|SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K
|-------------------------------------------------------------------

| | x |  | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934For the fiscal year ended December 31, 2002
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

|
|

| | o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIESEXCHANGE ACT OF 1934For the transition period from
________ to ________
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

|Commission file number 1-11352
Able Laboratories, Inc.(Exact name of Registrant as specified in its
charter)
|------------------------------------------------------------------------------------------------------------

|                                                | Delaware |                                      | 04-3029787 | 
|----------------------------------------------- | -------- | ------------------------------------ | ---------- | 
|(State or other jurisdiction                    |          | (I.R.S. Employer identification no.)
|of incorporation or organization)               |          |                                     
|                                               
|6 Hollywood CourtSouth Plainfield, NJ           |          | 07080                               
|(Address of principal executive offices)        |          | (Zip code)                          
|                                               
|Registrants telephone number:   (908) 754-2253
|                                                |          |                                     

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

|                            
|----------------------------
|Common Stock, $.01 par value

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


Title of class Common Stock, $.01
par value


Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.   YES
  x    NO   o.


Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is contained in this form, and
no disclosure will 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.x


Indicate by check mark whether the
registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).   YES
o    NO   x.


The
aggregate market value of the common stock, $0.01 par value per share held by
non-affiliates, based on the last sale price of the common stock on June 30, 2002, as
reported on the OTC Bulletin Board, was approximately $69,493,960.


As of March 1, 2003,
there were 12,898,870 outstanding shares of common stock.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|TABLE OF CONTENTS
|-----------------

|               |  | Page No.                                                                             
|-------------- |  | -------------------------------------------------------------------------------------
|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 Common Equity and Related Stockholder Matters                             
|Item 6         |  | Selected 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 Disclosures
|               |  |                                                                                      
|               | 
|PART III       | 
|Item 10        |  | Directors and Executive Officers                                                     
|Item 11        |  | Executive Compensation                                                               
|Item 12        |  | Security Ownership of Certain Beneficial Owners and Management                       
|Item 13        |  | Certain Relationships and Related Transactions                                       
|Item 14        |  | Controls and Procedures                                                              
|               | 
|PART IV        | 
|Item 15        |  | Exhibits and Reports on Form 8-K                                                     
|               | 
|Signatures     |  |                                                                                      
|Exhibit Index  |  |                                                                                      
|Certifications |  |                                                                                      

|Documents Incorporated
By Reference


Portions of the registrants
definitive proxy statement for its 2003 annual meeting of stockholders are incorporated by
reference into Items 10, 11, 12 and 13 of this Report.



SPECIAL NOTE REGARDING
FORWARD-LOOKING INFORMATION


Certain
statements contained in this Annual Report on Form 10-K, including information with
respect to our future business plans, constitute forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words believes, plans, expects, and
similar expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause our results to differ materially from those
indicated by such forward-looking statements. These factors include those set forth below
under the heading Certain Factors That May Affect Future Results.



AVAILABLE INFORMATION


We
file annual reports, quarterly reports, current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy any of our
SEC filings at the SECs public reference room at 450 Fifth Street, N.W., Washington
D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further




2
information about the
public reference room. Our SEC filings are also available to the public on the SECs
website at http://www.sec.gov. Our principal internet address is www.ablelabs.com. Our
website provides a link to the SECs website through which our annual, quarterly and
current reports, and amendments to those reports, are available free of charge. We believe
these reports are made available as soon as reasonably practicable after we electronically
file them with, or furnish them to, the SEC.

3

PART I



Item 1.   Business



Introduction


Able
Laboratories, Inc., referred to in this Report as Able, the
Company, we or us, develops, makes and sells generic
drugs. Generic drugs are the chemical and therapeutic equivalents of brand-name drugs.
They must meet the same governmental standards as the brand-name drugs they replace, and
they must meet all U.S. Food and Drug Administration, or FDA, guidelines before they can
be made or sold. We can manufacture and market a generic drug only if the patent or other
government-mandated market exclusivity period for the brand-name equivalent has expired.
Generic drugs are typically sold under their generic chemical names at prices
significantly below those of their brand-name equivalents. We estimate that the U.S.
generic or multi-source drug market approximates $13 billion in annual sales. We believe
that this market has grown due to a number of factors, including:

a significant number of widely prescribed brand-name drugs are at or near the end of their period of patent protection, making it legally
permissible for generic manufacturers to produce and market competing generic drugs;managed care organizations, which typically prefer lower-cost generic drugs to brand-name products, continue to grow in importance and impact
in the U.S. health care market;physicians, pharmacists and consumers increasingly accept generic drugs; andthe efforts of the federal government and local government agencies to mandate increased use of generic drugs in order to lower the public cost
of purchasing necessary pharmaceutical products.
Our Strategy


Our
strategy is to focus on developing generic drugs that either have large established
markets or are niche products with limited or no competition. We also intend to focus on
products that have extended release dosage forms, which are difficult to develop and,
therefore, could be less likely to face competition from other generic drug manufacturers.
We believe that this approach will allow us to bundle our products and offer our customers
a line of products that reduces their overall acquisition cost.



Background


From
our inception in 1988 until 1996, we focused primarily on the business of developing new
drugs and licensing the resulting products and technologies to others. Beginning in 1996,
we began shifting our focus, and by acquiring three separate companies, we became a
generic drug manufacturing and distribution business. In 1996, we acquired Able
Laboratories, Inc., our generic drug development and manufacturing business. In 1997 and
1998, respectively, we acquired Superior Pharmaceutical Company (Superior) and
Generic Distributors, Inc. (GDI), our distribution operations.


Our
distribution businesses sold mostly our competitors products. We found that the
combination of manufacturing and distribution businesses did not create the strategic
advantages we were seeking. After careful analysis, we decided to divest our distribution
operations and continue as a generic drug development and manufacturing company selling
only our own products to customers. We completed the sale of GDI, on December 29, 2000, to
an unrelated third party and the sale of Superior on February 23, 2001 to RxBazaar, Inc.,
a company founded by a director and a former director of Able. In 2001, after we completed
the sale of the distribution subsidiaries, we merged Able Laboratories, Inc. into DynaGen,
Inc. and changed our company name to Able Laboratories, Inc.



4
In
the section of this Report entitled Certain Factors That May Affect Future
Results, we have described several risk factors that we believe are significant. We
consider each of these risks specific to us, although some are industry or sector related
issues, which could also impact, to some degree, other businesses in our market sector.
You should give very careful consideration to these factors when you evaluate our company.



Multisource Generic Drug
Business



Product Line Information


We
manufacture and market prescription generic drugs in the form of tablets, capsules and
suppositories. In November 2000, we received our first FDA approval to manufacture and
sell diphenoxylate with atropine sulfate tablets. Since then, and as of March 13, 2003, we
have received 25 additional approvals to manufacture and sell generic drugs. Our current
products are listed below:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Product                                                                | Indication | Equivalent Brand Name     Product (1)(2)
|---------------------------------------------------------------------- | ---------- | ----------------------------------------
|
|Acetaminophen and Codeine Phosphate Tablets,     USP 300 mg/30mg       |            | Pain relief                             
|                                                                      
|Acetaminophen and Codeine Phosphate Tablets,     USP 300 mg/60mg       |            | Pain relief                             
|                                                                      
|Butalbital, Acetaminophen and Caffeine Tablets     USP 50mg/325mg/40mg |            | Tension headaches                       
|                                                                      
|Butalbital, Acetaminophen and Caffeine Tablets     USP50mg/500mg/40mg  |            | Tension headaches                       
|                                                                      
|Carisprodol Tablets, USP                                               |            | Muscle relaxant                         
|                                                                      
|Clorazepate Dipotassium Tablets, USP                                   |            | Anxiety disorder                        
|                                                                      
|Diphenoxylate and Atropine Sulfate Tablets, USP                        |            | Anti-diarrhea                           
|                                                                      
|Hydrocodone Bitartrate and Acetaminophen     Tablets USP               |            | Pain relief                             
|                                                                      
|Hydrocodone Bitartrate and Acetaminophen     Tablets, USP10mg/500mg    |            | Pain relief                             
|                                                                      
|Hydrocodone Bitartrate and Acetaminophen     Tablets, USP              |            | Pain relief                             
|                                                                      
|Hydrocodone Bitartrate and Acetaminophen     Tablets, USP              |            | Pain relief                             
|                                                                      
|Hydrocortisone Acetate Suppository                                     |            | Anti-inflammatoryHemorrhoids            
|                                                                      
|Indomethacin Extended- Release Capsules, USP                           |            | Rheumatoid arthritis                    
|                                                                      
|Lithium Carbonate Capsules, USP                                        |            | Manic-depressive illness                
|                                                                      
|Methylphenidate HCl Tablets, USP                                       |            | Attention disorder                      
|                                                                      
|Methylphenidate HCl Extended- Release Tablets,    USP                  |            | Attention disorder                      
|                                                                      
|Nitrotab(TM)Nitroglycerin Sublingual Tablets, USP                      |            | Anti-angina                             
|                                                                      

|5
|-

|                                                           |  |                                                                                               |  |                                        | 
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | -------------------------------------- | 
|Phenazopyridine HCl Tablets, USP                           |  | Urinary Tract Analgesic                                                                       |  | Pyridium(R)                            | 
|                                                          
|Phentermine HCl Capsules, USP (beads)                      |  | Obesity                                                                                       |  | Phentermine Hydrochloride Capsules (2) | 
|                                                          
|Phentermine HCl Capsules, USP (powder)                     |  | Obesity                                                                                       |  | Phentermine Hydrochloride Capsules (2) | 
|                                                          
|Phentermine HCl Tablets, USP                               |  | Obesity                                                                                       |  | Adipex-P(R)(2)                         | 
|                                                          
|Prochloroperazine Suppositories, USP                       |  | Nausea                                                                                        |  | Compazine(R)(2)                        | 
|                                                          
|Promethazine HCI Suppositories, USP 50 mg                  |  | Allergies, DermographismAnaphylactic Reaction,Pre/Post-Operative Sedation,Nausea and Vomiting |  | Phenergan(R)(2)                        | 
|                                                          
|Proproxyphene Napsylate and Acetaminophen     Tablets, USP |  | Pain relief                                                                                   |  | Darvocet-N(R)(2)                       | 
|                                                          
|Salsalate Tablets, USP                                     |  | Anti-inflammatory                                                                             |  | Disalcid(R)                            | 

_________________

|(1) |  | All brand names in the table above are trademarks or registered trademarks of
                    their respective owners.
|--- |  | --------------------------------------------------------------------------------------------------------------------------

|(2) |  | Refers to the reference listed drug. A reference listed drug (21 CFR
                    314.94(a)(3)) means the listed drug identified by FDA as the drug product upon
                    which an applicant relies in seeking approval of its Abbreviated New Drug
                    Application.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Research and Development


We
are working on developing additional generic products in the form of tablets, capsules,
and suppositories. The research, development, clinical testing and the FDA review process,
leading to approvals, takes approximately two years for each product. As discussed in the
section titled Government Regulation, some products require no review or
limited laboratory testing, in which case the time required to complete the process can be
less than two years. Typically, our research and development activities consist of:

identifying brand-name drugs for which patent protection has expired or will expire in the near future;conducting research (including patent and market research) and developing new product formulations based upon such drugs;developing and testing our formulation in laboratory and human clinical studies as necessary;compiling and submitting all the information to the FDA; andobtaining approval from the FDA for our new product formulations.As
part of the approval process, we contract with outside laboratories to conduct biostudies
that are required for FDA approval. We use biostudies to demonstrate that the rate and
extent of absorption of a generic drug are not significantly different from that achieved
by the corresponding brand-name drug. These biostudies are subject to rigorous standards
set by the FDA. They may cost up to $500,000 each and are a significant part of the overall cost
of our drug development work.


As
of March 13, 2003, we have fifteen (15) Abbreviated New Drug Applications
(ANDAs) pending approval at the FDA. Prior to FDA approval of an ANDA, we
generally undergo an on-site inspection, known as a pre-approval inspection or PAI, by the
district office of the FDA. Between January 2001 and March 13, 2003, we have had six
pre-approval inspections, covering several products. Our product development program
includes several active projects in various stages of completion. We intend to develop and
file ANDA applications covering additional products this year. We can, however, give no
assurance that we will receive approval from the FDA to



6
market the products covered by
these pending and planned applications and, if we do, there is no assurance that we will
be able to penetrate the market and achieve reasonable levels of sales or profits from the
products.


For
the fiscal year ended December 31, 2002, we spent $6,944,952 on research and development
activities, compared with $2,352,666 for the fiscal year ended December 31, 2001 and
$2,392,166 for the fiscal year ended December 31, 2000.



Sales and Marketing


Our
products are sold primarily through direct sales efforts to drug wholesalers, distributors
and retail drug chains and other pharmaceutical companies. We market our generic drug
products under our Able Laboratories label as well as under private label
arrangements. The majority of our sales are to customers who purchase under firm purchase
order commitments. Excluding seasonal trade show purchases, these purchase orders range
from $1,000 to $1,700,000 and are typically filled within three months from the time we
receive them. Sales to Cardinal Health, a wholesaler, were approximately 37% of our sales
in 2002. The dollar amount of backlog orders, as of March 10, 2003, was approximately
$4,577,000. Because the level of our customers purchases can fluctuate over the
course of an operating period, backlog historically has not been a meaningful indicator of
revenues for a particular period or for future periods.


We
have four senior and experienced executives in our sales department, supported by three
associates. In January 2001 we appointed Bi-Coastal Pharmaceutical Corporation (Bi-Coastal) as our
representative. Bi-Coastal, located in New Jersey, has over 20 sales and support
professionals representing several pharmaceutical companies. Under our agreement,
Bi-Coastal is limited to selling our products only to generic drug distributors. We
believe, at this time, that this Bi-Coastal arrangement allows us to optimize our sales costs and achieve national
exposure for our product line.



Suppliers


We
manufacture our generic products at our facilities in South Plainfield, New Jersey. The
principal components used in the manufacture of generic products are active and inactive
pharmaceutical ingredients and certain packaging materials. The FDA must approve our
sources for almost all of the materials. In many instances, only one source may have been
approved. We purchase active raw material ingredients primarily from United States
distributors of bulk pharmaceutical materials manufactured by the U.S. or foreign
companies. If raw materials from an approved supplier were to become unavailable, we would
have to file a supplement to the applicable regulatory approval and revalidate the
manufacturing process using any new suppliers materials. Delays in revalidating the
manufacturing process or in obtaining new materials could result in the loss of revenues
and could have a material adverse effect on our business, financial condition and results
of operations.



Manufacturing Facilities


Our
facilities consist primarily of approximately 110,000 square feet of manufacturing, warehousing,
laboratory and office space contained in four buildings. Over the past two years, we have
invested approximately $8,000,000 to upgrade our facilities, including installing new
flooring, building additional tablet compression and packaging rooms, separating
manufacturing areas for phenazopyridine production, adding new air handling units and
installing new manufacturing and laboratory equipment. We also built a self-contained
research and development facility with its own separate support laboratory. In our
production areas, we built storage vaults required for handling controlled substances. We
intend to increase our manufacturing and laboratory capacity to handle our anticipated
production needs for approximately the next 12 months. See Certain Factors That May Affect
Future Results  We may have difficulty managing our growth.



Competition


We
compete primarily with other generic manufacturers and distributors. Many of our
competitors have substantially greater financial resources than we have, as well as other
resources such as expertise in formulations of



7
technologically advanced delivery systems
and marketing that are required to commercialize a pharmaceutical product.


In
the generic drug market, we compete with:

other off-patent drug manufacturers;brand-name pharmaceutical companies that also manufacture off-patent drugs;the original manufacturers of brand-name drugs; andmanufacturers of new drugs that may be used for the same indications as our products.Revenues
and gross profit derived from generic drugs tend to follow a pattern based upon regulatory
and competitive factors unique to the generic pharmaceutical industry. As patents for
brand-name products and related exclusivity periods mandated by regulatory authorities
expire, the first generic manufacturer to receive regulatory approval for generic
equivalents of such products is usually able to achieve relatively high revenues and gross
profit. As other generic manufacturers receive regulatory approvals on competing products,
prices and revenues typically decline. Accordingly, the level of revenues and gross profit
we can achieve from developing and manufacturing generic products depends, in part, on our
ability to develop and introduce new generic products, the timing of regulatory approvals
of our products, and the number and timing of regulatory approvals of competing products.


Competition
in the United States generic pharmaceutical market continues to intensify as the
pharmaceutical industry adjusts to increased pressures to contain health care costs.
Brand-name drug manufacturers are increasingly selling their products into the generic
market directly by acquiring or forming strategic alliances with generic pharmaceutical
companies. No regulatory approvals are required for a brand-name manufacturer to sell
directly or through a third party to the generic market, nor do such manufacturers face
any other significant barriers to entry into such market. These competitive factors may
have a material adverse effect upon our ability to sell our generic pharmaceutical products.


There
can be no assurance that we will be able to successfully compete in the generic drug
business. See Managements Discussion and Analysis of Financial Condition and
Results of OperationsCertain Factors That May Affect Future Results.



Government Regulation


Our
products and business activities are highly regulated, principally by the FDA, the U.S.
Drug Enforcement Agency, state governments and governmental agencies of other countries.
Federal and state regulations and statutes impose certain requirements on the testing,
manufacture, labeling, storage, recordkeeping, approval, advertising and promotion of our
products. Noncompliance with applicable requirements can result in judicially and
administratively imposed sanctions, including seizures of adulterated or misbranded
products, injunction actions, fines and criminal prosecutions. Administrative enforcement
measures can also involve product recalls and the refusal, by the government, to approve
new drug applications known as NDAs, or ANDAs. In order to conduct clinical tests and
produce and market products for human diagnostic and therapeutic use, we must comply with
mandatory procedures and safety standards established by the FDA and comparable state and
foreign regulatory agencies. Typically, standards require that products be approved by the
FDA as safe and effective for their intended use prior to being marketed for human
applications.


To
obtain an NDA, or FDA, approval for a new drug or generic equivalent, a prospective
manufacturer must, among other things, comply with the FDAs current Good
Manufacturing Practices, or cGMP, regulations. The FDA may inspect the manufacturers
facilities to assure such compliance prior to approval or at any other reasonable time. We
must follow cGMP regulations at all times during the manufacture and other processing of
drugs. To comply with the requirements set forth in these regulations, we must continue to
expend significant time and resources in the areas of development, production, quality
control and quality assurance.



8
We
must obtain FDA approval, in the form of an ANDA, before we can market a generic equivalent
of a previously approved drug. The process for obtaining an ANDA approval is set by the
provisions of the Waxman-Hatch Act of 1984, which established a statutory procedure for
the submission and FDA review and approval of ANDAs for generic versions of drugs
previously approved by the FDA. Under the ANDA procedure, the FDA waives the requirement
of conducting complete clinical studies of safety and efficacy and, instead, typically
requires the applicant to submit data illustrating that the generic drug formulation is
bioequivalent to a previously approved drug. Bioequivalence means
that the rate of absorption and the levels of concentration of a generic drug in the body,
needed to produce a therapeutic effect, are substantially equivalent to those of the
previously approved drug. For some drugs, the FDA may require other means of demonstrating
that the generic drug is bioequivalent to the original drug. The NDA and ANDA approval
processes both generally take a number of years and involve the expenditure of substantial
resources.


The
Waxman-Hatch Act establishes other statutory protections, for certain FDA-approved drugs,
which could preclude submission or delay the approval of a competing ANDA. One such
provision allows a five-year market exclusivity period for NDAs involving new chemical
compounds and a three-year market exclusivity period for NDAs (including different dosage
forms) containing data from new clinical investigations essential to the approval of the
application. Both patented and non-patented drug products are subject to these market
exclusivity provisions. Another provision of the Act extends patents for up to five years
as compensation for reducing the effective market life of the patent resulting from
the time involved in the federal regulatory review process.


The
Prescription Drug User Fee Act of 1992, enacted to expedite drug approval by providing the
FDA with resources to hire additional medical reviewers, imposes three types of user fees
on manufacturers of NDA-approved prescription drugs. Applicants submitting only ANDAs and
most other off-patent drug manufacturers, including Able, are not currently subject to any
of the three user fees. If we submit NDAs for non-ANDA products, we may be subject to user
fees.


Penalties
for wrongdoing in connection with the development or submission of an ANDA were
established by the Generic Drug Enforcement Act of 1992, authorizing the FDA to
permanently or temporarily bar companies or individuals from submitting or assisting in
the submission of an ANDA. The FDA may also temporarily deny approval and suspend
applications to market generic drugs. The FDA may also suspend the distribution of all
drugs approved or developed in connection with certain wrongful conduct and, under certain
circumstances, also has the authority to withdraw approval of an ANDA and to seek civil
penalties. We do not expect the law to have a material impact on the review or approval of
our ANDAs.


Reimbursement
legislation, such as Medicaid, Medicare, Veterans Administration and other programs,
governs reimbursement levels. All pharmaceutical manufacturers rebate to individual states
a percentage of their revenues arising from Medicaid-reimbursed drug sales. Generic drug
manufacturers currently rebate 11% of average net sales price for products marketed under
ANDAs. Makers of NDA-approved products are required to rebate the greater of 15.2% of
average net sales price or the difference between average net sales price and the lowest
net sales price during a specified period. We believe that the federal and state
governments may continue to enact measures in the future aimed at reducing the cost of
drugs and devices to the public. We cannot predict the nature of such measures or their
impact on our profitability.


We
currently manufacture several products that are regulated as old drugs and
subject to the requirements of the Over-the-Counter Drug Review regulations promulgated by
the FDA. This class of drugs requires no prior approval from the FDA before marketing, but
such products must comply with applicable FDA monographs which specify, among other
things, required ingredients, dosage levels, label contents and permitted uses. These
monographs may be changed from time to time, in which case we might be required to change
the formulation, packaging or labeling of any affected product. Changes to monographs
normally have a delayed effective date, so while we may have to incur costs to comply with
any such changes, disruption of distribution is not likely.


The
FDA can also significantly delay the approval of a pending NDA or ANDA under its
Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities
Policy. Manufacturers of drugs and devices must also comply with the FDAs
current Good Manufacturing Practices, or cGMP standards, or risk sanctions such as the



9
suspension of manufacturing approval, the seizure of drug products or the FDAs
refusal to approve additional applications.


We
can give no assurance that we will obtain the requisite approvals from the FDA for any of
our proposed products or processes, that the process to obtain such approvals will not be
excessively expensive or lengthy, or that we will have sufficient funds to pursue such
approvals. Our failure to receive the requisite approvals for our products or processes,
when and if developed, or significant delays in obtaining such approvals, would prevent us
from commercializing our products as anticipated and would have a materially adverse
effect on our business, financial condition and results of operations. See Certain
Factors That May Affect Future Results  Intense regulation by government agencies
may delay our efforts to commercialize our proposed drug products.



Product Liability
Insurance Coverage


We presently
maintain product liability insurance in the amount of $10,000,000 for the products we
market. The product liability insurance has a $100,000 deductible. We also maintain
product liability insurance for products in clinical investigations. Although we intend to
obtain product liability insurance prior to the commercialization of certain products that
are not presently covered, we can give no assurance that we will obtain such insurance at
favorable rates, or that any such insurance, even if obtained, will be adequate to cover
potential liabilities.


In
the event of a successful suit against us, insufficient insurance coverage could have a
materially adverse impact on our operations and financial condition. Furthermore, the
costs of defending or settling a product liability claim and any attendant negative
publicity may have a materially adverse affect upon us, even if we ultimately prevailed.
Furthermore, certain food and drug retailers require minimum product liability insurance
coverage as a precondition to purchasing or accepting products for commercial
distribution. Failure to satisfy these insurance requirements could impede our ability to
achieve broad commercial distribution of our proposed products, which could have a
materially adverse effect upon our business and financial condition.



Proprietary Technology


Our
generic business relies upon unpatented trade secrets and proprietary technologies and
processes. There is no assurance that others will not independently develop substantially
equivalent proprietary information and techniques, or gain access to our trade secrets or
proprietary technology, or that we can meaningfully protect unpatented trade secrets. We
require employees, consultants and other advisors to execute confidentiality agreements.
However, these agreements may not provide meaningful protection for our trade secrets, or
adequate remedies in the event of unauthorized use or disclosure of such information. The
manufacture and sale of certain products will involve the use of processes, products or
information, including some owned by others.



Employees


As
of March 5, 2003, we had 288 full-time employees, of whom 35 were employed in selling,
general and administrative activities, 100 were employed in quality and regulatory roles,
20 were employed in research and development and 133 were employed in manufacturing. None
of our employees is represented by a union. We believe our relationship with our employees
is good.



Item 2.  Properties


We
have moved our principal executive offices to 6 Hollywood Court, South Plainfield, New
Jersey, the location of our 50,000 square foot manufacturing and administrative facility.


We
have a 50,000 square foot manufacturing and administrative facility, a 22,000 square foot
office and warehouse facility, a 12,700 square foot research and development laboratory
and a 21,500 square foot warehouse, office and shipping facility in four buildings, all of
which are located in South Plainfield, New Jersey. The premises are leased from
unaffiliated parties for terms expiring on March 31, 2015, September 30, 2004, June 14,
2005 and July 31, 2005, respectively. We also lease a 731 square foot facility in
Cincinnati, Ohio to house part of our sales



10
force. We also maintain an administrative
office in Needham, Massachusetts which consists of approximately 2,580 square feet of
office space.


We
believe that our present facilities are adequate to meet our current needs. If new or
additional space is required, we believe that adequate facilities are available at
competitive prices in the respective areas.



Item 3.  Legal Proceedings


On
August 27, 2001, Novopharm USA, Inc. filed a complaint against Able Laboratories, Inc. in
the Superior Court of New Jersey (Middlesex County), alleging that we had breached a joint
commercialization agreement for the development, production, marketing, and sale of
generic clorazepate dipotassium tablets. In its complaint, Novopharm sought approximately
$2,000,000 claimed to be due for payments made by Novopharm to improve our facilities and
in respect of Novopharms raw material purchase costs, and also made claims for
compensation for assistance rendered by Novopharm to us and for our sales of clorazepate
dipotassium tablets. We answered the claim, denying liability and also made counterclaims
against Novopharm asserting that it had failed to pay us $900,000 for clorazepate sales
and failed to undertake promised sales efforts. Further, we asserted that Novopharms
only recovery for advances and raw material costs was through sales under the joint
commercialization agreement and that Novopharm had breached a separate product agreement
by failing to pay us $269,000.


In
February 2003, we settled this matter and executed mutual releases with Novopharm. The
claims and counterclaims were dismissed with prejudice. The settlement had no material
effect on our consolidated financial position or results of operation.


We
are also involved in certain other legal proceedings from time to time incidental to our
normal business activities. While the outcome of any such proceedings cannot be accurately
predicted, we do not believe the ultimate resolution of any existing matters should have a
material adverse effect on our financial position or results of operations.



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


No
matters were submitted to a vote of our security holders during the last fiscal quarter of
the year ended December 31, 2002.

11

PART II



Item 5.  Market for
Common Equity and Related Stockholder Matters



(a)    Market Price of
Common Stock


Our
common stock is traded on the Nasdaq National Market and the Boston Stock Exchange under
the symbol ABRX. On March 17, 2003, based upon information from American Stock
Transfer & Trust Company, our transfer agent, there were approximately 2,543 holders
of record of common stock. We believe that there are a substantial number of additional
beneficial owners that hold common stock in street name through brokerage
firms. The following table sets forth, for the periods indicated, the range of quarterly
high and low sale prices as reported on the OTC Bulletin Board from January 1, 2001 to
November 18, 2002 and on the Nasdaq SmallCap Market from November 19, 2002 to December 31,
2002 for the Common Stock.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|                               | Common Stock(1) | 
|------------------------------ | --------------- | 
|
|
|
|Fiscal 2001:                   |                 | 
|January 1 to March 31, 2001    |                 | 
|April 1 to June 30, 2001       |                 | 
|July 1 to September 30, 2001   |                 | 
|October 1 to December 31, 2001 |                 | 
|                               |                 | 
|Fiscal 2002:                   |                 | 
|January 1 to March 31, 2002    |                 | 
|April 1 to June 30, 2002       |                 | 
|July 1 to September 30, 2002   |                 | 
|October 1 to December 31, 2002 |                 | 

_________________

|(1) |  | Prices have been adjusted to reflect a 1-for-15 reverse stock split of our
          common stock, effective June 3, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------

|We
have never paid dividends to common stockholders since inception and do not intend to pay
dividends to common stockholders in the foreseeable future. We intend to retain earnings
to finance our operations.



(b)    Sales of Unregistered
Securities


During
the last fiscal quarter of the year ended December 31, 2002, we issued an aggregate of
964,642 shares of common stock upon exercise of options and warrants and conversion of
preferred stock. These issuances were pursuant to one or more exemptions from the
registration requirements of the Securities Act of 1933, as amended, including the
exemptions under Section 3(a)(9) and 4(2) thereof. We used all of the net cash proceeds
raised by the sale of unregistered securities for working capital.



Item 6.  Selected
Financial Data


The
selected financial data set forth below has been derived from our audited financial
statements. The information set forth below should be read in connection with the
financial statements and notes thereto, as well as other information contained in this
Report which could have a material adverse effect on our financial condition and results
of operations. In particular, refer to the matters described under the heading
Certain Factors That May Affect Future Results in this Report.




12
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | Years Ended December 31, | 
|-------------------------------------- | ------------------------ | 
|
|
|
|
|Statement of Operations Data:          |                          | 
|Sales, net                             |                          | 
|Costs of sales                         |                          | 
|                                       |                          | 
|Gross profit                           |                          | 
|Operating expenses                     |                          | 
|                                       |                          | 
|Operating income (loss)                |                          | 
|Other income (expense), net            |                          | 
|                                       |                          | 
|Income (loss) before income taxes      |                          | 
|Income tax benefit                     |                          | 
|                                       |                          | 
|Net income (loss)                      |                          | 
|Returns to preferred stockholders      |                          | 
|                                       |                          | 
|Net income (loss) applicable to common |                          | 
|stockholders                           |                          | 
|                                       |                          | 
|Net income (loss) per share:           |                          | 
|Basic                                  |                          | 
|                                       |                          | 
|Diluted                                |                          | 
|                                       |                          | 
|Weighted average shares outstanding:   |                          | 
|Basic                                  |                          | 
|                                       |                          | 
|Diluted                                |                          | 
|                                       |                          | 

|                                    | At December 31, | 
|----------------------------------- | --------------- | 
|
|
|
|
|Balance Sheet Data:                 |                 | 
|Current assets                      |                 | 
|Total assets                        |                 | 
|Current liabilities                 |                 | 
|Long-term debt                      |                 | 
|Deferred gain on sale of subsidiary |                 | 
|Stockholders equity (deficit)      |                 | 
|Working capital (deficit)           |                 | 

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



Overview


We
develop, make and sell generic drugs. From our inception in 1988 until 1996, we focused
primarily on developing new drugs and licensing the resulting products and technologies to
others. Beginning in 1996, we began shifting our focus and, through acquiring three
separate companies, became a generic drug manufacturing and distribution business. In
1996, we acquired Able Laboratories, Inc., our generic drug development and manufacturing
business. In 1997 and 1998, respectively, we acquired Superior Pharmaceutical Company and
Generic Distributors, Inc., our distribution operations.


Generic
drug development, manufacturing and distribution is a highly competitive business and
there are several companies with substantially greater resources that compete with us. Our
distribution businesses sold mostly



13
our competitors products and the combination of
manufacturing and distribution businesses did not create the strategic advantages we were
seeking. After careful analysis, we decided to divest our distribution operations and
continue only as a generic drug development and manufacturing company selling only our own
products to customers. We completed the sale of Superior Pharmaceutical Company on
February 23, 2001 and we sold the assets of our Generic Distributors, Inc. subsidiary in a
separate transaction on December 29, 2000. On May 18, 2001, we merged our subsidiary, Able
Laboratories, Inc., into our parent company, DynaGen, Inc., and changed DynaGens
name to Able Laboratories, Inc.


In
the section of this Report entitled Certain Factors That May Affect Future
Results, we have described several risk factors which we believe are significant. We
consider each of these risks specific to us, although some are industry or sector related
issues which could also impact, to some degree, other businesses in our market sector. You
should give very careful consideration to these risks when you evaluate the Company.



Critical Accounting
Policies


Our
significant accounting policies are more fully described in Note 1 to our consolidated
financial statements. However, certain of our accounting policies are particularly
important to the portrayal of our financial position and results of operations and
require the application of significant judgment by our management. As a result, these
policies are subject to an inherent degree of uncertainty. In applying these policies, our
management makes estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures. We base our estimates and
judgments on our historical experience, the terms of existing contracts, our observance of
trends in the industry, information that we obtain from our customers and outside sources,
and on various other assumptions that we believe to be reasonable and appropriate 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 these estimates under different assumptions or
conditions. Our significant accounting policies include:


     Inventories.  
          We state inventories at the lower of average cost or market, with cost being
          determined based upon the first-in first-out method. In evaluating whether inventory is
          to be stated at cost or market, management considers such factors as the amount
          of inventory on hand, estimated time required to sell existing inventory and
          expected market conditions, including levels of competition. We establish
          reserves, when necessary, for slow-moving and obsolete inventories based upon
          our historical experience and managements assessment of current product
          demand. We evaluate the adequacy of these reserves quarterly. If we were to
          determine that our inventory was overvalued based upon the above factors, then we
          would have to increase our reserves.


Revenue
Recognition and Accounts Receivable.   We recognize revenue on product sales when
persuasive evidence of an arrangement exists, the price is fixed and final, delivery has
occurred and there is reasonable assurance that we will collect the sales proceeds. We
obtain oral or written purchase authorizations from our customers for a specified amount
of product at a specified price and consider delivery to have occurred at the time of
shipment. Thus, we principally recognize revenue upon shipment and, in certain cases,
recognize revenue when customers receive shipments.


Allowances
for Returns and Price Adjustments.   Our product revenues are typically subject to
agreements with customers allowing chargebacks, rebates, rights of return, pricing
adjustments and other allowances. We establish allowances for these items when we
recognize revenue and we book the allowances as reserves against accounts receivable.
Chargebacks, primarily from wholesalers, are the most significant of these items. They
result from arrangements we have with customers establishing prices for products for which
the customers independently select a wholesaler from which to purchase. A chargeback
represents the difference between our invoice price to the wholesaler, which is typically
stated at wholesale acquisition cost, and the end customers contract price, which is
lower. We credit the wholesaler for purchases by end customers at the lower price.
Therefore, we record these chargebacks at the time we recognize revenue in connection with
our sales to wholesalers. We base these reserves primarily on our contractual arrangements
and wholesaler inventory levels and, to a lesser extent, historical chargeback experience.
The majority of our sales are made to wholesalers. For 2002, a major wholesaler, Cardinal
Health, accounted for approximately 37% of our sales. We continually monitor our reserve
estimates and



14
compensate for contractual changes, giving consideration to our observations
of buying patterns and current pricing trends and we make adjustments to our provisions
for chargebacks and similar items when we believe that the actual credits will differ from
our original provisions.


Allowance
for Doubtful Accounts.   We have historically provided financial terms to customers in
accordance with what management views as industry norms. Financial terms, for
credit-approved customers, are generally on a net 15-60 day basis, though certain
customers are entitled to a prompt payment discount. Management periodically and regularly
reviews customer account activity in order to assess the adequacy of allowances for
doubtful accounts, considering factors such as economic conditions and each
customers payment history and creditworthiness. If the financial condition of the
Companys customers were to deteriorate, or if they were otherwise unable to make
payments in accordance with managements expectations, we might have to increase our
allowance for doubtful accounts.


Income
Taxes.   Deferred tax assets and liabilities are recorded for temporary differences
between the financial statement and tax bases of assets and liabilities using the
currently enacted income tax rates expected to be in effect when the taxes are actually
paid or recovered. A deferred tax asset is also recorded for net operating loss, capital
loss and tax credit carryforwards to the extent their realization is more likely than not.
The deferred tax benefit or expense for the period represents the change in the deferred
tax asset or liability from the beginning to the end of the period.


As
of December 31, 2002, we have a net operating loss carryforward of approximately
$51.6 million for federal income tax purposes. During the fourth quarter of 2002,
management determined that it was more likely than not that these benefits will be
realized in future periods prior to expiration of the carryforward period. Therefore, we
recognized the related deferred tax asset for this and other temporary differences, which
resulted in a net income tax benefit that increased net income by $15,130,000, or $0.93
per diluted share, for 2002. Because we recognized this tax benefit during the fourth
quarter of 2002, we intend, in future profitable periods, to report net income as if we were
fully taxed. We do not, however, expect to pay federal income taxes, other than possibly the
alternative minimum tax, until we fully utilize our net operating loss carryforwards.


If,
in future periods, we determine that we are not likely to realize the tax benefit of the
net operating loss carryforwards, then we would increase our reserve against the asset,
the amount of which would be deducted from income during the period in which we increase
the reserve.



Results of Operations



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


     Sales.  
          Sales for the year ended December 31, 2002 were $52,930,121, compared to
          $19,594,231 for the year ended December 31, 2001. The sales for 2001 included
          $3,067,567 in net sales of our distribution subsidiary, Superior Pharmaceutical,
          which we sold in February 2001 and which added no revenue in 2002. This
          $3,067,567 decrease was offset by a significant increase in sales of our
          recently approved generic drugs, resulting in an increase in sales of
          $33,335,890, or 170%, for the year ended December 31, 2002 as compared to the year
          ended December 31, 2001. Since June 30, 2001, we have received FDA approval for
          12 new product families in 23 different product strengths.


Cost
of Sales.   Cost of sales was $27,361,610, or 52% of sales, for the year ended December
31, 2002, compared to $12,533,440, or 64% of sales, for the year ended December 31, 2001.
The increase in the gross profit margin to 48% from 36% is due to manufacturing
efficiencies and economies of scale, which were partially offset by a $300,000 product
recall charge to cost of sales. Our gross profit margin for the first, second, third and
fourth quarters of 2002 was 46%, 47%, 49% and 50%, respectively.


Selling,
General and Administrative.   Selling, general and administrative expenses for the year
ended December 31, 2002 were $7,754,153, compared to $5,909,245 for the year ended December
31, 2001. Expenses declined by $581,292 as a result of the sale of Superior; however, the
savings were offset by increased selling,



15
general and administrative costs at our
manufacturing facility. Excluding costs related to Superior, our expenses increased by
$2,426,200 for the year ended December 31, 2002 compared to the prior year. The increase
is primarily due to certain non-cash expenses, additional depreciation and amortization
expense and an increase in sales and administrative personnel to support the
Companys growth. As of December 31, 2002, we had 35 full-time employees in selling,
general and administrative positions compared to 19 full-time employees in similar
positions at December 31, 2001. We expect to add additional employees in the future to
support our anticipated sales growth.



Research
and Development.   Research and development expenses for the year ended December 31,
2002 were $6,944,952, compared to $2,352,666 for the year ended December 31, 2001. The
increase in expenses relates to an increased rate of filings with the FDA for new product
approvals. Costs of biostudies and outside assays, conducted by independent contract
research organizations, for the year ended December 31, 2002 were approximately $587,000
and $2,388,000, compared to $218,000 and $924,000 for the year ended December 31, 2001,
respectively. Costs of research and development supplies, equipment, and raw materials
increased from approximately $229,000 for the year ended December 31, 2001 to
approximately $1,449,000 for the year ended December 31, 2002. As of December 31, 2002, we
had 16 new products pending approval with the FDA and expect to increase our research and
development activities for a broad range of products over the next several months.


Operating
Income.   Our operating income for the year ended December 31, 2002 increased by
$12,070,526 to $10,869,406, compared to our operating loss of $(1,201,120) for the year
ended December 31, 2001. The increase in operating income resulted from increased net
sales and gross margins, which exceeded the greater operating expenses incurred to support
continued Company growth.


Other
Income (Expense).   Interest and financing expenses for the year ended December 31, 2002
were $517,723, compared to $1,077,100 for the year ended December 31, 2001. Our interest
and financing expenses decreased by $559,377 as our senior secured debt was paid off and
our senior subordinated debt was eliminated as a result of the February 23, 2001 sale of
Superior. In addition, we paid off several other debt obligations during the year ended
December 31, 2002. Partially offsetting these savings was additional interest incurred on
our June 2002 borrowing of $2,300,000 and our October 2002 equipment credit facility of
$4,000,000. Other expenses also includes a $1,993,403 increase to the RxBazaar note
receivable reserve (see Liquidity and Capital Resources).


Income
Taxes.   As of December 31, 2002, we had a net operating loss carryforward for federal
income tax purposes of approximately $51.6 million. During the fourth quarter of 2002,
management determined that it was more likely than not that these benefits will be
realized in future periods prior to expiration of the carryforward period. Therefore, we
recognized the related deferred tax asset for this and other temporary differences, which
resulted in a net income tax benefit that increased net income by $15,130,000, or $0.93
per diluted share, for 2002.


Because
we recognized these tax benefits during the fourth quarter of 2002, in future profitable
periods, we expect to report our net income as if we were fully taxed. We do not, however,
expect to pay federal income taxes, other than possibly the alternative minimum tax, until we fully
utilize our net operating loss carryforwards.


Net
Income.   We recorded net income of $23,445,940 for the year ended December 31, 2002,
compared to a net loss of $(4,472,907) for the year ended December 31, 2001. We recorded
net income applicable to common stockholders of $22,964,797, or $1.98 per share, for the year
ended December 31, 2002, compared to a net loss applicable to common stock of
$(13,532,931), or $(1.57) per share, for the year ended December 31, 2001. Diluted earnings
per share were $1.44 for the year ended December 31, 2002, compared to a diluted loss per
share of $(1.57) for the year ended December 31, 2001.



Year
Ended December 31, 2001 Compared to Year Ended December 31, 2000


     Sales.  
          Sales for the year ended December 31, 2001 were $19,594,231 compared to
          $31,456,479 for the year ended December 31, 2000. In the year 2000, sales of
          $30,163,418 were from GDI and Superior compared to sales of $3,067,567 from
          Superior included in 2001. The sales generated by Able in 2001 of $16,526,664 is
          a significant increase over the prior year sales. Following the sale of
          Superior, our sales for the second quarter of 2001 were $3,530,737. Sales
          increased by 44% from the second quarter to $5,070,600 in the third quarter of
          2001 and



16
increased by 39% to $7,066,599 in the fourth quarter of 2001.
          Subsequent to the sale of Superior Pharmaceutical, Able has continued to sell
          its products to Superior for further distribution. Sales to Superior represent
          approximately 34% of net sales for the year ended December 31, 2001. We expect
          that sales to Superior will decrease as a percentage of sales in 2002 as we
          continue to add additional customers who buy products directly from us.


Cost
of Sales.   Cost of sales was $12,533,440 or 64% of sales for the year ended December
31, 2001, compared to $25,711,147, or 82% of sales for the year ended December 31, 2000.
Cost of sales for the third and fourth quarters of 2001 were 59% and 57%, respectively. As
sales continue to increase we expect cost of sales to decline as a percentage of net
sales. The margins of our new products are much higher than the margins from our former
distribution business.


Selling,
General and Administrative.   Selling, general and administrative expenses for the year
ended December 31, 2001 were $5,909,245 compared to $9,966,250 for the year ended December
31, 2000, a decrease of $4,057,005. The expenses relating to Superior and GDI for 2000
were $5,473,234 compared to $581,292 in the current year, a decrease of $4,891,942. This
decrease was partially offset by the cost of new personnel at our manufacturing facility.


Research
and Development.   Research and development expenses were $2,352,666 for the year ended
December 31, 2001 compared to $2,392,166 for the year ended December 31, 2000. In 2001, we
received twelve FDA approvals and continued to spend significant funds on research and
development.


Other
Income (Expense).   We recorded a $2,730,000 loss on our investment securities in
RxBazaar in 2001. We received these securities as a result of the exchange agreement we
entered into in connection with the sale of Superior. We recorded a loss of $50,000 on the
sale of $1,000,000 of preferred stock in RxBazaar in the first quarter of 2001 and wrote
down our investment by $2,680,000 at December 31, 2001 based on our impairment analysis.
In addition, we deferred the gain of $1,296,597 on the sale due to our ownership interest
and our guarantee of the $2,250,000 senior subordinated debt of RxBazaar. RxBazaar assumed
this debt in connection with our sale of Superior. Interest and financing expenses of
$1,077,100 for the year ended December 31, 2001, compared to $2,157,423 for the year ended
December 31, 2000. The interest expense was lower in 2001 by $1,080,323 as our senior
secured debt was paid off and our senior subordinated debt was eliminated as a result of
the sale of Superior. We expect that interest and financing expense will continue to
decrease in 2002 unless we need to borrow to finance the growth of our business.
Miscellaneous income was $535,313 for the year ended December 31, 2001, compared to
$632,463 for the year ended December 31, 2000. Miscellaneous income in 2001 consisted
primarily of forgiveness of debt and a $125,000 licensing fee. Miscellaneous income in
2000 consisted primarily of forgiveness of debt and termination of a trade agreement.


Net
Loss.   We incurred a net loss of $(4,472,907) for the year ended December 31, 2001,
compared to a net loss of $(8,451,651) in the prior year. After beneficial conversion
features and dividends to preferred stockholders, we recorded a net loss applicable to
common stock of $(13,532,931) or $(1.57) per share for the year ended December 31, 2001,
compared to a net loss applicable to common stock of $(9,895,444) or $(1.89) per share in
the prior year. We received twelve new product approvals from the FDA during 2001 of which
eight were received in the quarter ending September 30, 2001. We reported operating income
of $194,542 and $546,932, respectively, in the third and fourth quarters of 2001 compared
to operating losses of $(1,942,594) in the first six months of 2001. We expect the
operating performance of the Company to continue to improve in the upcoming year.



Liquidity and Capital
Resources


As
of December 31, 2002, we had working capital of $15,263,713, compared to working capital
of $6,148,610 at December 31, 2001. Cash was $1,801,127 as of December 31, 2002, compared
to $1,155,266 at December 31, 2001. The $9,115,103 increase in our working capital is
primarily due to our net income of $23,445,940 for the year ended December 31, 2002,
adjusted for the noncurrent portion of our deferred income tax benefit of $12,595,000. We
expect to make additional investments of approximately $4,000,000 in property and
equipment in 2003. Accounts receivable was $7,873,526 and inventory was $12,903,939 at
December 31, 2002. The accounts receivable allowance at December 31, 2002 includes
allowances for customer chargebacks, rebates,



17
other pricing adjustments and doubtful
accounts. Management expects accounts receivable and inventory will continue to increase
over the near term as sales continue to increase. Our stated working capital, accounts
receivable and inventory depend on various estimates and judgments of management. See
Critical Accounting Policies.


On
February 23, 2001, we sold Superior Pharmaceutical Company to RxBazaar, Inc. for
$4,000,000 in cash and RxBazaar assumed our existing 13.5% senior subordinated debt in the
amount of $2,248,875. We initially remained liable for the subordinated debt as a
guarantor and issued contingent stock purchase warrants which would have allowed the
holders of the debt to purchase 166,667 shares of our common stock at $.15 per share if
the debt was still outstanding on June 17, 2002. In June 2002, we borrowed $2,300,000 from
existing related party institutional and accredited investors and used the proceeds to
purchase the $2,250,000 senior subordinated debt of RxBazaar. RxBazaar is current with its
payments on this obligation but is in default of certain loan covenants. Due to
RxBazaars current financial condition, at December 31, 2002, management increased
its reserve for the notes receivable to cover the full carrying value of the notes,
resulting in a $1,993,403 charge to income. The warrants to purchase 166,667 shares at
$.15 per share were cancelled and new warrants to purchase 170,200 shares of common stock,
at $5.10 per share, were issued to noteholders in connection with our new borrowing of
$2,300,000.


On
February 23, 2001, we used the proceeds from the sale of Superior to pay off our obligations
under a working capital loan with our senior lender and we settled our warrant put
liability obligation to our senior subordinated lender by paying $300,000 and issuing
$750,000 of 13.5% notes payable. We paid the notes in full in February 2002.


In
addition, in February 2001, we received $950,000 on the redemption of $1,000,000 of
RxBazaar Series A Preferred Stock. In May and June 2001, we received $350,000 from the
sale of Series P Preferred stock and $250,000 from the sale of Series O Preferred stock.
In August 2001, we received aggregate consideration of $6,115,000 from the sale of Series
Q Preferred Stock. In December 2001, we received $5,062,800 from the sale of our common stock.


On
July 26, 2002, RxBazaar completed a merger with a public shell company, that
is, a company that did not conduct operations but which had completed a public offering
under the Securities Act. As a result of RxBazaars merger and a related reverse
stock split, the 1,700,000 shares of RxBazaar common stock held by Able were converted
into 238,000 shares of RxBazaar common stock and our investment in RxBazaar Series A
Preferred stock is now convertible into 345,333 shares of RxBazaar common stock. At
December 31, 2002, these securities were carried at no value.


In
addition, in September 2002, we received 239,841 shares of RxBazaar common stock in
payment of $479,682 in accrued dividends on the Series A Preferred stock. We are entitled
to receive additional shares of common stock if we receive less than $479,682 in proceeds
from the sale of the 239,841 dividend shares. After we receive $479,682 in proceeds from the
sale of dividend shares, any unsold dividend shares will be returned to RxBazaar. We
waived our rights to future dividends on the Series A Preferred stock in exchange for
RxBazaar agreeing to register the dividend shares, the common stock we hold and the common
stock issuable on conversion of the Series A Preferred Stock. The RxBazaar registration
statement was declared effective on September 30, 2002. We did not record any income on
receipt of the dividend shares due to the uncertainty of realizing any benefit from these
shares as there is currently no active trading market for RxBazaars common stock. We
have agreed that we will not convert any securities into shares of RxBazaar common stock,
if, immediately after such conversion, we would own greater than 4.9% of the issued and
outstanding common stock of RxBazaar.


In
October 2002, we entered into a $4,000,000 equipment credit facility with a commercial
bank. Proceeds from the credit facility were and will be used to purchase equipment, make
leasehold improvements and repay certain existing loans and equipment leases. In February
2003, we expanded this credit facility by $5.8 million by closing on a new $4.0 million
working capital revolving credit facility and a $1.8 million increase in our existing
equipment financing line. We entered into this arrangement to consolidate the credit
facilities we use as a source of working capital, and also to secure more favorable terms.


During
the year ended December 31, 2002, we paid down our debt obligations by $1,143,974,
including paying off our obligations under bridge loans from affiliates, a machinery and
equipment financing and our notes



18
payable-put liability. Current maturities of debt
obligations increased to $617,012 at December 31, 2002 from $586,807 at December 31, 2001.


A
summary of our contractual obligations at December 31, 2002 is as follows:
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|                 | Payments Due by Period | 
|---------------- | ---------------------- | 
|
|
|                 |                        | 
|Debt Obligations |                        | 
|Operating Leases |                        | 
|                 |                        | 
|Total            |                        | 
|                 |                        | 

|We
expect to fund our working capital needs from operations and from amounts available from
borrowings under our secured working capital credit facility. If we need additional working
capital to fund future expansion, we will seek an increase in our line of credit or other
debt financing before selling additional equity securities, although there is no guarantee
that we will be able to secure such financing.



Environmental Liability


We
have no known material environmental violations or assessments.



Recent Accounting Pronouncements


In June
2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after June
30, 2001 be accounted for under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. SFAS No. 142 addresses the initial recognition and measurement of intangible
assets acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides that
intangible assets with finite useful lives be amortized and that goodwill and intangible
assets with indefinite lives will not be amortized, but will rather be tested at least
annually for impairment. We adopted SFAS No. 142 for our fiscal year beginning January 1,
2002. The adoption of SFAS 142 did not have any material impact on the Companys
financial statements.


In
June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement establishes standards for accounting for obligations
associated with the retirement of tangible long-lived assets. This statement is effective
for fiscal years beginning after June 15, 2002. We are currently evaluating the impact, if
any, the adoption of this statement will have on our financial position and results of
operations.


In
August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets. This statement addresses financial accounting and reporting
for the impairment and disposal of long-lived assets. This statement is effective for
fiscal years beginning after December 15, 2001. The adoption of this statement did not
have any material impact on our financial position or results of operations.


In
July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. SFAS No. 146 will be applied prospectively to
any exit or disposal activities initiated after December 31, 2002.


In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure, an Amendment of FASB Statement No. 123. This
Statement provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In addition, this
Statement amends disclosure requirements to require prominent disclosures in both



19
annual
and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The FASB has
prescribed a tabular format and location for the disclosures. The Company has adopted SFAS
No. 148 and has included the required disclosures in its consolidated financial statements
for the year ended December 31, 2002. We do not plan to adopt the fair value accounting
model for stock-based employee compensation under SFAS No. 123.



Certain Factors That May
Affect Future Results



We
may have difficulty managing our growth.


We
have been experiencing a period of rapid growth that has been placing a strain on our
resources. Revenue from our operations for the year ended December 31, 2002 increased by
170% to $52,930,121. The number of our employees increased from 95 in March 2001 to 288 as
of March 5, 2003. We anticipate that our revenues and business activities will continue to
grow in 2003. To manage future growth effectively, we must maintain and enhance our
financial and accounting systems and our manufacturing processes and compliance programs,
as well as the operational and administrative tasks associated with integrating new
personnel and managing expanding operations. The challenges inherent in managing growth are
significant. If we are unable to meet these challenges, we could experience a material
adverse effect on the quality of our products, our ability to retain key personnel, our
operating results and financial condition.



We
depend on a number of key personnel.


Our
future success depends, to a significant degree, on the skill, experience and efforts of
our chief executive officer and the other members of our senior management team. The loss
of any member of our senior management team could have a material adverse effect on our
business.



We
face intense competition from other manufacturers of generic drugs.


In
order to succeed in the generic drug business, we need to achieve a significant share of
the market for each generic drug we market. The generic drug manufacturing and
distribution business is highly competitive. We compete with several companies that are
better capitalized than we are and that have financial and human resources significantly
greater than ours. Because we manufacture generic drugs, our products, by their very nature,
are chemically and biologically equivalent to the products of our larger and profitable
competitors. Also, we believe that, as a rule, the first one or two companies to bring a
generic alternative to the market will capture the highest market share for that product.
These larger companies, with their greater resources, could bring products to market
before us and could capture a significant share of the market at our expense.


We
are obligated to issue a large number of shares of common stock at prices lower than
market value.


We
are obligated to issue a large number of shares of common stock at prices below
market value. Therefore, our common stock could lose value if a large number of these shares are
issued into the market. As of March 1, 2003, 12,898,870 shares of common stock were
issued and outstanding. We have issued options, warrants and preferred stock, that are
convertible by their holders into shares of common stock. As of March 1, 2003, we were
obligated to issue up to 2,787,719 additional shares of common stock upon the conversion
of our Series Q convertible preferred stock. We have also reserved 2,234,990 shares of
common stock for issuance pursuant to options and warrants granted to our employees,
officers, directors, consultants and investors. The holders of these convertible
securities likely would only exercise their rights to acquire common stock at times when
the exercise price is lower than the price at which they could buy the common stock on the
open market. Because we would likely receive less than current market price for any shares
of common stock issued upon exercise of options and warrants, the exercise of a large
number of these convertible securities could reduce the per-share market price of common
stock held by existing investors.



20
Conversion
of outstanding shares of convertible preferred stock may reduce the market price of our        
outstanding common stock.


The
conversion of outstanding shares of our Series Q Preferred Stock may result in substantial
dilution to the equity interests of current holders of our common stock. Specifically,
public resales of our common stock following conversions of preferred stock may depress
the prevailing market price of our common stock. Even prior to the time of actual
conversions of the preferred stock, the perception of a significant market
overhang resulting from the existence of our obligation to honor such
conversions could depress the market price of our common stock.


The
value of our common stock has fluctuated widely and investors could lose money on their
investments         in our stock.


The
price of our common stock has fluctuated widely in the past and it is likely that it will
continue to do so in the future. The market price of our common stock could fluctuate
substantially based upon a variety of factors including:

quarterly fluctuations in our operating results;announcements of new products by us or our competitors;key personnel losses;sales of common stock; anddevelopments or announcements with respect to industry standards, patents or proprietary rights.During
2002, the market price of our common stock fluctuated between approximately $4.30 and
approximately $12.32, and was approximately $14.80 on February 28, 2003. These broad
market fluctuations could adversely affect the market value of our common stock in that,
at the current price, any fluctuation in the dollar price per share could constitute a
significant percentage decrease in the value of a stockholders investment.



We
may face product liability for which we are not adequately insured.


The
testing, marketing and sale of drug products for human use is inherently risky. Liability
might result from claims made directly by consumers or by pharmaceutical companies or
others selling our products. We presently carry product liability insurance in amounts
that we believe to be adequate, but we can give no assurance that such insurance will
remain available at a reasonable cost or that any insurance policy would offer coverage
sufficient to meet any liability arising as a result of a claim. We can give no assurance
that we will be able to obtain or maintain adequate insurance on reasonable terms or that,
if obtained, such insurance will be sufficient to protect us against such potential
liability or at a reasonable cost. The obligation to pay any product liability claim or a
recall of a product could have a material adverse affect on our business, financial
condition and future prospects.


Intense
regulation by government agencies may delay our efforts to commercialize our proposed drug        
products.


Before
we can market any generic drug, we must first obtain FDA approval of the proposed drug and
of the active drug raw materials that we use. In many instances, our approvals cover only
one source of raw materials. If raw materials from a specified supplier were to become
unavailable, we would be required to file a supplement to our Abbreviated New Drug
Application to use a different manufacturer and revalidate the manufacturing process using
a new suppliers materials. This could cause a delay of several months in the
manufacture of the drug involved and the consequent loss of potential revenue and market
share. For example, for a period of time, we were unable to acquire the active drug for our
clorazapate dipotassium product and, as a result, we had to discontinue production of the product.
The active drug ingredient has since become available again and we have resumed
manufacturing the product.



Item 7A.   Quantitative
and Qualitative Disclosures About Market Risk


We
do not use any derivative financial instruments. Our exposure to market risk for a change
in interest rates relates primarily to our debt instruments. Our debt instruments, at
December 31, 2002, are subject to variable interest rates, which float based upon a spread
over LIBOR or U.S. bank prime rate, and fixed interest rates and



21
principal payments.
Management does not believe that any risk inherent in these instruments is likely to have
a material effect on our consolidated financial statements.



Item 8.   Financial
Statements and Supplementary Data


Able
Laboratories Consolidated Financial Statements and related Independent
Auditors Report are presented in the following pages. The financial statements filed
in this Item 8 are as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
|
|
| | Independent Auditors Report                                                                                                   
| | Financial Statements:                                                                                                          
| | Consolidated Balance Sheets - December 31, 2002 and 2001                                                                       
| | Consolidated Statements of Operations -Years Ended December 31, 2002, 2001                                                     
| | and 2000                                                                                                                       
| | Consolidated Statements of Changes in Stockholders Equity (Deficit) - Years Ended             December 31, 2002, 2001 and 2000
| | Consolidated Statements of Cash Flows - Years Ended December 31, 2002, 2001                                                    
| | and 2000                                                                                                                       
| | Notes to Consolidated Financial Statements                                                                                     

|Item 9.   Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure



Not
applicable.

22

INDEPENDENT
AUDITORS REPORT



The Board of Directors
and StockholdersAble Laboratories, Inc.South Plainfield, New Jersey


We
have audited the accompanying consolidated balance sheets of Able Laboratories, Inc. and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of
operations, changes in stockholders equity (deficit) and cash flows for each of the
three years in the period ended December 31, 2002. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.


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


In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Able Laboratories, Inc. and
subsidiaries as of December 31, 2002 and 2001 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December
31, 2002 in conformity with accounting principles generally accepted in the United States
of America.



/s/ WOLF & COMPANY,
P.C.



Boston, MassachusettsJanuary
31, 2003



23

ABLE LABORATORIES, INC.CONSOLIDATED BALANCE
SHEETS
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                       | December 31, | 
|---------------------------------------------------------------------- | ------------ | 
|
|
|
|ASSETS                                                                 |              | 
|Current assets:                                                        |              | 
|Cash and cash equivalents                                              |              | 
|Accounts receivable, net of allowances of $13,054,246 and $8,116,822   |              | 
|Inventory                                                              |              | 
|Deferred income tax asset                                              |              | 
|Prepaid expenses and other current assets                              |              | 
|                                                                       |              | 
|Total current assets                                                   |              | 
|                                                                       |              | 
|Property and equipment, net                                            |              | 
|                                                                       |              | 
|Other assets:                                                          |              | 
|Investment in RxBazaar securities                                      |              | 
|Debt financing costs, net of accumulated amortization                  |              | 
|Cash deposits with bond trustee                                        |              | 
|Deferred income tax asset                                              |              | 
|Deposits and other assets                                              |              | 
|                                                                       |              | 
|Total other assets                                                     |              | 
|                                                                       |              | 
|                                                                       |              | 
|                                                                       |              | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                   |              | 
|Current liabilities:                                                   |              | 
|Notes payable and current portion of long-term debt                    |              | 
|Accounts payable                                                       |              | 
|Accrued expenses                                                       |              | 
|                                                                       |              | 
|Total current liabilities                                              |              | 
|Long-term debt, less current portion                                   |              | 
|Deferred gain on sale of subsidiary                                    |              | 
|                                                                       |              | 
|Total liabilities                                                      |              | 
|                                                                       |              | 
|Commitments and contingencies                                          |              | 
|Stockholders equity :                                                 |              | 
|Preferred stock, $.01 par value, 10,000,000 shares authorized, 53,150  |              | 
|shares of Series Q in 2002 and 67,910 shares of Series L and Q in 2001 |              | 
|(liquidation value $5,315,000 and $6,791,000)                          |              | 
|Common stock, $.01 par value, 25,000,000 shares authorized, 12,554,206 |              | 
|and 11,301,976 shares issued and outstanding                           |              | 
|Additional paid-in capital                                             |              | 
|Accumulated deficit                                                    |              | 
|Unearned stock-based compensation                                      |              | 
|                                                                       |              | 
|Total stockholders equity                                             |              | 
|                                                                       |              | 
|                                                                       |              | 
|                                                                       |              | 

|See
accompanying notes to consolidated financial statements.



24

ABLE LABORATORIES, INC.CONSOLIDATED
STATEMENTS OF OPERATIONS
|--------------------------------------------------------------------------------------------------------------------------------

|                                                    | Years Ended December 31, | 
|--------------------------------------------------- | ------------------------ | 
|
|
|                                                    |                          | 
|Sales, net                                          |                          | 
|Cost of sales                                       |                          | 
|                                                    |                          | 
|Gross profit                                        |                          | 
|                                                    |                          | 
|Operating expenses:                                 |                          | 
|Selling, general and administrative                 |                          | 
|Research and development                            |                          | 
|                                                    |                          | 
|Total operating expenses                            |                          | 
|                                                    |                          | 
|Operating income (loss)                             |                          | 
|                                                    |                          | 
|Other income (expense):                             |                          | 
|Loss on investment in RxBazaar                      |                          | 
|Loss on sale of subsidiary                          |                          | 
|Interest and financing expense                      |                          | 
|Miscellaneous income (expense), net                 |                          | 
|                                                    |                          | 
|Other income (expense), net                         |                          | 
|                                                    |                          | 
|Income (loss) before income taxes                   |                          | 
|Income tax benefit                                  |                          | 
|                                                    |                          | 
|Net income (loss)                                   |                          | 
|Less returns to preferred stockholders:             |                          | 
|Beneficial conversion features                      |                          | 
|Dividends paid and accrued                          |                          | 
|                                                    |                          | 
|Net income (loss) applicable to common stockholders |                          | 
|                                                    |                          | 
|Net income (loss) per share:                        |                          | 
|Basic                                               |                          | 
|                                                    |                          | 
|Diluted                                             |                          | 
|                                                    |                          | 
|Weighted average shares outstanding:                |                          | 
|Basic                                               |                          | 
|                                                    |                          | 
|Diluted                                             |                          | 
|                                                    |                          | 
|                                                    |                          | 

|See
accompanying notes to consolidated financial statements.



25

ABLE LABORATORIES, INC.CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)Years Ended December
31, 2002, 2001 and 2000
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                | Preferred Stock |  | Common Stock |         |   |   | Unearned |   | 
|----------------------------------------------- | --------------- |  | ------------ | ------- | - | - | -------- | - | 
|
|
|                                                |                 |  |              |         |   |   |          |   | 
|Balance at December 31, 1999                    |                 |  |              | 55,924  |   | $ | 559      |   | 
|Stock options and warrants exercised            |                 |  |              |        |   |   |         |   | 
|Shares issued in private placements             |                 |  |              | 43,600  |   |   | 436      |   | 
|Conversion of preferred stock                   |                 |  |              | (47,264 | ) |   | (473     | ) | 
|Conversion of debt and accrued interest         |                 |  |              |        |   |   |         |   | 
|Stock, options and warrants issued for services |                 |  |              |        |   |   |         |   | 
|Net loss                                        |                 |  |              |        |   |   |         |   | 
|                                                |                 |  |              |         |   |   |          |   | 
|Balance at December 31, 2000                    |                 |  |              | 52,260  |   |   | 522      |   | 
|Stock options and warrants exercised            |                 |  |              |        |   |   |         |   | 
|Shares issued in private placements             |                 |  |              | 67,150  |   |   | 672      |   | 
|Conversion and redemption of preferred stock    |                 |  |              | (98,700 | ) |   | (987     | ) | 
|Conversion of debt and accrued interest         |                 |  |              |        |   |   |         |   | 
|Shares issued for investment securities         |                 |  |              | 47,200  |   |   | 472      |   | 
|Stock, options and warrants issued for services |                 |  |              |        |   |   |         |   | 
|Cash dividends on preferred stock               |                 |  |              |        |   |   |         |   | 
|Net loss                                        |                 |  |              |        |   |   |         |   | 
|                                                |                 |  |              |         |   |   |          |   | 
|Balance at December 31, 2001                    |                 |  |              | 67,910  |   |   | 679      |   | 
|Stock options and warrants exercised            |                 |  |              |        |   |   |         |   | 
|Conversion of preferred stock                   |                 |  |              | (14,760 | ) |   | (147     | ) | 
|Warrants issued with debt                       |                 |  |              |        |   |   |         |   | 
|Cash dividends on preferred stock               |                 |  |              |        |   |   |         |   | 
|Stock-based compensation                        |                 |  |              |        |   |   |         |   | 
|Amortization of unearned stock-based            |                 | 
|compensation                                    |                 |  |              |        |   |   |         |   | 
|Tax benefit on stock options                    |                 |  |              |        |   |   |         |   | 
|Net income                                      |                 |  |              |        |   |   |         |   | 
|                                                |                 |  |              |         |   |   |          |   | 
|Balance at December 31, 2002                    |                 |  |              | 53,150  |   | $ | 532      |   | 
|                                                |                 |  |              |         |   |   |          |   | 

|See
accompanying notes to consolidated financial statements.



26

ABLE LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|---------------------------------------------------------------------------------------------------------------------------------

|                                                              | Years Ended December 31, | 
|------------------------------------------------------------- | ------------------------ | 
|
|
|                                                              |                          | 
|Cash flows from operating activities:                         |                          | 
|Net income (loss)                                             |                          | 
|Adjustments to reconcile net income (loss) to net cash        |                          | 
|provided by (used for) operating activities:                  |                          | 
|Gain on settlement of put liability                           |                          | 
|Deferred income tax benefit                                   |                          | 
|State tax benefit for stock options                           |                          | 
|Loss on investment in RxBazaar                                |                          | 
|Loss on sale of subsidiary                                    |                          | 
|Stock, options and warrants issued for services               |                          | 
|Amortization of unearned compensation                         |                          | 
|Depreciation and amortization                                 |                          | 
|(Increase) decrease in operating assets:                      |                          | 
|Accounts receivable                                           |                          | 
|Inventory                                                     |                          | 
|Prepaid expenses and other current assets                     |                          | 
|Deposits and other assets                                     |                          | 
|Increase in operating liabilities:                            |                          | 
|Accounts payable and accrued expenses                         |                          | 
|                                                              |                          | 
|Net cash provided by (used for) operating activities          |                          | 
|                                                              |                          | 
|Cash flows from investing activities:                         |                          | 
|Purchase of property and equipment                            |                          | 
|Purchase of RxBazaar note receivable                          |                          | 
|Proceeds from sale of subsidiaries                            |                          | 
|Proceeds from sale of investment in RxBazaar securities       |                          | 
|                                                              |                          | 
|Net cash provided by (used for) investing activities          |                          | 
|                                                              |                          | 
|Cash flows from financing activities:                         |                          | 
|Net proceeds from stock warrants and options                  |                          | 
|Net proceeds from private stock placements                    |                          | 
|Redemption of preferred stock                                 |                          | 
|Net proceeds from debt obligations                            |                          | 
|Payment of debt obligations                                   |                          | 
|Net change in line of credit                                  |                          | 
|Preferred stock dividends paid                                |                          | 
|                                                              |                          | 
|Net cash provided by financing activities                     |                          | 
|                                                              |                          | 
|Net change in cash and cash equivalents                       |                          | 
|Cash and cash equivalents at beginning of year                |                          | 
|                                                              |                          | 
|Cash and cash equivalents at end of year                      |                          | 
|                                                              |                          | 
|Supplemental cash flow information:                           |                          | 
|Interest paid                                                 |                          | 
|Income taxes paid                                             |                          | 
|Conversion of debt and accrued interest into common           |                          | 
|stock                                                         |                          | 
|Conversion of debt into preferred stock                       |                          | 
|Preferred stock issued for investment securities              |                          | 
|Conversion of put liability to notes payable                  |                          | 
|Additional cash flow information is included in Notes 2 and 6 |                          | 

|See
accompanying notes to consolidated financial statements.



27

ABLE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     1.    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Business and Basis of
Presentation


The
consolidated financial statements include the accounts of Able Laboratories, Inc. (the
Company or Able), which is engaged in the manufacture of generic
pharmaceuticals, and its inactive wholly-owned subsidiary, Monroe Subsidiary, Inc.
(formerly Generic Distributors, Inc. or GDI) which was engaged in the
distribution of generic pharmaceuticals. Monroe Subsidiary, Inc. was dissolved on
September 30, 2002. On May 18, 2001, we merged our wholly-owned subsidiary, Able
Laboratories, Inc., into our parent company, DynaGen, Inc. and changed DynaGens name
to Able Laboratories, Inc. All significant inter-company balances and transactions have
been eliminated in consolidation.


In
December 2000, we completed the sale of substantially all the assets of our GDI subsidiary
to Louisiana Wholesale Distributors (see Note 2). GDI changed its name to Monroe
Subsidiary, Inc. after the sale. On February 23, 2001, we completed the sale of our
subsidiary, Superior Pharmaceutical Company to RxBazaar, Inc. (see Note 2).



Reverse Stock Split


On
May 29, 2002, our stockholders approved a 1-for-15 reverse stock split of our common
stock. The reverse stock split became effective on June 3, 2002. All common stock
information presented herein has been retroactively restated to reflect the reverse stock
split.



Use of Estimates


In
preparing consolidated financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the balance sheet date and
reported amounts of revenues and expenses during the reporting period. Material estimates,
that are particularly susceptible to significant change in the near term, relate to the
carrying values of receivables, including allowances for chargebacks, rebates and returns,
inventory, investment in RxBazaar securities and note receivable and the valuation of
deferred income tax assets. Actual results could differ from those estimates.



Reclassifications


Certain
amounts have been reclassified in the 2001 and 2000 consolidated financial statements to
conform to the 2002 presentation. The reclassifications had no effect on net loss.



Cash Equivalents


Cash
equivalents include interest-bearing deposits with original maturities of three months or
less.



Accounts Receivable


Allowances
for Returns and Price Adjustments.  Our product revenues are typically subject to
agreements with customers allowing chargebacks, rebates, rights of return, pricing
adjustments and other allowances. We establish allowances for these items when we
recognize revenue and we book the allowances as reserves against accounts receivable.
Chargebacks, primarily from wholesalers, are the most significant of these items. They
result from arrangements we have with customers establishing prices for products for which
the customers independently select a wholesaler from which to purchase. A chargeback
represents the difference between our invoice price to the wholesaler, which is typically
stated at wholesale acquisition cost, and the end customers contract price, which is



28
lower. We credit the wholesaler for purchases by end customers at the lower price.
Therefore, we record these chargebacks at the time we recognize revenue in connection with
our sales to wholesalers. We base these reserves primarily on our contractual arrangements
and wholesaler inventory levels and, to a lesser extent, historical chargeback experience.
We continually monitor our reserves and compensate for contractual changes, giving
consideration to our observations of buying patterns and current pricing trends and we
make adjustments to our provisions for chargebacks and similar items when we believe that
the actual credits will differ from our original provisions.



Allowance
for Doubtful Accounts.   We have historically provided financial terms to customers in
accordance with what management views as industry norms. Financial terms, for
credit-approved customers, are generally on a net 15-60 day basis, though certain
customers are entitled to a prompt payment discount. Management periodically and regularly
reviews customer account activity in order to assess the adequacy of allowances for
doubtful accounts, considering factors such as economic conditions and each
customers payment history and creditworthiness. If the financial condition of the
Companys customers were to deteriorate, or if they were otherwise unable to make
payments in accordance with managements expectations, we might have to increase our
allowance for doubtful accounts.



Inventory


Inventory
is valued at the lower of average cost or market on a first-in first-out (FIFO) method.



Property and Equipment


Property
and equipment are stated at cost. Depreciation expense is provided over the estimated
useful lives of the assets using the straight-line method. Leasehold improvements are
amortized on the straight-line method over the shorter of the estimated useful life of the
asset or the life of the related lease term.



Debt Financing Costs


Debt
financing costs are being amortized on a straight-line basis over the term of the debt.
The related amortization expense for 2002, 2001 and 2000 was $14,400, $220,178 and
$483,204, respectively.



Revenue Recognition


Revenues
from product sales are principally recognized when products are shipped and in certain
cases revenues are recognized when shipments are received by customers. Revenues from
sales may be subject to agreements allowing chargebacks, rebates, rights of return and
other allowances. The Company provides allowances for potential uncollectible accounts,
chargebacks, rebates, returns and other allowances. Allowances for chargebacks, rebates,
returns and other allowances are established concurrently with the recognition of revenue.


Shipping
and handling fees billed to customers are recognized in net sales. Shipping and handling
costs we incur are included in cost of sales.



Advertising Costs


Advertising
costs are charged to expense when incurred.



Income Taxes


Deferred
tax assets and liabilities are recorded for temporary differences between the financial
statement and tax bases of assets and liabilities using the currently enacted income tax
rates expected to be in effect when the taxes are actually paid or recovered. A deferred
tax asset is also recorded for net operating loss, capital loss and tax credit
carryforwards to the extent their realization is more likely than not. The deferred tax
benefit or expense for the period represents the change in the deferred tax asset or
liability from the beginning to the end of the period.



29

Stock-Based Compensation


Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation encourages all entities to adopt a fair value based method
of accounting for employee stock compensation plans, whereby compensation cost is measured
at the grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. However, it also allows an entity to continue
to measure compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount an
employee must pay to acquire the stock. Stock options issued under the Companys
stock option plans generally have no intrinsic value at the grant date, and under Opinion
No. 25 no compensation cost is recognized for them. The Company does not plan to adopt the
fair value accounting model for stock-based employee compensation under SFAS No. 123.


At
December 31, 2002, the Company has one stock-based compensation plan and stock options
issued outside of the plans, which are described more fully in Note 10. The Company
applies APB Opinion No. 25 and related Interpretations in accounting for stock options
issued to employees and directors. Had compensation cost for the Companys stock
options issued to employees and directors been determined based on the fair value at the
grant dates consistent with SFAS No. 123, the Companys net income (loss) and net
income (loss) per share would have been adjusted to the pro forma amounts indicated below:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | Years Ended December 31, | 
|--------------------------------------------------- | ------------------------ | 
|
|
|                                                    |                          | 
|Net income (loss) as reported                       |                          | 
|Add stock-based compensation under APB No. 25       |                          | 
|Deduct stock-based employee compensation under SFAS |                          | 
|No. 123                                             |                          | 
|                                                    |                          | 
|Pro forma net income (loss)                         |                          | 
|Less returns to preferred stockholders              |                          | 
|                                                    |                          | 
|Net income (loss) applicable to common stockholders |                          | 
|                                                    |                          | 
|Net income (loss) per share:                        |                          | 
|Basic - as reported                                 |                          | 
|                                                    |                          | 
|Basic - Pro forma                                   |                          | 
|                                                    |                          | 
|Diluted - as reported                               |                          | 
|                                                    |                          | 
|Diluted - Pro forma                                 |                          | 
|                                                    |                          | 

|Earnings Per Share


Basic
earnings per share represents income available to common stockholders divided by the
weighted-average number of common shares outstanding during the period. Diluted earnings
per share reflects additional common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to income applicable to
common stockholders that would result from the assumed issuance.


For
2001 and 2000, options, warrants and convertible securities were anti-dilutive and
excluded from the diluted earnings per share computations.


The
net income (loss) applicable to common stockholders has been adjusted for the stated
dividends and the amortization of discounts on convertible preferred stock due to
beneficial conversion features.



30

Comprehensive Income


Accounting
principles generally require that recognized revenue, expenses, gains and losses be
included in net income. Certain statements, however, require entities to report specific
changes in assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, as a separate component of the equity section of the
balance sheet. Such items, along with net income, are components of comprehensive income.
There were no other items of comprehensive income during 2002, 2001 and 2000.



Recent Accounting
Pronouncements


In June
2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
requires that all business combinations initiated after June 30, 2001 be accounted for
under the purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS No. 142
addresses the initial recognition and measurement of intangible assets acquired outside of
a business combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite
useful lives be amortized and that goodwill and intangible assets with indefinite lives
will not be amortized, but will rather be tested at least annually for impairment. We
adopted SFAS No. 142 for our fiscal year beginning January 1, 2002. The adoption of SFAS
142 did not have any material impact on the Companys financial statements.


In
June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This
statement establishes standards for accounting for obligations associated with the
retirement of tangible long-lived assets. This statement is effective for fiscal years
beginning after June 15, 2002. We are currently evaluating the impact, if any, the
adoption of this statement will have on our financial position and results of operations.


In
August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. This statement addresses financial accounting and reporting for the
impairment and disposal of long-lived assets. This statement is effective for fiscal years
beginning after December 15, 2001. The adoption of this statement did not have any
material impact on our financial position or results of operations.


In
July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. SFAS No. 146 will be applied prospectively to
any exit or disposal activities initiated after December 31, 2002.


In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure, an Amendment of FASB Statement No. 123. This
Statement provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In addition, this
Statement amends disclosure requirements to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The FASB has
prescribed a tabular format and location for the disclosures. The Company has adopted SFAS
No. 148 and has included the required disclosures in its consolidated financial statements
for the year ended December 31, 2002.



2.     BUSINESS ACQUISITIONS
AND DISPOSITIONS



Superior
Pharmaceutical Company


On
June 18, 1997, the Company acquired Superior Pharmaceutical Company
(Superior). The acquisition was accounted for as a purchase. The Company
allocated a portion of the purchase price to customer lists, which was being amortized on
a straight-line basis over five years. Amortization of customer lists amounted to $128,218
and $769,308 for 2001 and 2000, respectively.



31
On
October 20, 2000, the Company entered into an agreement to sell Superior to RxBazaar, Inc.
(RxBazaar). RxBazaar was founded in October 1999 by two of the Companys
directors and others. As of December 31, 2000, the Company owned 1,700,000 shares of
RxBazaars common stock which the Company received for services. RxBazaar valued
these shares at $8,500 on issuance in January 2000. In addition, RxBazaar issued the
Company a five year warrant to purchase 1,200,000 shares of common stock at $2.50 per
share in September 2000 for services. RxBazaar valued the warrant at $300,000. The Company
deferred recognition of the value of these securities at December 31, 2000.


On
February 23, 2001, the Company sold Superior to RxBazaar for a cash payment of $4,000,000
and the assumption by RxBazaar of the Companys existing 13.5% senior subordinated
debt in the amount of $2,248,875. The Company remained liable for the debt as a guarantor
and issued contingent stock purchase warrants to the debt holders. The warrants would have
allowed the holders to purchase 166,667 shares of the Companys common stock at $.15
per share if the debt was still outstanding on June 17, 2002. In addition, the holders of
the debt had the option to convert such debt into common stock of the Company or RxBazaar.
In connection with the sale of Superior, the Company sold accounts receivable of
$3,572,730, inventory of $4,790,316, property and equipment of $191,715 and miscellaneous
assets totaling $391,387 net of accounts payable and accrued expenses of $4,596,654. The
Company deferred the gain of $1,296,597 on the sale due to its continuing ownership
interest in RxBazaar and its guarantee of the debt.


In
February and March 2001, the Company received $4,700,000 of RxBazaar Series A Preferred
stock plus accrued dividends of $20,000 in exchange for the Companys Series O
Preferred Stock (see Note 10). RxBazaar redeemed $l,000,000 of this Series A Preferred
Stock for $950,000 in February 2001. As of December 31, 2001, the Company owned 1,700,000
shares or approximately 7% of RxBazaars common stock and $3,700,000 of
RxBazaars Series A Preferred Stock. As of December 31, 2001, the Company recorded a
loss of $2,680,000 on its investment in RxBazaar as a result of the Companys
impairment analysis.


On
June 14, 2002, the Company purchased the senior subordinated debt of RxBazaar for
$2,250,000 and the contingent stock purchase warrants were cancelled. In addition, the
Company applied $1,040,000 of the deferred gain against the carrying value of its
investment in RxBazaar securities and the $256,597 balance of the deferred gain was
applied to the carrying value of the $2,250,000 notes receivable from RxBazaar. The notes
mature on June 17, 2004, bear interest at 13.5% payable monthly, are secured by a second
lien on substantially all assets of RxBazaar and are subject to an inter-creditor
agreement with RxBazaars asset-based lender. The Company has the right to convert
the notes into common stock of RxBazaar at the current market value of RxBazaars
common stock. Interest income on the notes for 2002 was $166,219. RxBazaar is current with
its interest payments on this obligation but is in default of certain loan covenants. Due
to RxBazaars current financial condition, at December 31, 2002, management increased
its reserve for the notes receivable to cover the full carrying value of the notes,
resulting in a $1,993,403 charge to income.


On
July 26, 2002, RxBazaar completed a merger with a public shell company, that
is, a company that did not conduct operations but which had completed a public offering
under the Securities Act. As a result of RxBazaars merger and related reverse stock
split, the 1,700,000 shares of RxBazaar common stock held by Able were converted into
238,000 shares of RxBazaar common stock and Ables investment in RxBazaar Series A
Preferred stock is now convertible into 345,333 shares of RxBazaar common stock.
Ables warrant to purchase 1,200,000 shares was converted into the right to purchase
168,000 shares at $17.86 per share.


In
addition, in September 2002, Able received 239,841 shares of RxBazaar common stock in
payment of $479,682 in accrued dividends on the Series A Preferred stock. Able is entitled
to receive additional shares of common stock if Able receives less than $479,682 in
proceeds on the sale of the 239,841 dividend shares. After Able receives $479,682 in
proceeds from the sale of dividend shares, any unsold dividend shares will be returned to
RxBazaar. Able has waived its rights to future dividends on the Series A Preferred stock
in exchange for RxBazaar agreeing to register the dividend shares, the common stock held
by Able and the common stock issuable on conversion of the Series A Preferred. The
RxBazaar registration statement was declared effective on September 30, 2002. Able did not
record any income on receipt of the dividend shares due to the uncertainty of Ables
ability to realize any benefit from these shares as there is currently no active trading
market for RxBazaars common stock.



32
Able
has agreed that it will not convert any securities into shares of RxBazaar common stock,
if, immediately after such conversion, Able would own more than 4.9% of the issued and
outstanding common stock of RxBazaar.


A
summary of Superiors historical condensed results of operations included in the
accompanying consolidated financial statements is as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Period Ended                                |  | Year Ended |  
| | ------------------------------------------- |  | ---------- | -
|
| |                                             |  |            |  
| | Sales, net                                  |  |            | $
| | Cost of sales                               |  |            |  
| |                                             |  |            |  
| | Gross profit                                |  |            |  
| | Selling, general and administrative expense |  |            |  
| |                                             |  |            |  
| | Operating profit (loss)                     |  |            |  
| | Miscellaneous income                        |  |            |  
| | Interest expense                            |  |            |  
| |                                             |  |            |  
| | Net income (loss)                           |  |            | $
| |                                             |  |            |  
| | Net income (loss) per share - basic         |  |            | $
| |                                             |  |            |  

|Generic
Distributors Incorporated


On
March 2, 1998, the Company acquired Generic Distributors, Inc. (GDI). The GDI
acquisition was accounted for as a purchase. The company allocated a portion of the
purchase price to customer lists which was amortized on a straight line basis over five
years. Amortization of customer lists amounted to $145,840 for 2000.


On
December 29, 2000, the Company sold substantially all the assets of GDI to Louisiana
Wholesale Distributors, an unrelated third party, for $1,510,774. The Company received
$800,000 in cash on January 3, 2001 and accounts payable of GDI amounting to $710,774 were
paid out of the remaining proceeds. At December 31, 2000, the consolidated financial
statements included $442,000 of accounts payable owed to creditors of GDI that were not
assumed by the buyer. In August 2001, the Company settled these obligations and recorded
$300,000 of forgiveness of debt income. The Company recorded a loss of $313,607 on the
sale in 2000 which included the write-off of the $315,992 unamortized balance of the
customer lists.


Selected
operating information for GDI for the year ended December 31, 2000 is as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenues                 |  |  | $ | 4,751,586 |  
| | ------------------------ |  |  | - | --------- | -
| |                          |  | 
| | Net loss                 |  |  | $ | (388,680  | )
| |                          |  | 
| | Net loss per share-basic |  |  | $ | (0.07     | )
| |                          |  | 

|33

3.     ACCOUNTS RECEIVABLE


Accounts receivable
consists of the following:
|-------------------------------------------------------------------------------

| | December 31,                                 | 
| | -------------------------------------------- | 
|
|
| |                                              | 
| | Accounts receivable                          | 
| | Allowances for returns and price adjustments | 
| | Allowance for doubtful accounts              | 
| |                                              | 
| | Accounts receivable, net                     | 
| |                                              | 

|A
summary of the activity in accounts receivable allowances is as follows:
|--------------------------------------------------------------------------

| | Returns and                             |  |  |   |             |  
| | --------------------------------------- |  |  | - | ----------- | -
|
|
| |                                         |  |  |   |             |  
| | Balance at December 31, 1999            |  |  | $ |            |  
| | Additions charged to net sales          |  |  |   | 450,000     |  
| | Additions charged to operating expenses |  |  |   |            |  
| | Deductions allowed to customers         |  |  |   | (450,000    | )
| | Writeoff of uncollectible accounts      |  |  |   |            |  
| |                                         |  |  |   |             |  
| | Balance at December 31, 2000            |  |  |   |            |  
| | Additions charged to net sales          |  |  |   | 19,806,388  |  
| | Additions charged to operating expenses |  |  |   |            |  
| | Deductions allowed to customers         |  |  |   | (11,840,151 | )
| | Writeoff of uncollectible accounts      |  |  |   |            |  
| |                                         |  |  |   |             |  
| | Balance at December 31, 2001            |  |  |   | 7,966,237   |  
| | Additions charged to net sales          |  |  |   | 56,097,504  |  
| | Additions charged to operating expenses |  |  |   |            |  
| | Deductions allowed to customers         |  |  |   | (51,651,200 | )
| | Writeoff of uncollectible accounts      |  |  |   |            |  
| |                                         |  |  |   |             |  
| | Balance at December 31, 2002            |  |  | $ | 12,412,541  |  
| |                                         |  |  |   |             |  

|34

4.     INVENTORY


Inventory
consists of the following:
|-----------------------------------------------------------

| |                  | December 31, | 
| | ---------------- | ------------ | 
|
|
| |                  |              | 
| | Raw materials    |              | 
| | Work-in-progress |              | 
| | Finished goods   |              | 
| |                  |              | 
| |                  |              | 
| |                  |              | 

|5.  PROPERTY AND EQUIPMENT


Property
and equipment consists of the following:
|------------------------------------------------------------------------------

| | December 31,                                   |  | 
| | ---------------------------------------------- |  | 
|
|
| |                                                |  | 
| | Machinery and equipment                        |  | 
| | Furniture, fixtures and computers              |  | 
| | Leasehold improvements                         |  | 
| | Construction in process                        |  | 
| |                                                |  | 
| |                                                |  | 
| | Less accumulated depreciation and amortization |  | 
| |                                                |  | 
| |                                                |  | 
| |                                                |  | 

|Depreciation
and amortization expense for 2002, 2001 and 2000 was $939,110, $564,221 and $569,719,
respectively.



6.     DEBT


Debt
consists of the following:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | December 31,                             | 
| | ---------------------------------------- | 
|
|
| |                                          | 
| | Bridge loans                             | 
| | Equipment loans                          | 
| | NJEDA bonds                              | 
| | Notes payable, put liability             | 
| | Unsecured notes payable, net of discount | 
| |                                          | 
| | Total                                    | 
| | Less current portion                     | 
| |                                          | 
| | Long-term debt                           | 
| |                                          | 

|Bridge
Loans


In
July 1998, Able entered into a machinery and equipment financing agreement with the spouse
of the former Chairman of the Company whereby Able borrowed $150,000 at an annual interest
rate of 15%. On December 31, 2001, the Company paid $63,975 in principal and interest of
$36,025 on this loan. Interest expense for 2002, 2001 and 2000 amounted to $2,736, $22,500
and $22,500, respectively. As of December 31, 2002 this debt was paid in full.



35
During
1999, the former Chairman of the Board periodically advanced personal funds to the Company
for working capital and, on December 31, 2001, the balance payable was $110,000. These
loans bear interest at 10% per annum. As of December 31, 2002 this debt was paid in full.


In
July 2001, the Company issued $775,000 in 8% convertible subordinated secured notes to
several investors as part of a bridge financing. A director, who is Ables president,
and the former Chairman of the Board of Directors, each advanced $250,000 to the Company
in this transaction. In August 2001, the notes were converted into Series Q Preferred
Stock (see Note 10).



Equipment
Loans


On
February 16, 2001, the Company borrowed $770,000 in an equipment financing transaction.
The borrowed amount was payable over a five-year term at an interest rate of 15%. Interest
expense for 2002 and 2001 was $76,216 and $86,625, respectively. In October 2002, the
Company repaid the loan.


On
October 24, 2002, we entered into a $4,000,000 non-restoring equipment loan agreement with
a commercial bank. An initial $1,700,000 advance was issued under the agreement on October
23, 2002. Subsequent advances totaling $1,246,745 were made between October 24, 2002 and
December 31, 2002. We have until April 24, 2004 to request advances for the remaining
$1,053,255 available under the non-restoring equipment loan. The initial $1,700,000
advance is payable in monthly installments of $28,333 plus interest through October 24,
2007. The subsequent advances totaling $1,246,745 require interest only payments until
monthly installments of $20,779 of principal commence on April 5, 2003 with a final
maturity of March 24, 2008. Parts of the proceeds of the initial and subsequent advances
were used to repay certain existing loans. Future advances may be used to purchase
equipment, leasehold improvements or to repay existing equipment loans.


The
loan is secured by all laboratory, manufacturing and office equipment. The loan is subject
to certain financial covenants, including a fixed charge coverage ratio, a leverage ratio
and a current ratio. We were in compliance with these covenants at December 31, 2002. The
loan bears interest at LIBOR plus 2.5% (3.9% at December 31, 2002). Interest expense for
2002 was $23,803. At December 31, 2002, maturities of the loan are as follows: $527,012 in
2003, $589,349 in 2004, $589,349 in 2005, $589,349 in 2006, $532,682 in 2007 and $62,337
thereafter.



New
Jersey Economic Development Authority Bonds


On
June 23, 1999, we completed an Industrial Development Revenue Bond offering issued by the
New Jersey Economic Development Authority. The bonds consist of series 1999A $1,700,000,
8% non-taxable and series 1999B $300,000, 8.25% taxable. Series 1999A bonds will mature in
15 years and series 1999B bonds will mature in 4 years. Interest expense for 2002, 2001
and 2000 was $147,121, $163,691 and $174,146, respectively. The total cost of the bond
issue was $216,140 and the net proceeds were used for the acquisition, installation and
commissioning of equipment and machinery. The bond cost is being amortized over 15 years.
Amortization expense for 2002, 2001 and 2000 was $14,400, $14,400 and $14,390,
respectively. At December 31, 2002, maturities of the bonds are as follows: $90,000 in
2003, $95,000 in 2004, $105,000 in 2005, $115,000 in 2006, $125,000 in 2007 and $1,260,000
thereafter.


In
connection with these bonds, the Company has entered into various agreements with the New
Jersey Economic Development Authority and the bondholders, including an escrow agreement
pursuant to which the Company has deposited into escrow amounts intended to cover the
Companys obligations under the bond indenture. These amounts are included in other
assets.



Working
Capital Loan


The
Company had a revolving loan agreement with a bank based upon eligible accounts receivable
and inventory. During 2000, the Company was in default of certain loan covenants and the
bank increased the interest rate to its base rate plus 4%, charged us certain fees and
reduced the borrowing limit on the line. The limit on the line on January 1, 2001 was
$6,250,000 and the interest rate was 13.5%. This loan was paid off on February 23,



36
2001 at
the time of the sale of our subsidiary, Superior Pharmaceutical Company (see Note 2).
Interest expense for 2001 was $136,926, amortization of deferred expenses was $42,439 and
early termination fees were $120,000. Interest expense for 2000 was $849,310 and
amortization of deferred expenses was $436,462.



Senior
Subordinated Debt and Warrant Put Liability


In
June 1997, the Company obtained senior subordinated debt financing of $3,000,000 from two
private investors bearing interest at 13.5% payable monthly. The principal was payable
upon maturity at the end of five years. The Company also issued warrants to purchase 2,667
shares of common stock at $1.50 per share exercisable for five years to the investors.
These warrants were subject to put features that allowed the holders to sell two-thirds of
the warrants to the Company after three years for $667,000 and all of the warrants after
five years for $1,500,000. The Company was accruing the put value of the warrants to their
redemption amounts over their respective terms. Amortization expense on the put liability
for 2001 and 2000 was $0 and $91,703, respectively. In connection with the sale of
Superior on February 23, 2001, the Company settled the warrant put liability obligation by
paying $300,000 and issuing $750,000 of 13.5% notes payable maturing February 2002. The
notes required 10 equal monthly installments of principal and interest commencing May
2001.


In
1999, the Company exchanged $750,000 of this debt for 10,000 shares of Series L Preferred
Stock. The Company also issued 26,667 warrants to purchase common stock at $5.70 per share
and 11,250 warrants to purchase common stock at $0.15 per share in connection with the
exchange. The warrants to purchase 11,250 and 26,667 shares of common stock were exercised
during 2000 and 2002, respectively. Interest expense on the debt and the put notes for
2002, 2001 and 2000 was $6,079, $112,034 and $303,750,respectively. (See Note 2.)



Unsecured
Notes Payable


In
June 2002, the Company borrowed $2,300,000 from existing institutional and accredited
investors, including certain officers of Able and RxBazaar, all of whom are related
parties. The unsecured notes mature on June 14, 2004 and bear interest at 12% payable
monthly. The Company also issued immediately exercisable three-year warrants to purchase
170,200 shares of common stock at $5.10 per share to the investors. Proceeds of $375,314
were allocated to the warrants based on their estimated fair value and credited to
additional paid-in capital. This amount is reflected as a discount against the notes
payable and will be amortized to interest expense over the life of the notes. Proceeds of
this financing were used to purchase the 13.5% senior subordinated notes receivable from
RxBazaar. Interest expense and amortization of discount for 2002 was $150,267 and $95,591,
respectively.



7.     INCOME TAXES


There
was no provision or benefit for income taxes for 2001 and 2000, due to the Companys
net operating losses and a valuation reserve on the deferred income tax asset. In 2002, the
Company recorded an income tax benefit due to the Companys assessment that it is
more likely than not that deferred tax assets (resulting primarily from net operating
losses) would be realized in the future. Allocation of federal and state income taxes
between current and deferred portions for 2002 is as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Current tax provision:    |  |  |   |             |  
| | ------------------------- |  |  | - | ----------- | -
| | Federal                   |  |  | $ |            |  
| | State                     |  |  |   | 750,000     |  
| |                           |  | 
| | Total current             |  |  | $ | 750,000     |  
| |                           |  | 
| | Deferred tax benefit:     |  | 
| | Federal                   |  |  | $ | (15,850,000 | )
| | State                     |  |  |   | (30,000     | )
| |                           |  | 
| | Total deferred            |  |  |   | (15,880,000 | )
| |                           |  | 
| | Total provision (benefit) |  |  | $ | (15,130,000 | )
| |                           |  | 

|37
The
reasons for the differences between the statutory federal income tax rate and the
effective tax rates are summarized as follows:
|---------------------------------------------------------------------------------------------------------------------------------------

| | Years Ended December 31,                | 
| | --------------------------------------- | 
|
|
| |                                         | 
| | Statutory rate                          | 
| | Increase (decrease) resulting from:     | 
| | Change in valuation reserve             | 
| | State taxes, net of federal tax benefit | 
| | Rate differential and other, net        | 
| |                                         | 
| | Effective tax rates                     | 
| |                                         | 

|The
components of the net deferred tax asset are as follows:
|------------------------------------------------------------

| | December 31,           | 
| | ---------------------- | 
|
|
| |                        | 
| | Deferred tax asset:    | 
| | Federal                | 
| | State                  | 
| |                        | 
| |                        | 
| | Valuation reserve      | 
| |                        | 
| | Net deferred tax asset | 
| |                        | 

|The current
portion of the deferred tax asset includes the benefit for the utilization of net
operating loss carryforwards and other current temporary differences. The valuation
reserve is allocated between the current and non-current classifications pro-rata based upon
when the underlying temporary differences are expected to reverse.


The
following differences give rise to deferred income taxes:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | December 31,                                    | 
| | ----------------------------------------------- | 
|
|
| |                                                 | 
| | Net operating loss carryforward                 | 
| | Capital loss carryforward                       | 
| | Research and investment tax credit carryforward | 
| | Other, net                                      | 
| |                                                 | 
| |                                                 | 
| | Valuation reserve                               | 
| |                                                 | 
| | Net deferred tax asset                          | 
| |                                                 | 

|The changes
in the valuation reserve are primarily due to the Companys expected utilization of
its net operating loss carryforwards.



38
As
of December 31, 2002, the Company has the following tax carryforwards:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net Operating Losses |  | Tax Credits |  
| | -------------------- |  | ----------- | -
|
|
| |                      |  |             |  
|
| | December 31, 2003    |  |             | $
| | December 31, 2004    |  |             |  
| | December 31, 2005    |  |             |  
| | December 31, 2006    |  |             |  
| | December 31, 2007    |  |             |  
| | December 31, 2008    |  |             |  
| | December 31, 2009    |  |             |  
| | December 31, 2010    |  |             |  
| | December 31, 2011    |  |             |  
| | December 31, 2017    |  |             |  
| | December 31, 2018    |  |             |  
| | December 31, 2019    |  |             |  
| | December 31, 2020    |  |             |  
| | December 31, 2021    |  |             |  
| |                      |  |             |  
| | Total                |  |             | $
| |                      |  |             |  

|Use
of net operating loss and tax credit carryforwards may be subject, in future periods, to annual limitations based
on ownership changes in the Companys common stock as defined by the Internal Revenue
Code. The Companys capital loss carryforward of approximately $7,920,000 expires on
December 31, 2006. The Company has determined the future utilization of the state net
operating loss, the capital loss carryforwards and the tax credits is less than more
likely than not and therefore a portion of the valuation reserve has been allocated
to these items.



8.    RELATED PARTY
TRANSACTIONS



Notes
Receivable


On
December 31, 2001, the balance due from the officer of $105,000 plus accrued interest of
$17,525 was included in prepaid expenses and other current assets. The Company recognized
interest income of $3,525 and $3,150 on this note during 2001 and 2000, respectively. In
2002, the Company forgave the balance due and the accrued interest.



RxBazaar,
Inc.


During
2000, the Company entered into certain transactions with RxBazaar primarily through its
wholly-owned subsidiary Superior Pharmaceutical Company. RxBazaar, which was founded in
October 1999 by two of the Companys directors and others, provides an online
marketplace for the purchase and sale of brand and generic drugs on the Internet. On
October 20, 2000, the Company entered into an agreement to sell Superior to RxBazaar (see
Note 2).


During
2000, RxBazaar and Superior assisted each other in developing their businesses. Superior
acted as RxBazaars fulfillment center for all sales made by RxBazaar through its
website. Sales to RxBazaar by Superior during 2000 were approximately $1,362,000, or 5.4%
of Superiors total sales, for the year. Superiors purchases from RxBazaar in
2000 were approximately $425,000 or 2.1% of Superiors cost of sales.


Subsequent
to the sale of Superior to RxBazaar, the Company continued to sell products to RxBazaar.
Net sales to RxBazaar were approximately $6,658,000, or 34% of net sales, for 2001. Net
sales to RxBazaar were approximately $506,000, or 1% of net sales, for 2002.



39

9.    COMMITMENTS AND
CONTINGENCIES



Lease
Agreements


The
Company leases offices and warehouse facilities under operating leases expiring in various
years through March 31, 2015 that require the Company to pay certain costs such as
maintenance and insurance.


The
following is a schedule of future minimum lease payments for all operating leases (with
initial or remaining terms in excess of one year) as of December 31, 2002:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Years Ending December 31,           | Amount | 
| | ----------------------------------- | ------ | 
| | 2003                                |        | 
| | 2004                                |        | 
| | 2005                                |        | 
| | 2006                                |        | 
| | 2007                                |        | 
| | Thereafter                          |        | 
| |                                     |        | 
| | Total minimum future lease payments |        | 
| |                                     |        | 

|Rent
expense, net of subleases for 2002, 2001 and 2000, was $572,631, $417,707 and $763,971,
respectively.



Employment
Agreements


As
of December 31, 2002, the Company has employment agreements with certain of its officers
that provide for minimum annual salaries, reimbursement of business related expenses and
participation in other employee benefit programs. The agreements also include
confidentiality, non-disclosure, severance, automatic renewal and non-competition
provisions. Salary levels are subject to periodic review by the Compensation Committee.



Contingencies


Legal
claims arise from time to time in the normal course of business which, in the opinion of
management, will have no material effect on the Companys financial position or
results of operations.



10.    PREFERRED STOCK,
COMMON STOCK, OPTIONS AND WARRANTS



Preferred
Stock


A
summary of convertible preferred stock, $.01 par value, 10,000,000 shares authorized, is
as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | December 31, 2002                              |  | December 31, 2001 |  
| | ---------------------------------------------- |  | ----------------- | -
|
|
|
| |                                                |  |                   |  
| | Series L, 10,000 shares authorized,            |  |                   |  
| | 0 and 6,760 shares issued and outstanding      |  |                   | $
| | Series Q, 61,150 shares authorized, 53,150 and |  |                  
| | 61,150 shares issued and outstanding           |  |                   |  
| |                                                |  |                   |  
| | Total                                          |  |                   | $
| |                                                |  |                   |  

|The
Series B had a stated dividend of $7.00 per share per annum. The Series B was converted
into common stock at discounted percentages of the effective price decreasing from 80% to
75% over time. During



40
2000, 1,900 shares were
converted into 64,904 shares of common stock. During 2001, 400 shares were
converted into 15,486 shares of common stock.


In
March 1998, the Company issued 10,500 shares of Series E and 1,500 shares of Series F in
connection with its acquisition of GDI (see Note 2). The Series E and F were convertible
into common stock at the market price on the date of conversion. On March 14, 2001,
pursuant to a settlement agreement, the Company agreed to issue 207,333 shares of common
stock and pay $105,000 in cash in settlement of the Series E and Series F.


In
1998, the Company sold 19,000 shares of Series H for $1,900,000. The Series H was
convertible after twelve months into common stock at 67% of the average closing bid price
for the preceding five days. There were no conversions of Series H in 2000. During 2001,
the balance of 650 shares was converted into 23,347 shares of common stock.


In
May and June 1999, the Company received $3,000,000 from the issuance of 3,000 shares of
Series I. The Series I was convertible into common stock at 80% of the average of the
closing bid price for the three selected closing bids of the five trading days preceding
conversion. During 2000, the 974 shares of Series I were converted into 287,652 shares of
common stock.


In
July 1999, the Company received $1,000,000 from the issuance of 1,000 shares of Series J.
The Series J was convertible into common stock at 80% of the average closing bid price for
the five trading days preceding conversion. During April and May 2000, the Company
received an additional $500,000 through the sale of 500 shares of Series J. The Company
incurred $50,000 in expenses related to this financing. During 2000, the Series J was
converted into 317,024 shares of common stock.


In
August, September and November, 1999, the Company received $2,000,000 from the issuance of
20,000 shares of Series K. The Series K was convertible into common stock at 80% of the
average price for the three days preceding conversion. The conversion price decreased to
75% and then to 70% over time. During 2000, 13,500 shares were converted into 553,949
shares of common stock. During 2001, 6,500 shares were converted into 349,360 shares of
common stock.


In
November 1999, the Company issued 10,000 shares of Series L in exchange for the
cancellation of $750,000 of senior subordinated debt. The Series L was convertible into
common stock at the average of the closing bid price for the three trading days prior to
conversion and accrued dividends at the rate of 13.5% per annum. In November 2000, 3,240
shares of Series L were converted into 74,000 shares of common stock. In January 2002, the
balance of Series L was converted into 96,556 shares of common stock.


During
July 2000, the Company received net proceeds of $1,220,000 from the sale of Series M and
converted a $750,000 bridge loan into Series M. The Company incurred $590,000 in expenses
related to this financing. The Company issued 25,600 shares of Series M for the total
proceeds of $2,560,000. The Series M carried a dividend of 4% and was convertible into
common stock at 80% of the average of the three lowest prices per share during the five
trading days prior to conversion. During 2000, 12,750 shares were converted into 459,119
shares of common stock. During 2001, 12,850 shares were converted into 562,357 shares of
common stock.


On
November 2, 2000, the Company received net proceeds of $781,685 from the sale of Series N
after expenses of $168,315 and converted a $350,000 bridge loan into Series N. The Company
issued 13,000 shares of Series N for the total proceeds of $1,300,000. The Series N did
not carry a dividend and was convertible into common stock at 80% of the five day average
price per share preceding the conversion if the conversion occurred between sixty-one days
and one hundred and twenty-one days after the issue date. This conversion price decreased
to 75% if conversion occurred after one hundred and twenty-one days. During 2001, 12,950
shares of Series N were converted into 425,328 shares of common stock. In December 2001,
the Company redeemed 50 shares of Series N for $6,666.


On
February 15, 2001, the Company entered into an agreement with equity investors of
RxBazaar. The agreement gave the RxBazaar investors the right to exchange shares of
RxBazaars Series A Preferred Stock for shares of the Companys Series O. On
February 22, 2001, an investor converted $1,000,000 of Series A Preferred



41
Stock into
$1,000,000 of Series O of the Company. In March 2001, the investors exchanged the
remaining $3,700,000 of Series A Preferred Stock plus accrued dividends for $3,720,000 of
Series O.


The
Series O Preferred Stock carried an 8% dividend and was convertible to common stock at the
lesser of $5.25 per share or 75% of the average of the three lowest per share prices in
the ten trading days prior to conversion during the first 149 days and 70% on or after 150
days. In June 2001, the Company received an additional $250,000 from the sale of 2,500
shares of Series O. During 2001, 34,122 shares of Series O were converted into 1,407,372
shares of common stock. In December 2001, the Company redeemed 15,578 shares of Series O
for $2,081,752.


In
May and June 2001, the Company received $350,000 from the sale of 3,500 shares of Series
P. The Series P was convertible after six months at 80% of the average of the three-day
closing bid price prior to conversion. The Series P did not carry any dividend. During
2001, the 3,500 shares were converted into 93,333 shares of common stock and the Company
registered these shares on February 14, 2002.


In
August 2001, the Company sold 61,150 shares of Series Q for $6,115,000 in cash and
conversion of outstanding debt. Net proceeds were $5,702,220 after placement costs of
$412,780. The Company also issued a five year warrant to purchase 13,333 shares of common
stock at $3.75 per share to the placement agent. The Company valued these warrants at
$34,000. The Series Q carries an 8% dividend and is convertible to common stock at
approximately 58.70 shares of common stock for each share of Series Q. During 2002, 8,000
shares of Series Q were converted into 469,608 shares of common stock. The outstanding
53,150 shares of Series Q are convertible into approximately 3,119,967 shares of common
stock.


The
Company registered the shares of common stock issuable on conversion of the Series Q in
July 2002. As long as 50% of the shares of Series Q remain outstanding, if one or more
conditions described below shall exist, the holders of Series Q are entitled to elect a
majority of the directors of the Company. The conditions include: (1) default on any
material amount of indebtedness and (2) failure to convert the Series Q in accordance with
its terms.


Certain
series of preferred stock have conversion features that were in the money at the date of
issue (beneficial conversion feature). The beneficial conversion features were
recognized in the financial statements by allocating a portion of the proceeds equal to
the intrinsic value of the conversion feature to additional paid-in capital. The intrinsic
value was calculated at the date of issue of the convertible preferred stock as the
difference between the proceeds received for the convertible preferred stock and the fair
value of the common stock into which the securities are convertible. A summary of the
amounts allocated to the beneficial conversion feature is as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Years Ended December 31, | 
| | ------------------------ | 
|
|
| |                          | 
| | Series J                 | 
| | Series K                 | 
| | Series M                 | 
| | Series N                 | 
| | Series O                 | 
| | Series P                 | 
| | Series Q                 | 
| |                          | 
| |                          | 
| |                          | 

|The
discount resulting from the allocation of proceeds to the beneficial conversion feature
has been recognized as a return to the preferred shareholders from the date of issuance
through the date the security is first convertible. The discounts for 2001 and 2000 were
amortized by a charge against additional paid-in capital because the Company had no
accumulated earnings at those dates.



42

Common
Stock


On
May 29, 2002, the stockholders approved an amendment to our certificate of incorporation
to decrease the number of shares of authorized common stock from 225,000,000 to 25,000,000
shares in connection with our 1-for-15 reverse stock split.


In
December 2001, the Company sold 1,406,333 shares of common stock at $3.60 per share for
gross proceeds of $5,062,800 with commissions and expenses of $379,513. The market price
of the common stock was $4.35 per share, or an aggregate fair value of approximately
$6,118,000, on the closing date. The Company recorded a distribution on the difference
between the fair market value and the proceeds of $1,055,200, which was charged to
additional paid-in capital. The Company registered these shares on February 14, 2002.



Stock
Option Plans


The
Company has adopted three stock option plans and reserved shares of common stock for
issuance to employees, officers, directors and consultants. Two of the plans were
terminated during 2001. Under the plans, the Board of Directors may grant options and
establish the terms of the grant in accordance with the provisions of the plans. Plan
options are exercisable for up to ten years from the date of issuance and certain options
contain a net exercise provision. The following table summarizes the activity of options
granted under the plans:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Years Ended December 31, | 
|----------------------------------------- | ------------------------ | 
|
|
|
|
|
|
|
|                                          |                          | 
|Outstanding at beginning of year          |                          | 
|Exercised                                 |                          | 
|Canceled                                  |                          | 
|                                          |                          | 
|Outstanding at end of year                |                          | 
|                                          |                          | 
|Exercisable at end of year                |                          | 
|                                          |                          | 
|Reserved for future grants at end of year |                          | 
|                                          |                          | 

|At
December 31, 2002, the 53,334 options outstanding are all exercisable at $1.88 per share
through February 24, 2008.



Consultant
Stock Plan


The
Company adopted the Consultant Stock Plan in June 1998 which provides for stock grants for
services rendered to the Company. The Company reserved 166,667 shares of common stock for
issuance and registered the shares. During 2001 and 2000, the Company issued 12,000 and
2,667 shares of common stock under this Plan, respectively. The Company recorded expenses
in 2001 and 2000 based on the fair value of the common stock issued. At December 31, 2002,
the Company has 43,567 shares reserved under this plan.



Other
Stock Options and Warrants


In
February 2000, the Company issued several warrants to purchase 13,167 shares of common
stock at $3.75 per share in connection with investment banking services. The value of
these warrants $49,375 was charged to expense.


In
April 2000, the Company issued options to purchase 33,333 shares of common stock at $3.75
per share to two new directors. Half of these options vested in the year 2000 and the
balance vested on December 31, 2001.



43
The Company valued these options at $140,000 and
recognized $70,000 in expense in 2000 and $70,000 in expense in 2001.


In
May 2000, the Company issued options to purchase 66,667 shares of common stock at $2.70
per share to two directors. These options vested on December 31, 2001. The Company valued
these options at $170,000 and recognized $85,000 in expense in 2000 and $85,000 in expense
in 2001.


In
October 2000, the Company issued options to purchase 106,667 shares of common stock at
$1.95 per share to two directors. These shares vested in full at the date of the grant.
The Company valued these options at $193,500 and expensed them in 2000.


In
2000, the Company granted stock options to purchase a total of 84,667 shares of common
stock to employees at $3.75 per share. These options vest over periods of three to four
years. The weighted average fair value of these options was $1.65 per share on the date of
grant.


In
February 2001, the Company issued warrants to purchase a total of 10,000 shares of common
stock at $2.55 per share for public relations services. The Company also issued a warrant
to purchase 6,667 shares of common stock at $4.50 per share for investor relations
services. The Company valued these warrants at $32,149 and expensed them in 2001.


In
February 2001, the Company granted seven year options to purchase a total of 750,000
shares of common stock at $3.30 per share to its directors. These options vested during
2001. The weighted average fair value of these options was $1.05 per share on the date of
grant.


In
2001, the Company granted stock options to purchase 242,000 shares of common stock at
$3.75 per share to forty employees. These options vest over periods of one to five years.
The Company recognized expense of $114,403 in 2001 related to these grants. The weighted
average fair value of these options was $2.40 per share on the date of grant.


During
2002, the Company granted stock options to purchase 336,600 shares to employees and
directors at a weighted average exercise price of $5.31 per share. The weighted average
fair value of these options was $2.86 per share on the date of grant. The Company also
recorded unearned stock-based compensation of $111,900 for certain of these options which
were granted at below market prices. The Company is amortizing the unearned stock-based
compensation over the vesting periods of the options. Amortization expense for 2002 was
$37,300.


A
summary of the activity for other stock option and warrant shares, including warrants
issued in connection with debt and equity placements, is presented below:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Years Ended December 31,         | 
| | -------------------------------- | 
|
|
| |                                  | 
| | Outstanding at beginning of year | 
| | Granted                          | 
| | Exercised                        | 
| | Expired/Canceled                 | 
| |                                  | 
| | Outstanding at end of year       | 
| |                                  | 

|44
Information
pertaining to other stock options and warrants outstanding at December 31, 2002 is as
follows:
|-------------------------------------------------------------------------------------------------------------

|         | Outstanding |  | Exercisable |          
|-------- | ----------- |  | ----------- | ---------
|
|
|
|
|
|         |             |  |             |          
|$0.15 -  |             |  |             | 620,000  
|$3.75 -  |             |  |             | 1,497,500
|$12.90 - |             |  |             | 75,560   
|$196.50  |             |  |             | 7,266    
|         |             |  |             |          
|         |             |  |             | 2,200,326
|         |             |  |             |          

|The
fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for grants
during 2002, 2001 and 2000, respectively; dividend yield of 0%; risk-free interest rates
of 4%, 5% and 5%, respectively; expected volatility of 65%, 84% and 108%, respectively;
and expected lives of 3.96, 1.25, and 0.5 years, respectively.



Common
Stock Reserved


The
Company has reserved shares of common stock at December 31, 2002 as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock option plans               |  |  |  | 133,667   | 
| | -------------------------------- |  |  |  | --------- | 
| | Preferred stock conversion       |  |  |  | 3,119,967 | 
| | Other stock options and warrants |  |  |  | 2,200,326 | 
| | Consultant Stock Plan            |  |  |  | 43,567    | 
| |                                  |  | 
| | Total                            |  |  |  | 5,497,527 | 
| |                                  |  | 

|11.     SEGMENT INFORMATION,
MAJOR CUSTOMERS AND MAJOR SUPPLIERS


The
Company operates in one principal business segment, the manufacturing and distribution of
generic pharmaceuticals. During 2002, approximately 37% of net sales was to one major
customer. During 2001, approximately 34% and 20% of net sales were to two major customers.
There were no major customers for 2000.


During
2002, the Company had two major suppliers which provided the Company with approximately
$6,334,000 and $5,360,000 of raw materials or 23% and 20%, respectively, of cost of sales.
During 2001, the Company had one major supplier which provided the Company with $3,286,000
of raw materials or 26% of cost of sales.



12.     EMPLOYEE BENEFIT PLAN


The
Company has a Section 401(k) Profit Sharing Plan (the 401(k) Plan) for all
employees. Employees who have attained the age of 21 may elect to reduce their current
compensation, subject to certain limitations, and have that amount contributed to the
401(k) Plan. The Company matches up to 25% of employee contributions not to exceed 6% of
employee compensation, subject to certain limitations. Employee contributions to the
401(k) Plan are fully vested at all times and all Company contributions become vested over
a period of five years.


For
2002, 2001 and 2000, the Company made matching contributions of $52,521, $44,426 and
$53,659, respectively. The Company did not make any profit-sharing contributions in 2002,
2001 or 2000.



45

13.     FAIR VALUE OF
FINANCIAL INSTRUMENTS


At December
31, 2002 and 2001, the Companys financial instruments include notes receivable from
and investments in RxBazaar securities (see Note 2) and debt obligations (see Note 6). The
carrying value of the notes receivable approximate their fair value based on
RxBazaars current financial condition. The carrying value of the Companys
investment securities in RxBazaar approximate their fair value based on the most recent
sale of common stock by RxBazaar at December 31, 2001 and on current marketability and
financial condition of RxBazaar at December 31, 2002. The carrying value of debt
obligations approximate fair values based on their maturities and interest rates.

46

14.    QUARTERLY DATA
(UNAUDITED)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             | Years Ended December 31, | 
|-------------------------------------------- | ------------------------ | 
|
|
|
|
|
|                                             |                          | 
|
|Sales, net                                   |                          | 
|Cost of sales                                |                          | 
|                                             |                          | 
|Gross profit                                 |                          | 
|Selling, general and administrative          |                          | 
|Research and development                     |                          | 
|                                             |                          | 
|Operating income (loss)                      |                          | 
|Loss on investment securities                |                          | 
|Interest and financing expense               |                          | 
|Miscellaneous income (expense)               |                          | 
|                                             |                          | 
|Income (loss) before income taxes            |                          | 
|Income tax benefit                           |                          | 
|                                             |                          | 
|Net income (loss)                            |                          | 
|Less returns to preferred stockholders       |                          | 
|                                             |                          | 
|Net income (loss) applicable to common stock |                          | 
|                                             |                          | 
|Net income (loss) per share:                 |                          | 
|Basic                                        |                          | 
|                                             |                          | 
|Diluted                                      |                          | 
|                                             |                          | 
|Weighted average shares outstanding:         |                          | 
|Basic                                        |                          | 
|                                             |                          | 
|Diluted                                      |                          | 
|                                             |                          | 

|47

PART III



Item 10.   Directors and
Executive Officers


The
information required by this item in connection with directors and officers is hereby
incorporated by reference to the information set forth under the captions Election
of Directors, Executive Officers and Section 16(a) Beneficial
Ownership Reporting Compliance in our definitive proxy statement for the 2003 annual
meeting of stockholders, which we expect to file on or before April 30, 2003 (the
2003 Annual Meeting Proxy Statement).



Item 11.   Executive
Compensation


The information
required by this item with respect to executive compensation is hereby incorporated by
reference to the information set forth under the caption Executive Officer
Compensation in the 2003 Annual Meeting Proxy Statement.



Item 12.   Security
Ownership of Certain Beneficial Owners and Management


The
information required by this item with respect to security ownership is hereby
incorporated by reference to the information set forth under the captions Security
Ownership of Certain Beneficial Owners and Management and Equity Compensation
Plans in the 2003 Annual Meeting Proxy Statement.



Item 13.   Certain
Relationships and Related Transactions


The
information required by this item with respect to certain relationships and related
transactions is hereby incorporated by reference to the information set forth under the
caption Certain Relationships and Related Transactions in the 2003 Annual
Meeting Proxy Statement.



Item 14.   Controls and
Procedures


Disclosure
controls and procedures are controls and other procedures designed to ensure that we
timely record, process, summarize and report the information that we are required to
disclose in the reports that we file or submit with the SEC. These include controls and
procedures designed to ensure that such information is accumulated and communicated to our
management, including our Chief Executive Officer and our Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.


As
required under the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and our Chief
Financial Officer conducted a review of our disclosure controls and procedures as of a
date within 90 days of the date of this report. They concluded, as of the evaluation date,
that our disclosure controls and procedures are effective. We have made no significant
changes since the evaluation date to our internal controls relating to accounting and
financial reporting.




48

PART IV



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

|(a) |  | Financial
Statements
|--- |  | --------------------

| |  | See Item 8 for an index to the consolidated financial statements.
| |  | -----------------------------------------------------------------

|(b) |  | Exhibits
|--- |  | --------

| |  | The following exhibits are filed as part of this report:
| |  | --------------------------------------------------------

| | ExhibitNumber |  | Description
| | ------------- |  | -----------

| | 3.1 |  | Restated Certificate of Incorporation (filed as Exhibit 3a to the Companys Report on
Form 10-Q for the quarter ended June 30, 1998, as amended on September 14, 1998, and
incorporated herein by reference).
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 |  | Certificate of Amendment of Certificate of Incorporation dated May 31, 2000 (filed as
Exhibit 3.2 to the Companys Report on Form 10-QSB for the quarter ended June 30,
2000 and incorporated herein by reference).
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.3 |  | Amended and Restated By-laws dated as of May 26, 2000 (filed as Exhibit 3.3 to the
Companys Report on Form 10-QSB for the quarter ended June 30, 2000 and incorporated
herein by reference).
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.4 |  | Certificate of Designations, Preferences and Rights of Series Q Preferred
Stock of Able Laboratories, Inc. (filed as Exhibit 4.1 to the Companys Current
Report on Form 8-K filed August 31, 2001 and incorporated by reference).
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.5 |  | Certificate of Amendment of Certificate of Incorporation dated May 9, 2001 (filed as
Exhibit 3.3 to the Companys Report on Form 10-QSB for the quarter ended June 30,
2001 and incorporated herein by reference).
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.6 |  | Certificate of Ownership and Merger dated May 18, 2001 (filed as Exhibit 99.1 to the
Companys Current Report on Form 8-K dated May 18, 2001 and incorporated herein by
reference).
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.7 |  | Certificate of Amendment of Certificate of Incorporation dated May 31, 2002 (filed as
Exhibit 3.7 to the Companys Report on Form 10-Q for the quarter ended June 30, 2002,
and incorporated herein by reference).
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.1 |  | Specimen common stock certificate (filed as Exhibit 4a to Registrants
Registration Statement on Form S-18, No. 33-31836-B, and incorporated by
reference).
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 |  | *Employment Agreement dated May 29, 2002 by and between the Company and Dhananjay G.
Wadekar (filed as Exhibit 10.6 to registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002 and incorporated by reference).
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 |  | *1998 Stock Option Plan (filed as Appendix A to the Registrants definitive proxy
materials for the Special Meeting of Stockholders on March 4, 1998, and incorporated by
reference).
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | *Stock Option in the name of Dhananjay G. Wadekar, dated November 19, 1998.
(filed as Exhibit 10.80 to the Companys Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998).
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 |  | Consultant Stock Plan (filed as Exhibit 4.3 to the Companys Registration
Statement on Form S-8, File No. 33-57249, filed on June 19, 1998 and
incorporated hereby by reference).
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|49
|--

| | 10.5 |  | *Stock Option in the name of Dhananjay Wadekar, dated February 4, 1999 (filed as Exhibit
10.8 to the Companys Report on the Form 10-QSB for the quarter ended March 31,
1999).
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 |  | *Stock Option in the name of Howard Schneider, dated November 19, 1998 (filed as Exhibit
10.10 to the Companys Report on Form 10-QSB for the quarter ended March 31, 1999).
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 |  | *Stock Option in the name of Dhananjay G. Wadekar, dated October 13, 2000 (filed as
Exhibit 10.1 to the Companys Report on Form 10-QSB for quarter ended September 30,
2000, and incorporated herein by reference).
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 |  | *Stock Option in the name of Harry Silverman, dated April 20, 2000 (filed as Exhibit 10.39
to the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000).
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9 |  | *Stock Option in the name of Harry Silverman, dated May 31, 2000 (filed as Exhibit 10.40
to the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000).
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10 |  | *Stock Option in the name of James B. Klint, dated April 20, 2000 (filed as Exhibit 10.41
to the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000).
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11 |  | *Stock Option in the name of James B. Klint, dated May 31, 2000 (filed as Exhibit 10.42 to
the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12 |  | *Stock Option in the name of James Klint, MD, dated February 24, 2001 (filed as Exhibit
10.2 to the Companys Report on Form 10-Q for the quarter ended March 31, 2001, and
incorporated herein by reference).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13 |  | *Stock Option in the name of F. Howard Schneider, dated February 24, 2001 (filed as
Exhibit 10.3 to the Companys Report on Form 10-Q for the quarter ended March 31,
2001, and incorporated herein by reference).
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14 |  | *Stock Option in the name of Harry Silverman, dated February 24, 2001 (filed as Exhibit
10.4 to the Companys Report on Form 10-Q for the quarter ended March 31, 2001, and
incorporated herein by reference).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15 |  | *Stock Option in the name of Dhananjay Wadekar, dated February 24, 2001 (filed as Exhibit
10.5 to the Companys Report on Form 10-Q for the quarter ended March 31, 2001, and
incorporated herein by reference).
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16 |  | *Stock Option in the name of Dhananjay G. Wadekar dated August 24, 2002.
| | ----- |  | ------------------------------------------------------------------------

| | 10.17 |  | *Stock Option in the name of James B. Klint dated August 24, 2002.
| | ----- |  | ------------------------------------------------------------------

| | 10.18 |  | *Stock Option in the name of Harry Silverman dated August 24, 2002.
| | ----- |  | -------------------------------------------------------------------

| | 10.19 |  | *Stock Option in the name of F. Howard Schneider dated August 24, 2002.
| | ----- |  | -----------------------------------------------------------------------

| | 10.20 |  | *Stock Option in the name of Jerry Treppel dated October 28, 2002.
| | ----- |  | ------------------------------------------------------------------

| | 10.21 |  | *Stock Option in the name of Robert Weinstein dated November 25, 2002.
| | ----- |  | ----------------------------------------------------------------------

| | 10.22 |  | Lease Agreement dated November 29, 1984 between Hollywood Court Associates and Able
Laboratories, Inc. with respect to the Companys facility at 6 Hollywood Court, South
Plainfield, New Jersey (filed as Exhibit 10s to Registrants Annual Report on Form
10-K for the fiscal year ended June 30, 1996, and incorporated by reference).
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|50
|--

| | 10.23 |  | Space Expansion and Term Extension Agreement dated April 1988 between Hollywood Court.
Associates and Able Laboratories, Inc. with respect to the Companys facility at 6
Hollywood Court, South Plainfield, New Jersey (filed as Exhibit 10t to Registrants
Annual Report on Form 10-K for the fiscal year ended June 30, 1996, and incorporated by
reference).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.24 |  | Assignment of Lease dated April 1989 between Hollywood Court Associates and CVN Associates
L.P. with respect to the Companys facility at 6 Hollywood Court, South Plainfield,
New Jersey (filed as Exhibit 10u to Registrants Annual Report on Form 10-K for the
fiscal year ended June 30, 1996, and incorporated by reference).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.25 |  | Space Expansion Agreement dated June 1993 between CVN Associates, L.P. and Able
Laboratories, Inc. with respect to the Companys facility at 6 Hollywood Court, South
Plainfield, New Jersey (filed as Exhibit 10v to Registrants Annual Report on Form
10-K for the fiscal year ended June 30, 1996, and incorporated by reference).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.26 |  | Term Extension Agreement dated June 1993 between CVN Associates, L.P. and Able
Laboratories, Inc. with respect to the Companys facility at 6 Hollywood Court, South
Plainfield, New Jersey (filed as Exhibit 10w to Registrants Annual Report on Form
10-K for the fiscal year ended June 30, 1996 and incorporated by reference).
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.27 |  | Assignment of Lease dated August 19, 1996 between Able Laboratories, Inc. and Able
Acquisition Corp. (predecessor corporation to Able) with respect to the Companys
facility at 6 Hollywood Court, South Plainfield, New Jersey (filed as Exhibit 10x to
Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996, and
incorporated by reference).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.28 |  | Guaranty of Lease dated August 19, 1996 between the Company and Able Laboratories, Inc.
with respect to the Companys facility at 6 Hollywood Court, South Plainfield, New
Jersey (filed as Exhibit 10z to Registrants Annual Report on Form 10-K for the
fiscal year ended June 30, 1996, and incorporated by reference).
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.29 |  | Term Extension Agreement dated August 28, 1997 between CVN Associates, Inc., and Able
Laboratories, Inc. with respect to the Companys facility at 6 Hollywood Court, South
Plainfield, New Jersey (filed as Exhibit 10ii to the Registrants Report on Form 10-K
for the Year Ended December 31, 1997, and incorporated by reference).
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.30 |  | Lease dated September 26, 2001, by and between Kennedy Montrose, L.L.C. and the Company
for property located at 3601 Kennedy Road, South Plainfield, New Jersey 07080 (filed as
Exhibit 10.3 to the Companys Report on Form 10-Q for the quarter ended September 30,
2001, and incorporated by reference).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.31 |  | Lease dated July 24, 2002, by and between Kennedy Montrose, L.L.C. and the Company for
property located at 600 Montrose Avenue, South Plainfield, New Jersey 07080 (filed as
Exhibit 10.4 to the registrants quarterly report on Form 10-Q for the quarter ended
June 30, 2002).
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.32 |  | Lease dated July 17, 2002, by and between Jay F. Antenen, Jr., Jay F. Antenen, Sr., and
Donald M. Houpt, III and the Company for property located at 11590 Century Boulevard,
Cincinnati, Ohio 45246 (filed as Exhibit 10.5 to the registrants quarterly report on
Form 10-Q for the quarter ended June 30, 2002).
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.33 |  | Lease dated April 25, 2002, by and between P&R Fasteners, Inc. and the Company for
property located at 5 Hollywood Court, South Plainfield, New Jersey 07080 (filed as
Exhibit 10.7 to the registrants quarterly report on Form 10-Q for the quarter ended
June 30, 2002).
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.34 |  | Loan Agreement between Able Laboratories, Inc. and New Jersey Economic
Development Authority dated June 1, 1999 (filed as Exhibit 10.8 to the Companys
Report on Form 10-QSB for the quarter ended June 30, 1999).
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|51
|--

| | 10.35 |  | $2,000,000 Promissory Note of Able Laboratories, Inc. dated June 1, 1999
(filed as Exhibit 10.9 to the Companys Report on Form 10-QSB for the quarter
ended June 30, 1999).
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.36 |  | Leasehold Mortgage Security Agreement, Assignment of Rents and Financing Statement dated
June 1, 1999 (filed as Exhibit 10.10 to the Companys Report on Form 10-QSB for the
quarter ended June 30, 1999).
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.37 |  | Guaranty of DynaGen, Inc. dated June 1, 1999 in favor of New Jersey Economic Development
authority (filed as Exhibit 10.11 to the Companys Report on Form 10-QSB for the
quarter ended June 30, 1999).
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.38 |  | First Amended and Restated Loan Agreement dated February 23, 2001, among DynaGen Inc.,
RxBazaar.com, Inc., Superior Pharmaceutical Company, Argosy Investment Partners, L.P. and
FINOVA Mezzanine Capital Inc. (filed as Exhibit 99.2 to the Companys Current Report
on Form 8-K filed on March 9, 2001, and incorporated herein by reference).
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.39 |  | Unconditional Guaranty dated February 23, 2001, among DynaGen, Inc.,
Argosy Investment Partners, L.P. and FINOVA Mezzanine Capital Inc. (filed as
Exhibit 99.3 to the Companys Current Report on Form 8-K filed on March 9, 2001,
and incorporated herein by reference).
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.40 |  | Credit Agreement dated February 23, 2001, among DynaGen, Inc., Argosy
Investment Partners, L.P. and FINOVA Mezzanine Capital Inc. (filed as Exhibit
99.4 to the Companys Current Report on Form 8-K filed on March 9, 2001, and
incorporated herein by reference).
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.41 |  | Unconditional Guaranty dated February 23, 2001, among Able Laboratories,
Inc., Argosy Investment Partners, L.P. and FINOVA Mezzanine Capital Inc. (filed
as Exhibit 99.5 to the Companys Current Report on Form 8-K filed on March 9,
2001, and incorporated herein by reference).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.42 |  | Security Agreement dated February 23, 2001, between Able Laboratories,
Inc. and FINOVA Mezzanine Capital Inc. (filed as Exhibit 99.6 to the Companys
Current Report on Form 8-K filed on March 9, 2001, and incorporated herein by
reference).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.43 |  | Intercreditor Agreement dated February 21, 2001, among Triple L Ltd., K&L
Financial, Inc., Northway State Bank, FINOVA Mezzanine Capital Inc., Argosy
Investment Partners, L.P., U.S. Bank Trust National Association and Able
Laboratories, Inc. (filed as Exhibit 99.7 to the Companys Current Report on
Form 8-K filed on March 9, 2001, and incorporated herein by reference).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.44 |  | Assignment and Assumption Agreement dated February 23, 2001, among
DynaGen, Inc., Able Laboratories, Inc. and Superior Pharmaceutical Company
(filed as Exhibit 99.8 to the Companys Current Report on Form 8-K filed on
March 9, 2001, and incorporated herein by reference).
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.45 |  | Stock Purchase Agreement for Series Q Preferred Stock dated August 15, 2001 (filed as
Exhibit 4.2 to the Companys Current Report on Form 8-K filed August 31, 2001 and
incorporated by reference).
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.46 |  | Registration Rights Agreement for Series Q Preferred Stock dated August 15, 2001 (filed as
Exhibit 4.3 to the Companys Current Report on Form 8-K filed August 31, 2001 and
incorporated by reference).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.47 |  | Common Stock Purchase Agreement dated December 15, 2001 (filed as Exhibit 4.5 to the
Companys Registration Statement on Form S-3 filed on January 10, 2002, and
incorporated by reference).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.48 |  | Registration Rights Agreement dated December 15, 2001 (filed as Exhibit 4.6 to the
Companys Registration Statement on Form S-3 filed on January 10, 2002, and
incorporated by reference)
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|52
|--

| | 10.49 |  | Form of Subscription Agreement for the 12% Unsecured Promissory Notes and Warrants dated
as of June 5, 2002 (filed as Exhibit 10.1 to the registrants quarterly report on
Form 10-Q for the quarter ended June 30, 2002).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.50 |  | Form of 12% Unsecured Promissory Note dated June 14, 2002 (filed as Exhibit 10.2 to the
registrants quarterly report on Form 10-Q for the quarter ended June 30, 2002).
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.51 |  | Form of Warrant to Purchase Stock dated June 14, 2002 (filed as Exhibit 4.9 to the
registrants Registration Statement on Form S-3 filed June 17, 2002, and incorporated
by reference).
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.52 |  | Credit Agreement between the Company and Citizens Bank of Massachusetts dated October 24,
2002 (filed as Exhibit 10.1 to the registrants quarterly report on Form 10-Q for the
quarter ended September 30, 2002).
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.53 |  | Non-Restoring Credit Facility Note dated October 24, 2002 (filed as Exhibit 10.2 to
the registrants quarterly report on Form 10-Q for the quarter ended September 30,
2002).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.54 |  | Master Note dated October 24, 2002 (filed as Exhibit 10.3 to the registrants
quarterly report on Form 10-Q for the quarter ended September 30, 2002).
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.55 |  | Security Agreement between the Company and Citizens Bank of Massachusetts dated October
24, 2002 (filed as Exhibit 10.4 to the registrants quarterly report on Form 10-Q
for the quarter ended September 30, 2002).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21.1 |  | Subsidiaries of the Registrant
| | ---- |  | ------------------------------

| | 23.1 |  | Consent of Wolf & Company, P.C.
| | ---- |  | -------------------------------

| | 24.1 |  | Power of Attorney (contained on the signature page of this Report.)
| | ---- |  | -------------------------------------------------------------------

_________________

|*     Indicates a management contract or
any compensatory plan, contract or arrangement.


     (c)    
          Reports on Form 8-K


The
Company did not file any current reports on Form 8-K during the fourth quarter of fiscal
2002.


Certifications under Sarbanes-Oxley
Act


Our
Chief Executive Officer and Chief Financial Officer have furnished to the SEC the
certification with respect to this annual report that is required by Section 906 of the
Sarbanes-Oxley Act of 2002.



53

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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | ABLE LABORATORIES, INC.            | 
| |  | ---------------------------------- | 
| |  |                                    | 
| |  | By:  /s/ Dhananjay G. Wadekar      | 
| |  | Dhananjay G. Wadekar               | 
| |  | President, Chief Executive Officer | 
| |  | and Secretary                      | 
| |  |                                    | 
| |  | March 25, 2003                     | 

|In
accordance with the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates
indicated; and each of the undersigned officers and directors of Able Laboratories, Inc.
hereby severally constitutes and appoints Dhananjay G. Wadekar his true and lawful
attorney-in-fact and agent, with full power to him, to sign for him, in his name in the
capacity indicated below, all amendments to such report on Form 10-K, hereby ratifying and
confirming his signature as it may be signed by his attorney to such report and any and
all amendments thereto.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             |  |                                                                                                   |  |                |  | 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                             |  |                                                                                                   |  |               
|Signature                                    |  | Capacity                                                                                          |  | Date          
|                                            
|/s/ DHANANJAY G. WADEKARDhananjay G. Wadekar |  | Chief Executive Officer, President, Secretary and
Director (Principal Exectuive Officer)          |  | March 25, 2003
|                                            
|/s/ ROBERT WEINSTEINRobert Weinstein         |  | Vice President, Chief Financial Officer and
Treasurer(Principal Financial and Accounting Officer) |  | March 25, 2003
|                                            
|/s/ HARRY SILVERMANHarry Silverman           |  | Director                                                                                          |  | March 25, 2003
|                                            
|/s/ F. HOWARD SCHNEIDERF. Howard Schneider   |  | Director                                                                                          |  | March 25, 2003
|                                            
|/s/ JERRY TREPPELJerry Treppel               |  | Director                                                                                          |  | March 25, 2003

|54

ABLE LABORATORIES, INC.



FORM 10-K



FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2002



EXHIBIT INDEX



Material Contracts
|------------------------------------------------------------------------------------------------------------------------------

| | 10.16 |  | *Stock Option in the name of Dhananjay G. Wadekar dated August 24, 2002.
| | ----- |  | ------------------------------------------------------------------------

| | 10.17 |  | *Stock Option in the name of James B. Klint dated August 24, 2002.
| | ----- |  | ------------------------------------------------------------------

| | 10.18 |  | *Stock Option in the name of Harry Silverman dated August 24, 2002.
| | ----- |  | -------------------------------------------------------------------

| | 10.19 |  | *Stock Option in the name of F. Howard Schneider dated August 24, 2002.
| | ----- |  | -----------------------------------------------------------------------

| | 10.20 |  | *Stock Option in the name of Jerry Treppel dated October 28, 2002.
| | ----- |  | ------------------------------------------------------------------

| | 10.21 |  | *Stock Option in the name of Robert Weinstein dated November 25, 2002.
| | ----- |  | ----------------------------------------------------------------------

| | 21.1 |  | Subsidiaries of the Registrant
| | ---- |  | ------------------------------

| | 23.1 |  | Consent of Wolf & Company, P.C.
| | ---- |  | -------------------------------

|55

Certification Pursuant
to Rule 13a-14 or 15d-14 promulgated under theSecurities Exchange
Act of 1934, as amended


I,
Dhananjay G. Wadekar, President, Chief Executive Officer and Chairman of the Board of
Directors, certify that:


     1.    
          I have reviewed this annual report on Form 10-K of Able Laboratories, Inc.;


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


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


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

|(a) | designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this annual report is being prepared;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | evaluated the effectiveness of the registrants disclosure controls and
          procedures as of a date within 90 days prior to the filing date of this annual
          report (the Evaluation Date); and
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | presented in this annual report our conclusions about the effectiveness of the
          disclosure controls and procedures based on our evaluation as of the Evaluation
          Date;
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(a) | all significant deficiencies in the design or operation of internal controls
          which could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | any fraud, whether or not material, that involves management or other employees
          who have a significant role in the registrants internal controls; and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

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



Date: March 25, 2003

/s/ Dhananjay G. Wadekar



President, Chief
Executive Officer and    Chairman
of the Board of Directors(Principal
Executive Officer)



56

Certification Pursuant
to Rule 13a-14 or 15d-14 promulgated under the



Securities Exchange
Act of 1934, as amended


I,
Robert Weinstein, Chief Financial Officer, certify that:


     1.    
          I have reviewed this annual report on Form 10-K of Able Laboratories, Inc.;


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


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


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

|(a) | designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this annual report is being prepared;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | evaluated the effectiveness of the registrants disclosure controls and
          procedures as of a date within 90 days prior to the filing date of this annual
          report (the Evaluation Date); and
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | presented in this annual report our conclusions about the effectiveness of the
          disclosure controls and procedures based on our evaluation as of the Evaluation
          Date;
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(a) | all significant deficiencies in the design or operation of internal controls
          which could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | any fraud, whether or not material, that involves management or other employees
          who have a significant role in the registrants internal controls; and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Date: March 25, 2003

/s/ Robert Weinstein




Chief Financial Officer(Principal Financial Officer)



57
|---------------------------------------------------------------------------------------------------------