

 

Results ofoperations for the interim periods may not be indicative of annual results.

 

The Company isinvolved in various matters involving environmental cleanup issues.  See “Item 2. Management’s Discussionand Analysis or Plan of Operations” and Note 13 of Notes to FinancialStatements included in the Company’s Form 10-KSB for the fiscal year endedSeptember 30, 2003.  The ultimateoutcome of these matters cannot presently be determined.  Environmental expenditures that relate to anexisting condition caused by past operations, and which do not contribute tocurrent or future revenue generation, are expensed.  The Company’s proportionate share of the liabilities are recordedwhen environmental remediation and/or cleanups are probable, and the costs canbe reasonably estimated.  As ofMarch 31, 2004, no settlements have been reached.

 

2.               Continuedexistence:

 

The financialstatements have been prepared assuming that the Company will continue as agoing concern.  The Company has anaccumulated deficit of $9,693,000.  TheCompany’s recurring losses from operations and inability to generate sufficientcash flow from normal operations to meet its obligations as they come due raisesubstantial doubt about the Company’s ability to continue as a goingconcern.  The Company’s ability tocontinue in existence is dependent upon future developments, includingretaining current financing and achieving a level of profitable operationssufficient to enable it to meet its obligations as they become due.  Management’s plans in regard to thesematters are to increase profitability by increasing sales, control expenses andseek additional financing from outside lenders.  The financial statements do not include any adjustments toreflect the possible future effects of the recoverability and classification ofassets or the amounts and classification of liabilities that may result fromthe possible inability of the Company to continue as a going concern.

 

3.               Useof estimates:

 

The preparation offinancial statements in conformity with generally accepted accountingprincipals requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosures of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

6

----

 

4.               Reclassification:

 

Certainreclassifications have been made to the prior year financial statements to beconsistent with the 2004 presentation.

 

5.               Impairmentof intangible assets:

 

At March 31,2004, the Company had $5.1 million of product line and certain identifiableintangibles.  In assessing therecoverability of these intangibles, the Company must make assumptionsregarding estimated future cash flows and other factors to determine the fairvalue of the respective assets.  If theestimates or their related assumptions change in the future, the Company may berequired to record impairment charges for these assets not previouslyrecorded.  In connection with theadoption of SFAS 142 issued in July 2001, the Company performed animpairment assessment for the six months ended March 31, 2004, and deemedthat an impairment of $129,000 in one of the product lines should be recorded.

 

6.               Lossper share:

 

The Company has asimple capital structure, and there were no changes under the SFAS 128methodology to the previously reported earnings (loss) per share amounts forany of the fiscal years.  Basic earningsper share under SFAS 128 were computed using the weighted average number ofshares outstanding of 4,135,162 for the six months ended March 31, 2004and March 31, 2003.  Differences inthe weighted average number of shares outstanding for purposes of computingdiluted earnings per share were due to the inclusion of the dilutive effect ofstock options previously granted.  Thesedifferences in the weighted average number of shares outstanding for thecalculation of basic and diluted earnings per share resulted in no differencesin the earnings per share.

 

7.               Otherincome:

 

For the six monthsended March 31, 2004, other income included realized gains ofapproximately $139,000 related to the sale of three product lines.  These realized gains pertain to therecognition of the earned portion of the deferred income of the consultingagreements arising from the sale of these product lines.  Also included is $148,000 arising from aservice agreement with Monticello Drug Company.  For the six months ended March 31, 2003, other incomeconsisted of realized gains as described above of $75,000, joint venture incomeof $105,000 and $15,000 in property tax refunds.

 

For the quarterended March 31, 2004, other income included realized gains ofapproximately $69,000 related to the sale of three product lines.  These realized gains pertain to therecognition of the earned portion of the deferred income of the consultingagreements arising from the sale of these product lines.  Also included is $62,000 arising from aservice agreement with Monticello Drug Company.  For the quarter ended March 31, 2003, other income consistedof realized gains as described above of $37,000 and joint venture income of$60,000.

 

8.               Incometaxes:

 

At March 31,2004, the Company has a Federal net operating loss (NOL) carry forward ofapproximately $12,200,000 for which it has recorded a valuation allowance forthe entire NOL.

 

7

----

 

**Item 2.****                                   Management’sDiscussion and Analysis or Plan of Operations.**

 

**Material Changes in Results ofOperations****ThreeMonths Ended March 31, 2004, and March 31, 2003**

 

Gross revenues forthe three months ended March 31, 2004, were $2,547,000, a decrease of$278,000, or 10%, from the comparable three months ended March 31,2003.  The decrease was due to lowersales in various over-the-counter items ($424,000), depilatories ($17,000) andLee Nails® category ($13,000).  Thesedecreases were somewhat offset by increases in the private label segment($123,000), the Lee® Lip-Ex® line ($18,000) and newly acquired brands($47,000).

 

Net revenuesdeclined approximately $407,000, or 16%, for the three months endedMarch 31, 2004, as compared to the three months ended March 31,2003.  The change in net revenues wasprimarily due to the explanations given above. The Company’s sales returns increased $138,000, or 51%, when comparingthe three months ended March 31, 2004 and 2003.  The Company increased its merchandise return allowance by$160,000.  The additional allowance wasthe result of anticipated product returns and credits from customers due tosome overstocked items and other reasons.

 

Cost of sales as apercentage of gross revenues was 56% for the three months ended March 31,2004, compared to 48% for the three months ended March 31, 2003.  This increase is primarily due to thecontinued change in the product mix to higher cost of goods products resultingin lower gross margins on sales of these related products.  In addition, the Company increased itsinventory obsolescence reserve ($132,000) during the current quarter.  The Company also incurred highermanufacturing overhead expenses of $10,000 for depreciation of newly acquiredequipment and $4,000 in workers’ compensation insurance costs.  Offsetting these increases was a decrease of$24,000 for analytical testing costs due to more testing being done in-house.

 

Selling andadvertising expenses increased $2,000 when comparing the three months endedMarch 31, 2004 and March 31, 2003. This nominal increase was due to the following factors: (1) higheramortization costs ($129,000) due to the recognition of impairment of one ofthe Company’s product lines in compliance with the Financial Accounting StandardsBoard issuance of Statement of Financial Accounting Standards No. 142(FAS-142), Goodwill and Other Intangible Assets), (2) higher insurance expensedue to increased premiums for product liability coverage ($29,000), (3) highertemporary help wages ($10,000), (4) higher commissions/bonuses paid to salesmen($6,000), (5) increased materials/supplies expense ($7,000) and (6) higherbuilding rent due to a building, previously subleased, now being used forwarehouse and shipping ($21,000).  Theseincreases were offset by (1) lower advertising costs ($84,000), (2) freightexpenses ($44,000), (3) lower royalty expense ($39,000), (4) lower conventionand travel and entertainment expenses ($31,000) and (5) lower commission tooutside sales reps ($5,000).

 

General andadministrative expenses decreased $50,000, or 14%, when comparing the threemonths ended March 31, 2004, with the three months ended March 31,2003.  The decrease was primarily due to(1) lower MIS expenses for consulting services ($35,000) and (2) lower legalfees related to the Carma Laboratories, Inc. legal action which was settled inthe quarter ended December 31, 2002 ($24,000).  These decreases were offset by higher building rent due to aone-time retro sublease rent adjustment in March 2003 ($8,000).

 

Interest expensedecreased $3,000, or 1%, when comparing the three months ended March 31,2004, with the three months ended March 31, 2003.  This was due to lower borrowings at rateshigher than the prime rate.

 

The Company realizedother income of approximately $131,000 for the three months endedMarch 31, 2004, as compared to $99,000 for the comparable three monthsended March 31, 2003.  Of this  income for the six months endedMarch 31, 2004, $69,000 pertains to realized gains related to the sale ofthe Klutch® product line ($26,000), the sale of the Astring-o-Sol® product line($11,000) and the sale of the iodex® product line ($32,000).  The realized gains pertain to therecognition of the earned portion of the deferred income of the consulting  agreements arising from the sale of theKlutch®, Astring-o-Sol® and iodex® brands.  Also included in other income in 2004 is approximately $62,000 arisingfrom the service agreement with Monticello Drug Company.  For the three months ended March 31,2003, the Company realized other income related to the sale of Klutch®($26,000) and Astring-o-Sol® ($11,000) product lines along with $60,000 whichwas the Company’s portion of the net profits from its investment withMonticello Drug Company.

 

8

----

 

**Material Changes in Results ofOperations****SixMonths Ended March 31, 2004, and March 31, 2003**

 

Gross revenues forthe six months ended March 31, 2004, were $5,373,000, a decrease of$143,000, or 3%, from the comparable six months ended March 31, 2003.  The decrease was due to lower sales invarious over-the-counter brand products ($501,000) and Lee Nails® category($51,000).  Somewhat offsetting thesedecreases were increases in the private label segment ($252,000), newlyacquired brands ($100,000) and depilatories ($40,000).

 

Net revenuesdeclined approximately $319,000, or 7%, for the six months ended March 31,2004, as compared to the six months ended March 31, 2003.  The change in net revenues was primarily dueto the sales volume explanations given above. The Company’s sales returns increased $180,000, or 33%, when comparingthe six months ended March 31, 2004 and 2003.  The Company increased its merchandise return allowance by$160,000 during the quarter ended March 31, 2004.  The additional allowance was the result ofanticipated product returns and credits from customers due to some overstockeditems and other reasons.

 

Cost of sales as apercentage of gross revenues was 52% for the six months ended March 31, 2004,compared to 47% for the six months ended March 31, 2003.  This increase is primarily due to thecontinued change in the product mix to higher cost of goods products resultingin lower gross margins for these products. In addition, the Company increased its inventory obsolescence reserve($132,000) during the three months ended March 31, 2004.  The Company also incurred highermanufacturing overhead expenses of $20,000 for depreciation of newly acquiredequipment, $22,000 in equipment repairs and maintenance along with suppliesexpense and $9,000 in workers’ compensation insurance costs due to higherpremium rates.  These increased costswere partially offset by lower analytical testing costs ($24,000) due to moretesting being performed in-house.

 

Selling andadvertising expenses increased $22,000, or 2%, when comparing the six monthsended March 31, 2004 with the six months ended March 31, 2003.  The increase in expenses was due to thefollowing factors: (1) higher insurance expense due to increased premiums forproduct liability coverage ($64,000), (2) higher building rent due to abuilding, previously subleased, now being used for warehousing and shipping($43,000), (3) higher labor and related fringe benefit costs ($34,000) and (4)higher amortization costs ($129,000) due to the recognition of impairment ofone of the Company’s product lines in compliance with the Financial AccountingStandards Board issuance of Statement of Financial Accounting Standards No. 142(FAS-142), Goodwill and Other Intangible Assets.  These increases were somewhat offset by: (1) lower commissions tooutside sales reps ($35,000), (2) lower royalty expense ($83,000), (3) loweradvertising expense ($30,000), (4) lower convention expenses ($7,000), (5)lower freight costs ($63,000) and (6) lower travel and entertainment expenses($32,000).

 

General andadministrative expenses decreased $23,000, or 3%, when comparing the six monthsended March 31, 2004, with the six months ended March 31, 2003.  The decrease was principally due to: (1)lower legal fees ($45,000) and (2) lower MIS expenses for consulting services($43,000).  These decreases werepartially offset by (1) higher audit fees ($23,000), (2) increased costs forvarious supplies ($25,000), (3) higher building rent due to a one-time retrosublease rent adjustment in March 2003 (11,000) and (4) increased workers’compensation insurance premiums ($3,000).

 

Interest expensedecreased $15,000, or 3%, when comparing the six months ended March 31,2004, with the six months ended March 31, 2003.  This was due to lower borrowings at rates higher than the primerate.

 

The Company realizedother income of approximately $287,000 for the six months ended March 31,2004, as compared to $196,000 for the comparable six months ended March 31,2003.  Of this  income, $139,000 pertains to realized gains related to the saleof the Klutch® product line ($54,000), the sale of the Astring-o-Sol® productline ($21,000) and the sale of the iodex® product line ($64,000).  The realized gains pertain to therecognition of the earned portion of the deferred income of the consulting  agreements arising from the sale of theKlutch®, Astring-o-Sol® and iodex® brands.  Also included in other income is approximately $148,000 arising from theservice agreement with Monticello Drug Company.  For the six months ended March 31, 2003, the Companyrealized other income related to the sale of Klutch® ($54,000) andAstring-o-Sol® ($21,000) product lines along with $105,000 which was theCompany’s portion of the net profits from its investment with Monticello DrugCompany plus $15,000 of property tax refunds.

 

9

----

 

**Liquidity and Capital Resources**

 

At March 31, 2004,working capital was a negative $3,930,000 compared with a negative $3,525,000as of September 30, 2003.  Theratio of current assets to current liabilities was 0.5 to 1 at March 31,2004 and September 30, 2003.  TheCompany has failed to make principal and interest payments on certainloans.  The total arrearage of principaland interest due on the date of filing this report is $2,876,000.  The Company is in the process of attemptingto restructure loans under which $2,120,000 is due as of the date of thisreport.  The Company is negotiating thesale of one or more of its product lines. If these sales occur and depending on the amount of the net proceedsfrom such sales, part or all of the amounts in arrears under the other loans,with a total of $756,000 due on the date of filing this report, will be paid.

 

The Company has anaccumulated deficit of $9,693,000.  Pastrecurring losses and inability to generate sufficient cash flow from normaloperations to meet its obligations as they become due, raises substantial doubtabout the Company’s ability to continue as a going concern.  The Company’s ability to continue inexistence is dependent upon future developments, including retaining currentfinancing and achieving a level of profitable operations sufficient to enableit to meet its obligations as they become due.

 

**Environmental Matters**

 

The Company owns amanufacturing facility located in South El Monte, California.  The California Regional Water QualityControl Board (The “RWQCB”) ordered the Company in 1988 and 1989 to investigatethe contamination on its property (relating to soil and groundwatercontamination).  The Company engaged aconsultant who performed tests and reported to the then Chairman of theCompany.  The Company resisted furtherwork on its property until the property upgradient was tested in greater detailsince two “apparent source” lots had not been tested.  On August 12, 1991, the RWQCB issued a “Cleanup andAbatement Order” directing the Company to conduct further testing and cleanupthe site.  In October 1991, theCompany received from an environmental consulting firm an estimate of $465,200for investigation and cleanup costs. The Company believed that this estimate was  inconclusive and overstated the contamination levels.  The Company believes that subsequentinvestigations will support the Company’s conclusions  about that estimate.  TheCompany did not complete the testing for the reasons listed above as well as“financial constraints”.  InJune 1992, the RWQCB requested that the EPA evaluate the contamination andtake appropriate action.  At the EPA’srequest, Ecology & Environment, Inc. conducted an investigation of soil andgroundwater on the Company’s property. Ecology & Environment Inc.’s Final Site Assessment Report, which wassubmitted to the EPA in June 1994, did not rule out the possibility thatsome of the contamination originated on-site, and resulted from either past orcurrent operations on the property.

 

On April 24,2002, the RWQCB notified the Company that the detection of emergent chemicalsin groundwater, above State and Federal maximum containment levels or actionlevels, has caused the RWQCB and the EPA to reassess the threat posed togroundwater resources used for domestic supply.  The RWQCB directed the Company to test for the presence ofemergent chemicals in its groundwater monitoring wells.  The groundwater monitoring analyticalresults were due by July 15, 2002. On May 24, 2002, the Company informed RWQCB that it could not comply withthe requirement to conduct groundwater sampling due to ongoing financialdifficulties.

 

On July 8,2002, the RWQCB sent a “Second Notice of Violation” to the Company directingthe Company to comply with the requirement to prepare a groundwater remedialaction plan (RAP).  The Companypreviously notified the RWQCB that it could not comply with the requirement tosubmit a RAP because of ongoing financial difficulties.  The RWQCB requested that the Company submitcertain financial information by July 29, 2002 to “substantiate anyalleged financial losses and determine whether any suspension of implementingthe...(Cleanup and Abatement Order) is warranted.”  The Company received an extension to submit the requiredfinancial information to August 19, 2002. The Company submitted the requested financial information onAugust 16, 2002.  The Companyreceived a response whereby their request for financial hardship wasdenied.  The Company is in the processof appealing this decision based primarily upon the continued deterioration inthe Company finances since the original filing.  The Company may be liable for all or part of the costs ofremediating the contamination on its property and could be subject toenforcement action by the RWQCB, including injunctive and civil monetaryremedies.  As of the date of thefinancial statements, the Company’s share of the costs have not beendetermined.

 

10

----

 

The Company and nearbyproperty owners, in consort with their comprehensive general liability (CGL)carriers, engaged a consultant to perform a site investigation with respect tosoil and shallow groundwater contamination over the entire city block.  The CGL carriers provided $290,000 infunding which paid for the $220,000 study, $20,000 in legal fees for projectoversight, and a $50,000 balance in the operating fund.  Earlier the Company had accrued $87,500 asits proportionate share of the earlier quote of $175,000. Since that time, theoverall scope of the project was increased to $205,000 plus $15,000 for wastewater disposal, bringing the total to the above listed $220,000.  The $87,500 accrual was not spent on thisproject (as the entire cost was borne by the CGL carriers), but remains on thebooks as an accrual against the cost of remediation of the same site that wasincluded in the study.

 

The tenants of nearbyproperties upgradient have sued the Company alleging that hazardous materialsfrom the Company’s property caused contamination on the properties leased bythe tenants.  The case name is DelRay Industrial Enterprises, Inc. v. Robert Malone, et al., LosAngeles County Superior Court, Northwest District, commenced August 21,1991.  In this action, the plaintiffalleges environmental contamination by defendants of its property, and seeks acourt order preventing further contamination and monetary damages.  The Company does not believe there is anybasis for the allegations and is vigorously defending the lawsuit.

 

The Company’s South ElMonte manufacturing facility is also located over a large area of possiblycontaminated regional groundwater which is part of the San Gabriel ValleySuperfund Site.  The Company has beennotified that it is a potentially responsible party  (“PRP”)  for the contamination.   In 1995, the Company was informed that theEPA estimated the cleanup costs for the South El Monte’s portion of the SanGabriel Valley Superfund Site to be $30 million.  The Company’s potential share of such amount has not beendetermined.  Superfund PRPs are jointlyand severally liable for superfund site costs, and are responsible fornegotiating among themselves the allocation of the costs based on, among otherthings, the outcome of environmental investigation.

 

In August 1995, theCompany was informed that the EPA entered into an Administrative Order ofConsent with Cardinal Industrial Finishes (“Cardinal”) for a PRP lead remedialinvestigation and feasibility study (the “Study”) which, the EPA states, willboth characterize the extent of groundwater contamination in South El Monte andanalyze alternatives to control the spread of contamination.  The Company and others entered into theSouth El Monte Operable Unit Site Participation Agreement with Cardinalpursuant to which, among other things, Cardinal contracted with anenvironmental firm to conduct the Study. The Study has been completed. The Company’s share of the cost of the Study was $15,000 and was accruedfor in the financial statements as of September 30, 1995.  TheSouth  El  Monte Operable Unit (SEMOU) participants developed four remedialalternatives.  The capital cost of thefour alternatives range from $0 (no action) up to $3.49 million.  The estimated annual operating cost for thefour alternatives range from $0 (no action) to $770,300.  Over a 30-year period, the total cost of thefour alternatives range from $0 (no action) up to $13.05 million.  The EPA prefers an alternative whichestimates the capital cost up to $3.08 million, the annual operating cost at$.48 million, and the 30-year period total cost up to approximately $9.09million.  The selection of the actualalternative implemented is subject to public comment.  At the present time, the Company does not know what its share ofthe cost may be, if any.  Therefore, noadditional accrual has been recognized as a liability on the Company’sbooks.  The Company requested that theEPA conduct an “ability-to-pay evaluation” to determine whether the Company isentitled to an early settlement of this matter based upon a limited ability topay costs associated with site investigation and remediation.  In August 2000, the EPA informed theCompany that it does not qualify for an early settlement at this time.

 

The EPA has informed theCompany that it has learned that the intermediate zone groundwatercontamination in the western portion of the SEMOU has migrated further west andhas now impacted the City of Monterey Park and Southern California WaterCompany production wells.  The EPAstated that the City of Monterey Park Water Department, San Gabriel ValleyWater Company and Southern California Water Company are planning to buildtreatment facilities for their wells. The EPA stated that these three water purveyors contacted some of theSEMOU PRPs, other than the Company, to seek funding to develop groundwatertreatment facilities for the contaminated wells.  A group of these PRPs calling themselves the “South El MonteCooperative Group” has been formed and purportedly has reached a generalagreement with the water purveyors to fund the development of treatmentfacilities and use the water purveyors’ wells in an attempt to contain thegroundwater contamination to meet EPA’s goals. The Company is not able to determine what contribution, if any, it maybe assessed in connection with this cleanup activity.

 

11

----

 

By letter datedNovember 13, 2000, the Company was notified that the City of MontereyPark, San Gabriel Valley Water Company and Southern California Water Companyintend to bring suit under the Safe Drinking Water and Toxic Enforcement Act of1986 alleging that the Company has knowingly released volatile organiccompounds in the soil and shallow groundwater beneath the Company’s propertybetween at least on or before November 8, 1996 and the present and hasfailed to promptly clean up all of the contamination.  As of the date of this report, the Company has not been servedwith this lawsuit.

 

The City of South ElMonte, the city in which the Company has its manufacturing facility, is locatedin the San Gabriel Valley.  The SanGabriel Valley has been declared a Superfund site.  The 1995 Water Quality Control Plan issued by the CaliforniaRegional Water Quality Control Board states that the primary groundwater basinpollutants in the San Gabriel Valley are volatile organic compounds fromindustry, nitrates from subsurface sewage disposal and past agriculturalactivities.  In addition, the Plan notedthat hundreds of underground storage tanks leaking gasoline and other toxicchemicals have existed in the San Gabriel Valley.  The California Department of Toxic Substance Control has declaredlarge areas of the San Gabriel Valley to be environmentally hazardous andsubject to cleanup work.

 

The Company believes theCity of South El Monte does not appear to be located over any of the majorplumes.  However, the EPA has announcedit is studying the possibility that, although the vadose soil and groundwater,while presenting cleanup problems, there may be a contamination by DNAPs (densenon-aqueous phase liquids), i.e., “sinkers”, usually chlorinated organiccleaning solvents.  The EPA has proposedto drill six “deep wells” throughout the City of South El Monte at an estimatedcost of $1,400,000.  The EPA isconferring with SEMPOA (South El Monte Property Owners Association) as to costsharing on this project.  SEMPOA hasobtained much lower preliminary cost estimates.  The outcome cost and exact scope of this are unclear at thistime.

 

The Company and otherproperty owners engaged Geomatrix Consultants, Inc., to do a survey of vadosesoil and shallow groundwater in the “hot spots” detected in the previous studies.  Geomatrix issued a report datedDecember 1, 1997 (the “Report”), on the impact of volatile organiccompounds on the soil and groundwater at the Lidcombe and Santa Anita Avenuesite located in South El Monte, California (which includes the Company’s facilities).  The Report indicated generally lowconcentrations of tetrachloroethene, trichloaethene and trichloroethane in thegroundwater of the upgradient neighbor. The Report was submitted to the RWQCB for its comments andresponse.  A meeting with the partiesand RWQCB was held on February 10, 1998. The RWQCB had advised companies that vadose soil contamination isminimal and requires no further action. However, there is an area of shallow groundwater which has a higher thandesired level of chlorinated solvents, and the RWQCB requested a proposed workplan be submitted by Geomatrix. Geomatrix has submitted a “Focused Feasibility Study” which concludesthat there are five possible methods for cleanup.  The most expensive are for a pump and sewer remediation whichwould cost between $1,406,000 and $1,687,000. The Company is actively exploring the less expensive alternativeremediation methods, of which the two proposed alternatives range in costbetween $985,000 and $1,284,000.  Sincethere are four economic entities involved, the Company’s best estimate at thistime, in their judgment, would be that their forecasted share would be $287,000less the liability already recognized on the books of $165,000 therebyrequiring an additional $122,000 liability.  Accordingly, the Company recorded an additional accrual of$122,000 in the third quarter of fiscal 1998. The $122,000 accrual is in addition to the $79,000 accrual for the MontereySite as will be explained in the following paragraph.  The $79,000 accrual, in the third quarter of fiscal 1998, relatedto the Monterey Site is not included in the $287,000 figure above.  In April 2000, the Company received aNotice of Violation from the RWQCB.  TheNotice of Violation states that the Company and other property owners wererequired to submit a groundwater remedial action plan by November 1, 1999,and that the RWQCB has been advised that the Company and the other propertyowners were unable to submit the required remedial action plan because theCompany and the other property owners could not agree on the allocation offinancial responsibility to prepare the action plan.  The RWQCB stated that it will no longer encourage the cooperativeapproach among the Company and the other property owners in completing the cleanuprequirements and will pursue appropriate measures, including when necessary,enforcement actions.  The RWQCB statesthat it may impose civil liability penalties of up to $1,000 per day fromNovember 1, 1999 for failure to file the action plan.  In light of these events, no assurances canbe given that the cleanup costs and possible penalties will not exceed theamount of the Company’s current accruals of $287,000 (which includes the$122,000 charge to income in the third quarter of fiscal 1998).

 

12

----

 

In July 2000, theproperty owners formed the Lidcombe & Santa Anita Avenue Work Group (LSAAW)in response to the RWQCB request for the preparation of an action plan.  The LSAAW submitted a Focused FeasibilityStudy to the RWQCB for their review and approval of the selected remedialaction method for the site.  Afterreceiving RWQCB approval, LSAAW obtained three cost proposals to implement theRWQCB approved pump and treat remedial method. According to these cost proposals, the lowest estimated costs for anassumed five (5) years of pump and treat remediation is $600,000.  This cost is lower than the previous costproposed work plan, discussed above, from Geomatrix Consultants, Inc.  The capital costs including contingenciesare approximately $300,000.

 

The LSAAW is hopeful theWater Quality Authority (WQA) is willing and able to reauthorize its grant forone-half (1/2) of the capital costs of its remediation system construction notto exceed $150,000.  It is estimated atthis time that the reserves for the Company’s share of this cost proposal areadequate since its prior accrual was based on the higher cost estimate fromGeomatrix.

 

Without any priorcorrespondence or inkling of the Company’s potential liability, the EPAinformed the Company that the Company may have potential liability for theongoing remediation of Operating Industries, Inc. (as they have gone out ofbusiness) Landfill Superfund Site in Monterey Park, California (the “MontereySite”).  The Monterey Site is a 190 acrelandfill that operated from 1948 to 1984, in which the Company disposed of nontoxic pH balanced waste water on six occasions between 1974 and 1978.  Over 4,000 companies have been identified ashaving contributed waste to the Monterey Site. The EPA has offered to settle the Company’s potential liability withrespect to the Monterey Site for a cost to the Company of $79,233.  The Company accrued a $79,000 charge in thethird quarter of fiscal 1998 with respect to this possible liability.  The Company has elected to file for relieffrom these obligations under the financial hardship option in the EPA’sresponse form.  On June 30, 2000,the EPA informed the Company that the EPA believed the Company is able to paythe full settlement cost, but offered to reduce the amount of the settlement to$75,271.

 

The Company was notifiedby the EPA that the Company may have potential liability for waste material itdisposed of at the Casmalia Disposal Site (“Site”) located on a 252 acre parcelin Santa Barbara County, California. The Site was operational from 1973 to 1989, and over 10,000 separateparties disposed of waste there.  TheEPA stated that federal, state and local governmental agencies along with thenumerous private entities that used the Site for waste disposal will beexpected to pay their share as part of this settlement.  The U.S. EPA is also pursuing theowner(s)/operator(s) of the Site to pay for Site remediation.  The EPA has a settlement offer to theCompany with respect to the Site for a cost of $373,950.  The Company accrued a $374,000 charge in thefirst quarter of fiscal 1999 with respect to this possible liability.  The Company has elected to file for relieffrom these obligations under the financial hardships option in the EPA’sresponse form.  The Company, the EPA andcertain PRPs have entered into an agreement tolling the applicable statutes oflimitation.  The Company has beennotified by the EPA that their request for a waiver, due to financial hardship,was “partially granted.”  Improvementsin the bidding process has lowered the Company’s estimated share down to$245,000 (from $374,000) and of that, the EPA was requesting that the Companypay $113,000, as a result of their findings on the application for waiver dueto financial hardship.  The Company isconsidering the EPA’s request.

 

The total amount ofenvironmental investigation and cleanup costs that the Company may incur withrespect to the foregoing is not known at this time.  However, based upon information available to the Company at thistime, the Company has expensed since 1988 a total of $860,000, of which $89,000were legal fees, exclusive of legal fees expended in connection with theSecurities and Exchange Commission environmental investigation.  The actual costs could differ materiallyfrom the amounts expensed for environmental investigation and cleanup costs todate.

 

As of March 31,2004, no settlements have been reached. The total amount expensed in prior years relating to this environmentalissue is $860,000.  As of March 31,2004, no additional amounts have been expensed or accrued.  The Company has an accrued liability on thebooks at March 31, 2004 of $740,000 for the environmental cleanup.

 

13

----

 

**Item 3.****                                   Controlsand Procedures**

 

The chiefexecutive officer and chief financial officer of the Company (the “certifyingofficer”) evaluated the effectiveness of the Company’s disclosure controls andprocedures as of the end of the period covered by this report.  These disclosure controls and procedures aredesigned to ensure that the information required to be disclosed by the Companyin its periodic reports filed with the Securities and Exchange Commission (the“Commission”) is recorded, processed, summarized and reported, within the timeperiods specified by the Commission’s rules and forms, and that the informationis communicated to the certifying officer on a timely basis.

 

The certifyingofficer concluded, based on his evaluation, that the Company’s disclosurecontrols and procedures are effective for the Company.

 

There were nochanges in the Company’s internal control over financial reporting thatoccurred during the Company’s most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**PARTII - OTHER INFORMATION**

 

**Item 1.****                                   LegalProceedings**

 

The informationset forth under Part I, Item 2, “Management’s Discussion and Analysis or Planof Operations - Environmental Matters” is incorporated herein byreference.  See also “LegalProceedings” in the Company’s Form 10-KSB for the fiscal year endedSeptember 30, 2003.

 

**Item 3.****                                   DefaultsUpon Senior Securities**

 

The Company hasfailed to make principal and interest payments on certain loans.  The total arrearage of principal andinterest due on the date of filing this report is $2,876,000.  The Company is in the process of attemptingto restructure loans under which $2,120,000 is due as of the date of thisreport.  The Company is negotiating thesale of one or more of its product lines. If these sales occur and depending on the amount of the net proceedsfrom such sales, part or all of the amounts in arrears under the other loans,with a total of $756,000 due on the date of filing this report, will be paid.

 

**Item 4.****                                   Submissionof Matters to a Vote of Security Holders**

 

The Annual Meetingof Stockholders of the registrant occurred on March 9, 2004.  At that meeting, the following directorswere elected:

 
|                    |   | **VOTES** |   |
|-------------------------|--------|-----------|--------|
| **Director**            |   | **FOR**   |   | **WITHHELD** |   |
|                    |   |      |   |   |   |
| Dr.  Henry L. Lee       |   | 3,439,494 |   | 156,224 |   |
| Ronald  G. Lee          |   | 3,439,392 |   | 156,326 |   |
| William  M. Caldwell IV |   | 3,444,894 |   | 150,824 |   |

 
|                                                            |   | **VOTES** |   |
|-----------------------------------------------------------------|--------|-----------|--------|
|                                                            |   | **FOR**   |   | **AGAINST** |   | **ABSTAIN** |   |
| The  appointment of George Brenner, CPA, as independent auditor |   | 3,476,161 |   | 84,630 |   | 34,927 |   |

 

14

----

 

**Item 6.****                                   Exhibitsand Reports on Form 8-K:**

 
| The following exhibits  are filed herewith:                        |
|--------------------------------------------------------------------|
|                                                               |   |   |   |   |
| 10.1                                                               |   | - |   | Promissory note  evidencing advance made to Registrant |
|                                                               |   |   |   |   |
| 10.2                                                               |   | - |   | Secured promissory note  dated November 19, 2003, regarding equipment, between Lee  Pharmaceuticals and Preferred Business Credit, Inc. |
|                                                               |   |   |   |   |
| 10.3                                                               |   | - |   | Secured promissory note  dated February 3, 2004, regarding equipment, between Lee Pharmaceuticals  and Preferred Business Credit, Inc. |
|                                                               |   |   |   |   |
| 31.1                                                               |   | - |   | Certification by Chief  Executive Officer and Chief Financial Officer |
|                                                               |   |   |   |   |
| 32.1                                                               |   | - |   | Section 1350  Certification |
|                                                               |   |   |   |   |
| The following exhibits  have previously been filed by the Company: |
|                                                               |   |   |   |   |
| 3.1                                                                |   | - |   | Articles of Incorporation,  as amended (1) |
|                                                               |   |   |   |   |
| 3.4                                                                |   | - |   | By-laws, as amended  December 20, 1997 (2) |
|                                                               |   |   |   |   |
| 3.5                                                                |   | - |   | Amendment of By-laws  effective March 14, 1978 (2) |
|                                                               |   |   |   |   |
| 3.6                                                                |   | - |   | Amendment to By-laws  effective November 1, 1980 (3) |
|                                                               |   |   |   |   |
| (1)                                                                |   | Filed as an Exhibit of  the same number with the Company’s Form S-1 Registration Statement filed with  the Securities and Exchange Commission on February 5, 1973, (Registrant  No. 2-47005), and incorporated herein by reference. |
|                                                               |   |   |
| (2)                                                                |   | Filed as Exhibits 3.4  and 3.5 with the Company’s Form 10-K Annual Report for the fiscal year ended  September 30, 1978, filed with the Securities and Exchange Commission  and incorporated herein by reference. |
|                                                               |   |   |
| (3)                                                                |   | Filed as an Exhibit of  the same number with the Company’s Form 10-K Annual Report for the fiscal  year ended September 30, 1979, filed with the Securities and Exchange  Commission and incorporated herein by reference. |

 

15

----

 

SIGNATURES

 

In accordance withthe requirements of the Securities Exchange Acts of 1934, the registrant hascaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |         |                                    | LEE  PHARMACEUTICALS |   |
|--------|--------------|-----------------------------------------|----------------------|--------|
|   |         | (Registrant)                            |
|   |         |                                    |
|   |         |                                    |
| Date:  | MAY 17, 2004 |                                    | /s/ RONALD G.  LEE   |
|   |         | Ronald G. Lee                           |
|   |         | Chairman of the  Board, President and   |
|   |         | Chief Financial  and Accounting Officer |
|        |              |                                         |                      |        |  |

 

16

----