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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10KSB



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



FOR THE FISCAL YEAR ENDED MARCH 31, 2005



or



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



Commission File No. 001-16185



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GEOPHARMA, INC.

(Name of small business issuer in its charter)



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|                                                                  |  |                                  
|----------------------------------------------------------------- |  | ---------------------------------
|State of Florida                                                  |  | 59-2600232                       
|(State of or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                                  | 
|6950 Bryan Dairy Road, Largo, Florida                             |  | 33777                            
|(Address of Principal Executive Officers)                         |  | (Zip Code)                       



Issuers
telephone number: (727) 544-8866



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Securities registered pursuant to Section 12(b) of the Exchange Act: None.



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



Common Capital Stock

(Title of Class)



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Indicate by check mark whether the issuer (1) filed all
reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 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.    Yesx    No ̈



Indicate by check mark if
there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not 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-KSB or any amendment to this Form 10-KSB.  x



Issuers revenues for its most recent fiscal year were $28,230,240



The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 24, 2005 was $10,539,892
Number of shares outstanding of the Issuers common stock at $.01 par value as of June 24, 2005 was 8,740,503 (net of 483,020 Treasury Shares).



Documents Incorporated by Reference:



Transitional Small Business Disclosure Format:    Yes ̈No  x

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CAUTIONARY STATEMENTS



Certain oral statements made by management from time to time and certain statements contained in press releases and periodic
reports issued by GeoPharma, Inc. (the Company), as well as those contained herein, that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934
and, because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements, including those in Managements Discussion and
Analysis of Financial Condition and Results of Operations, are statements regarding the intent, belief or current expectations, estimates or projections of the Company, its Directors or its Officers about the Company and the industry in which it
operates, and are based on assumptions made by management. Forward-looking statements include without limitation statements regarding: (a) the Companys growth and business expansion, including future acquisitions; (b) the Companys
financing plans; (c) trends affecting the Companys financial condition or results of operations; (d) the Companys ability to continue to control costs and to meet its liquidity and other financing needs; (e) the declaration and payment
of dividends; (f) the Companys use of proceeds from their private placement, and (g) the Companys ability to respond to changes in customer demand and regulations. Although the Company believes that its expectations are based on
reasonable assumptions, it can give no assurance that the anticipated results will occur. When issued in this report, the words expects, anticipates, intends, plans, believes,
seeks, estimates, and similar expressions are generally intended to identify forward-looking statements.



Important factors that could cause the actual results to differ materially from those in the forward-looking statements include, among other items, (i)
changes in the regulatory and general economic environment related to the health care, generic drug and nutraceutical industry; (ii) conditions in the capital markets, including the interest rate environment and the availability of capital; (iii)
changes in the competitive marketplace that could affect the Companys revenue and/or cost and expenses, such as increased competition, lack of qualified marketing, management or other personnel, and increased labor and inventory costs; (iv)
changes in technology or customer requirements, which could render the Companys technologies noncompetitive or obsolete; (v) new product introductions, product sales mix and the geographic mix of sales and (vi) its customers willingness
to accept its Internet platform in the future. Further information relating to factors that could cause actual results to differ from those anticipated is included but not limited to information under the headings Business, and
Managements Discussion and Analysis of Financial Conditions and Results of Operations in this Form 10-KSB as of and for the year ended March 31, 2005. The Company disclaims any intention or obligation to update or revise
forward-looking statements, whether as a result of new information, future events or otherwise.



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PART I



ITEM 1. DESCRIPTION OF BUSINESS



History



We were incorporated as Energy Factors, Inc., a Florida corporation, in 1985. In August 1998 we changed our name to Innovative Health Products, Inc., in February 2000 we changed our name to Go2Pharmacy.com, Inc., and
in September 2000 we changed our name to Go2Pharmacy, Inc., in anticipation of our merger with the Delaware corporation Go2Pharmacy.com, Inc. Our merger with Go2Pharmacy.com, Inc. was effected simultaneously with the successful completion of our
initial public offering during November 2000. Effective September 6, 2002, we changed our name to Innovative Companies, Inc. and effective May 18, 2004 we changed our name to GeoPharma, Inc. We continue to conduct contract nutritional and herbal
supplement product line manufacturing business under the name Innovative Health Products, Inc.



In April 2000, we formed a wholly-owned distribution subsidiary named Breakthrough Engineered Nutrition, Inc., a Florida corporation, for the purpose of marketing and distributing our own branded product lines.
Breakthrough Engineered Nutrition also conducts distribution business as DelMar Labs.



In September 2000, we formed a wholly-owned manufacturing subsidiary named Belcher Pharmaceuticals, Inc., a Florida corporation, for the purpose of conducting over-the counter, and now pharmaceutical and generic drug,
manufacturing and distribution.



In March 2001, we
Florida-incorporated our pharmacy benefit management company, Go2PBM Services, Inc. Go2PBM Services was created to administer drug benefits for health maintenance organizations, insurance company plans, preferred provider organizations, self-insured
corporate health plans and Taft-Hartley self-insured labor unions. A pharmacy benefit manager is designed to oversee all member benefits in low risk plans, while taking an exclusively administrative role in higher risk plans. Our administrative
services include claim processing, network management and customer service.



In September 2002, we incorporated two wholly-owned Florida corporation distribution companies, IHP Marketing, Inc. and Breakthrough Marketing, Inc., for the purpose of marketing and distributing additional branded
product lines to the public in the future. IHP Marketing also conducts distribution business as Archer Stevens Pharmaceuticals and Breakthrough Marketing conducts distribution business as Bentley Labs.



In February 2004, we incorporated Belcher Capital Corporation, a Delaware
corporation, for the purpose of issuing the shares of preferred stock as a part of our $10 million private placement.



Business Overview



At GeoPharma, Inc. we manufacture, package and/or distribute high-quality private label dietary supplements, over-the-counter drugs and high value
pharmaceuticals and health and beauty care products for companies worldwide under two of our Florida-incorporated companies, Innovative Health Products, Inc. and Belcher Pharmaceuticals, Inc. Innovative Health Products specializes in the development
and manufacture of a broad range of nutritional supplements. As a private-label contract manufacturer, we develop and manufacture for ourselves, and our customers, dietary supplements and health and beauty care products for distribution through
various outlets. Belcher Pharmaceuticals, Inc is a state-of-the-art FDA-registered, drug development and manufacturing facility for generic and over-the-counter (OTC) drugs. Our third Florida corporation, Breakthrough Engineered
Nutrition, Inc., develops and markets convenience foods and our own branded dietary supplement product lines. Lean Protein Bites, CarbSlim Crunch Bites and CarbSlim Cookie Dough Bites and Oxylene are Breakthroughs most popular brands and are
distributed nationally and internationally in both specialty and mass retail outlets. Breakthroughs products are found in such outlets as Wal-Mart, Rite Aid, Albertsons, Kroger and GNC. We also have an established network of brokers and
distributors strategically located across the United States and Canada. Go2PBM Services, Inc. is our pharmacy benefit management company that manages multiple health care plan members and the administration of their related pharmacy claims.



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Overall Business Strategy



We are continuing to build a multi-faceted company able to maximize our efficiencies and capitalize on our synergies through
vertical operations. During the fiscal year ended March 31, 2003, the generic drug segment was started based on actions taken as a part of our formulated three-phase strategic plan. Our short-term goals include immediately available business in the
area of bulk drugs, procured from other manufacturers and custom repackaged to meet customer requirements. This is, however, expected to be a small part of our operation, but will fill initial gaps in scheduled production in addition to making use
of the business opportunities available to us. Midterm goals were formulated to strategically identify drugs that will be negotiated for purchase from external sources adding to our existing ANDA-portfolio thus shortening the ANDA-development time
frames. While we are currently working on several Abbreviated New Drug Applications (ANDAs), we have procured three ANDAs from established drug development companies abroad. We have filed the ANDA transfer paperwork with the FDA.
Completion of this transfer process will enable us to start manufacturing and selling these three drugs contingent only on the FDAs approval. Our long-term goals include developing our own ANDAs and New Drug Applications (NDA)
adding to our purchased drug portfolio. The Company may from time to time enter into agreements with third parties with respect to the development of new products or the purchase of new products and their related technologies.



To manage our operations, we have assembled and maintained a management team
with experience in manufacturing, marketing, sales and technology to assist in leading us to our sales, profit and overall business goals. Our regulatory and laboratory departments have been improved. Our Regulatory Affairs department has the
ability to prepare all the necessary documentation required by the FDA and any other regulatory agency. In reference to the manufacture and the distribution of generic drugs, numerous licensures have been applied for and obtained, which include a
drug enforcement agency (DEA) license, a State of Florida prescription drug manufacturing permit, State of Florida and other specific states wholesale distribution licenses.



We have upgraded the analytical laboratory to support all of our development
work. Additional analytical and other lab equipment have been added to conduct the required analysis of an active pharmaceutical ingredient (API) in addition to generating data for the ANDA work. The research, development, stability
testing, clinical testing and FDA review process leading up to an approval takes approximately 12  30 months depending on the nature of the drug. Some of the products require little review or very little laboratory testing and hence may take
only one year. In an attempt to further differentiate ourselves from other generic drug development companies, our focus remains on projects that we were able to eliminate the high barriers to entry based on our strategic alliances and other formed
relationships that provide for an API source that would otherwise normally be difficult to source. The current strategy is to continue to work on drug products that can be brought to market at an even pace, as we believe this approach allows for
immediate revenue generation and provides for a possible future, continuous revenue generation stream. Our vertical operations consist of manufacturing and distribution, sales and marketing, in-house formulation laboratory and other chemical
analysis services, customer service and public relations. We will be able to support our own needs as well as those of our customers, from order processing, manufacturing through end-user distribution. We have streamlined our two manufacturing
facilities in order to continue growing both our generic and over-the-counter drug and nutriceutical manufacturing segments.



We are continuing to develop our sales and marketing strategies to build our recognition among national grocery, mass retail, major pharmaceutical drug
distributors and national drug chains, long-term care facilities and other health product consumer organizations, while building brand awareness of our branded and other proprietary products as well as our private label capabilities.



We have developed several proprietary branded product lines within our
distribution business segment that are currently being sold nationally. We plan on further developing and expanding these lines into other flavors and packaged forms of our unique, high-protein, sugar-free foods and energy products. Additions to our
Lean Protein and CarbSlim product lines will include new flavors, package type and size variations in addition to existing product enhancements. For both our manufacturing and distribution segments, we market our product lines using our own
telemarketing efforts as well as utilizing brokers to increase the awareness and availability of our offerings and capabilities.



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We have entered into a contract with CarePlus, to provide pharmacy benefit management services to its
members through two of their health plans, through our wholly-owned subsidiary, Go2PBM Services, Inc. In addition, the agreement allows us to be the organizations private label over-the-counter supplier of healthcare and healthcare related
products. We plan on continuing to expand our member base by marketing our services to other insurance-based health care providers.



Through the development of our generic and over -the-counter drugs, private label manufacturing, branded distribution products and pharmacy benefit
management efforts, we intend to provide wholesale, retail, and institutional customers with an efficient source for their generic and over-the-counter drug products, nutritional and functional conveniance foods and other pharmacy-related product
needs. By vertically integrating our core business operations, we believe we have, and will continue, to achieve increased brand recognition and exposure, ancillary product and service revenues, and will be able to provide competitively priced
products, quick turn around and overall superior customer service.



Research
and Development



Product development remains the core
element of our historical as well as current and future growth strategy spanning across all of our existing business segments. Our research and development activities consist principally of:



| |  |  | the potential for enhancing existing products or formulas,
| | - |  | ----------------------------------------------------------



| |  |  | researching and developing new product formulations and
| | - |  | -------------------------------------------------------



| |  |  | introducing technology to improve production efficiency and enhance product quality.
| | - |  | ------------------------------------------------------------------------------------



The scientific process of developing new products and obtaining FDA approval is complex, costly and time-consuming; there
can be no assurance that any saleable products will be developed despite the amount of time and money spent on research and development. The development of products may be curtailed at any stage of development due to the introduction of competing
generic products or for other reasons including changes in laws or regulations or for any other reason deemed necessary by management. Our generic drug and nutraceutical research and development departments develop new concepts and formulations for
our generic and over-the-counter drugs, our branded distribution product lines and our customers nutriceutical private label products. We carefully select our products we target, keeping in view our competitive advantage, particularly as
related to the source of a raw material or API, the total market size and what portion of the market is potentially available to our Company. Dr. Sekharam, our President, provides guidance and direction for our research and development teams and
analytical laboratory personnel as related to product development and product manufacture. Our lab chemists perform product development, product and process improvements. Our technical staff prepares cost estimates and samples based on those
resulting formulations. Prior to the final manufacture of any of our products, the team prepares documentation of the necessary custom and other operational procedures to be performed. Our chemists and our research and development regulatory staff
personnel prepare all the necessary product information for label requirements.



During the fiscal year ended March 31, 2005, Belcher Pharmaceuticals has made substantial progress in the animal and human ANDA areas and has strengthened laboratory staff, adding more analytical equipment and
manufacturing machinery. The blending, tableting and liquid manufacturing areas have been expanded in line with our generic drug strategic plans. Currently, we are working on the development of generic and other drugs in tablet form for the
treatment of thyroid conditions found in animals and humans. We will be bringing this drug to the market with our unique advantage. Belcher has filed a patent on a novel method to stabilize the drug Levothyroxine. Levothyroxine, sold under the brand
names, Abbotts Synthroid®and King Pharmaceuticals Soloxine®/Levoxyl®, is used for humans as well as pets to treat thyroid-related conditions. Levothyroxine is the second most prescribed drug in the
United States with over 13 million patients and according to NDC Health 2002, the combined retail sales for all Levothyroxine sodium tablet products was approximately $ 1.1 billion (2002). Due to unique stability problems associated with this drug,
millions of tablets have been recalled per data received from the FDA. We have solved



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this problem by using a unique stabilizing method. Using this novel method, the stability of the drug is substantially
improved. We will be applying this method to both human as well as animal versions of this drug. This is expected to offer us a competitive advantage in the market. The human version of levothyroxine sodium is in the advanced stage of development.
We have contracted out the bioequivalence work on this drug to a unaffiliated third-party clinical lab. We also have developed two versions of levothyroxine drugs for the animal market. The development work includes product formulation, stability
studies under accelerated and real time conditions, methods and process validation, and related analytical work required to support the Companys filing with the FDA of an animal ANDA and a human ANDA. We have entered into agreements with two
veterinary drug distributors to distribute this drug. Liquid and tablet commercial production has commenced with initial shipments scheduled for June and July 2005.



Belcher filed an animal ANDA on Carprofen, a generic version for Pfizers Rimadyl, an arthritis and joint-ailment
product for pets as Pfizers patent expired in 2004. We have successfully completed the development work, the animal studies, have filed with the FDA and are awaiting their approval. We have signed an exclusive arrangement with a pet drug
distributor to market this drug.



On Nov. 24, 2004 the FDA
provided 510(K) approval, called PMA approval to market Mucotrol, a concentrated oral gel wafer indicated for the management and relief of pain associated with oral lesions of various etiologies, including oral mucositis/stomatitis resulting from
chemotherapy or radiotherapy; irritation due to oral surgery; traumatic ulcers caused by braces, ill-fitting dentures, or disease; and diffuse apthous ulcers. The 2.2 gram wafer contains compressed powder and slowly dissolves in the mouth to form a
soothing and protective layer over mucosal lesions.



PMA
approval is based on a determination by FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s). An approved PMA is, in effect, a private license granting permission to
market the device.



Mucositis is a painful inflammation of the
mucosa of the mouth that may occur due to radiation or chemotherapy. Mucositis afflicts approximately 40% of patients receiving cancer chemotherapy and 75% percent of bone marrow transplant recipients as well as 100% of patients receiving
radiotherapy for cancer of the head and neck. It is estimated that approximately 300,000 cancer patients in the U.S. suffer from mucositis associated with cancer treatments.



Earlier, we submitted double blind placebo controlled studies on Mucotrol to the FDA for 510(K) approval. Currently, we are
continuing the multicenter clinical studies on Mucotrol and are also in negotiation with marketing companies to take Mucotrol to various markets.



We have finalized our designs and have begun expanding Belchers facility to include manufacturing of Cephalexin. Construction has begun in this
leased facility during June 2005 and is scheduled to be completed by the close of the year.



We contract with outside laboratories to conduct bioequivalency studies. Bioequivalency studies must be conducted and documented in conformity with FDA standards (see Government Regulation) and are used to
demonstrate that the rate and extent of absorption of a generic drugs are not different from a corresponding brand name drug. Research and development expenses for fiscal year ended March 31, 2005 totalled approximately $263,000, consisting
primarily of salaries, bioequivalency studies and laboratory supplies. Research and development costs are expensed as incurred. Machinery and laboratory equipment expenditures made during the 2005 fiscal year approximated an additional $719,000
which was capitalized and will be depreciated over their useful lives.



Our research and development laboratory is equipped with modern laboratory test equipment, including high pressure liquid chromatography, atomic absorption spectroscopy, as well as instruments to test different parameters like pH,
viscosity, moisture, gradient sizing, ash, melting point, refractive index, tablet hardness, dissolution and disintegration. We also have a micro lab to test samples for microbiological loads including yeast, bacteria and fungi. The laboratory has
stability chambers to test both the long-term and the accelerated shelf life of products. Our laboratory is well equipped to handle all aspects of generic drug development. We believe that our laboratory facilities are in compliance with all
applicable environmental regulations.



Our product development
team works closely with the Companys executive management as well as our customers. Working closely with management allows management to monitor adherence to our short-term, mid-term and long-range business plans; working closely with our
customers assists in assuring that we provide value-added features in the final product that satisfies their ultimate needs. As our development response time is critical to capitalizing on consumer trends and preferences, we focus on meeting
end-user needs as quickly as possible. We believe that this type of flexibility and attention to customer needs, while still keeping the overall strategic goals of the Company, results in more valuable and marketable products.



While we are working on these ANDA projects, we are also working
simultaneously on a few long-term projects. These projects may take considerable time and effort and their commercial payoff depends on several factors on which we may not have full control. Some of these type of research outcomes may help improve
existing products. If the outcome of certain projects is not within the scope of our area of expertise, our proprietary technology developed or discovered may be licensed to other companies for a fee on a royalty basis.



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Marketing and Sales



Our marketing and promotion strategy is targeted toward stimulating demand for our products and service capabilities and by increasing our brand
awareness. We currently employ a traditional in-house sales force that markets our branded and private label products directly to wholesale, retail and institutional customers as well our distribution and broker network. We also utilize product
promotions and print media to reach new customers in targeted markets. We intend to increase these efforts significantly in the areas of direct sales, telesales, and traditional and online advertising.



We plan to hire additional marketing representatives to contact prospective
customers including self-insured employers, health maintenance organizations, and other health benefit provider associations to market our manufacturing capabilities and pharmacy benefit management services in addition to pursuing contractual
arrangements with pharmacies related to our future generic drug manufacturing and distribution. As a manufacturer, we have the facilities, equipment, manufacturing capacity, skilled work force and industry experience to control product processing
and minimize product cost from order inception to distribution of finished products to our customers. By utilizing our manufacturing capabilities, we intend to build institutional relationships through high quality and low cost custom product lines.
We are continuously seeking ways to expand our manufacturing customer base. We intend to increase our market penetration of private label manufacturing customers increasing our outside sales and telesales efforts, by reducing manufacturing time with
additional fully-automated high-speed manufacturing equipment, by delivering high quality products and by providing research and development support to improve our product offerings. We will also continue to develop strategic alliances with new
manufacturing customers. We intend to increase our ongoing development and marketing of new products in order to capitalize on and create market opportunities in new market segments. We feel that we can differentiate ourselves from our competitors
by providing customers with more value-added products. Consequently, we intend to produce and market additional, as well as enhance currently existing products and dietary supplements that integrate a variety of compounds to achieve greater
bio-availability, effectiveness and product convenience. We differentiate ourselves from other dietary supplement manufacturers by providing faster and more appropriate responses to our customers. Our development response time for proprietary and
private label products is critical to capitalize on consumer trends and preferences. We intend to utilize these trends and preferences to expand our customer base and provide consumers with the most timely and well adapted products for their needs.



We intend to increase telesales by hiring an in-house
telesales group to prospect for customers for our branded products that we distribute. We have increased our advertising efforts by investing in additional print ads for our branded products by implementing online sales and marketing techniques to
increase brand awareness and direct traffic to our web sites, www.carbslim.com, www.leanprotein.com and onlineihp.com and by other promotional efforts. This includes purchasing banner advertising on search engine web sites and
Internet directories, as well as direct links from health related web sites. We feel that these efforts are and will continue to compliment our existing and future strategic agreements and traditional advertising efforts. Some of the sales personnel
we expect to hire will devote a substantial portion of their time enhancing relationships with our customers key personnel, informing them of new product developments and industry trends, and aiding them in designing store displays and
merchandising programs for our branded products.



We also
increase the flexibility of our product offerings by extending various credit terms to our customers, subject to our credit approval process. In most cases, where credit terms are granted, we require a prepayment of 50% of the amount of the sales
order, with the balance due within 30 days of shipment. Some of our customers whose sales are to regional and/or national chain stores receive payments from their customers on extended payment terms. In such cases, we grant extended payment terms,
when requested, by a long-standing significant customer.



We
believe that the health care, pharmaceutical and dietary supplement industries are fragmented and currently offer attractive acquisition opportunities. We intend to pursue acquisition opportunities that will broaden our product lines, provide
efficiencies in manufacturing through economies of scale, broaden our customer base, complement our existing businesses and further our overall strategic business goals. However, we have no current plans, arrangements or agreements for any
acquisitions.



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Principal Suppliers  Nutraceutical and Herbal Supplements



We obtain all of the raw materials for the manufacture of our products from
third party suppliers primarily located within the United States. We do not have contracts with any of our suppliers to provide adequate materials required for our product manufacturing.



Principal Suppliers  Generic Pharmaceuticals



Since the federal drug application process requires specification of raw material suppliers, if raw materials from a
specified supplier were to become unavailable, FDA approval of a new supplier would be required. A delay of six months or more in the manufacture and marketing of the drug involved while a new supplier becomes qualified by the FDA and its
manufacturing process is found to meet FDA standards could, depending on the particular product, have a material adverse effect on the Companys results of operations and financial condition. Generally the Company attempts to minimize the
effects of any such situation by providing for, where economically and otherwise feasible, two or more suppliers of raw materials for the drugs it intends to manufacture. In addition, the Company may attempt to enter into a contract with a raw
material supplier in an effort to ensure adequate supply for its products.



Competition



The principal competitive factor
in the generic pharmaceutical market is the ability to be the first company, or among the first companies, to introduce a generic product after the related branded patent expires. Additional competitive factors in the generic pharmaceutical market
include:



| |  |  | introduction of other generic drug manufacturers products in direct competition with the Companys products,
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | consolidation among distribution outlets through mergers and acquisitions and the formation of buying groups,
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | ability of generic competitors to quickly enter the market after patent expiration or exclusivity periods, diminishing the amount and duration of significant profits,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the willingness of generic drug customers, including wholesale and retail customers, to switch among pharmaceutical manufacturers,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | pricing pressure and product deletions by competitors,
| | - |  | ------------------------------------------------------



| |  |  | a companys reputation as a manufacturer of quality products,
| | - |  | -------------------------------------------------------------



| |  |  | a companys level of service (including maintaining sufficient inventory levels for timely deliveries),
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | product appearance and
| | - |  | ----------------------



| |  |  | a companys breadth of product line.
| | - |  | ------------------------------------



Approvals for new products may have a synergistic effect on a companys entire product line since orders for new products are frequently accompanied
by, or bring about, orders for other products available from the same source. We believe that price is a significant competitive factor, particularly as the number of generic entrants with respect to a particular product increases. As competition
from other manufacturers intensifies, selling prices typically decline. We hope to compete by selecting appropriate products, based on therapeutic segment market sizes and number of competitors manufacturing the products, and by keeping our prices
competitive and by providing reliability in the timely delivery, and in the quality, of our products. Many different manufacturers can sell the same generic drug and hence there will be intense pressure on the pricing. According to the Generic
Pharmaceutical Industry Association, generics typically enter the market 30% below the brand price and decline to 60 or 70% of the brand price after two years. The market for generic drugs is highly competitive. There is intense competition in the
generic drug industry in the United States, which is eroding price and profit margins. We compete with numerous pharmaceutical manufacturers, including both generic and brand-name manufacturers, many of which have been in business for a longer
period of time than us, have a greater number of products in the market and have considerably greater financial, technical, research, manufacturing, marketing and other resources.



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Competition related to the contract manufacture of nutriceuticals in which we operate are also highly
competitive. Numerous companies, many of which have greater size, financial, personnel, distribution and other resources than us, compete with us in our development, manufacture, distribution, wholesaling and retailing businesses. Our branded
products face substantial competition from broad line manufacturers, large private label manufacturers, and more recently from large pharmaceutical companies. Increased competition from companies with greater financial, manufacturing, distribution
and marketing capabilities than our own could have a materially adverse affect on our operations. We compete on the basis of product quality, cost and customer service. Our branded products success depends primarily on our increasing brand
recognition across multiple distribution channels, our ability to quickly develop, advertise, market and promote new and existing products with high quality and value, and our efficient distribution of these products. Our competitors include chain
drug stores, such as CVS and Walgreens; prescription benefit managers, such as Express Scripts; warehouse clubs, such as BJs and Costco; mail order pharmacies; major department stores, such as Macys and Nordstrom; and health,
beauty salons, spas and Internet portals with shopping services, such as Yahoo!, Excite, and America Online.



Many of these competitors currently offer online ordering of their products. In addition, many of these online and traditional competitors have longer
operating histories, greater brand recognition, and substantially greater economic, marketing and other resources than we do. These resources may provide some of these competitors with greater opportunities to form joint ventures and favorable
vendor agreements as this market develops. In addition, traditional pharmacies can provide customers with the ability to see and feel products, and may be able to address immediate customer product needs in ways that we cannot.



Trademarks and Intellectual Property



We utilize the federally registered trademarks Lean Protein, Nutrisure, Physician Pharmaceutical12-and Arth-Aid. The Company, as assisted by our president, Dr. Kotha Sekharam, also filed for three additional patents for products already in the market with patent pending status. We also utilize the
registered domain names leanprotein.com, ihp-inc.com, and onlineihp.com. We believe that protecting our trademarks and registered domain names is crucial to our business strategy of building strong brand name recognition and that such trademarks
have significant value in the marketing of our products. Our policy is to pursue registrations of all the trademarks associated with our key products. We rely on common law trademark rights to protect our unregistered trademarks. Common law
trademark rights generally are limited to the geographic area in which the trademark is actually used, while a United States federal registration of a trademark enables the registrant to stop the unauthorized use of the trademark by any third party
anywhere in the United States. Furthermore, the protection available, if any, in foreign jurisdictions may not be as extensive as the protection available to us in the United States. Although we seek to ensure that we do not infringe upon the
intellectual property rights of others, there can be no assurance that third parties will not assert intellectual property infringement claims against us. Any infringement claims by third parties against us may have a materially adverse affect on
our business, financial condition, results of operations and cash flows.



Government Regulation



Generic and
over-the-counter drugs, dietary supplements and other health and beauty care products are subject to significant government regulation. These products are regulated by the Food and Drug Administration (FDA), Federal Trade Commission
(FTC), Consumer Product Safety Commission, as well as other state and federal regulatory entities. While we use our best efforts to adhere to the regulatory and licensing requirements, as well as any other requirements affecting our
products, compliance with these often requires subjective legislative



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interpretation. Consequently, we cannot assure that our compliance efforts will be deemed sufficient by regulatory
agencies and commissions enforcing these requirements. Violation of these regulations may result in civil and criminal penalties, which could materially and adversely affect our operations. Recent events have suggested that the regulatory
requirements governing our industry may expand in the near future.



A generic drug is identical, or bioequivalent, to a brand name drug in dosage form, safety, strength, route of administration, quality, performance characteristics and intended use. Generic drugs can be manufactured after the expiration of
patents or exclusivities associated with the drug. Although generic drugs are chemically identical to their branded counterparts, they are typically sold at substantial discounts from their branded equivalents price.



Brand name drugs, also called innovator drugs, generally are protected by one
or more patents. When patents or other periods of exclusivity expire, manufacturers can submit an ANDA for the approval of a human generic drug and ANDA for an animal drug. The animal ANDA process does not require the drug sponsor to repeat costly
animal and clinical research on ingredients or dosage forms already approved for effectiveness and safety.



To gain FDA approval, a generic drug must (a) contain the same active ingredients as the innovator drug (inactive ingredients may vary) (b) be identical
in strength, dosage form, and route of administration (c) have the same use indications (d) be bioequivalent (e) meet the same batch requirements for identity, strength, purity, and quality (f) be manufactured under the same strict standards of
FDAs good manufacturing practice regulations required for innovator products.



There are generally two types of applications that would be used to obtain FDA approval for pharmaceutical products:



New Drug Application (NDA): Generally, the NDA procedure is required for drugs with active ingredients and/or with a dosage form, dosage
strength or delivery system of an active ingredient not previously approved by the FDA. We do not expect to submit an NDA in the foreseeable future during the fiscal year ended March 31, 2006.



Abbreviated New Drug Application (ANDA): The Waxman-Hatch Act
established a statutory procedure for submission of ANDAs to the FDA covering generic equivalents of previously approved brand-name drugs. Under the ANDA procedure, an applicant is not required to submit complete reports of preclinical and clinical
studies of safety and efficacy, but instead is required to provide bioavailability data illustrating that the generic drug formulation is bioequivalent to a previously approved drug. Bioavailability measures the rate and extent of absorption of a
drugs active ingredient and its availability at the site of drug action, typically measured through blood levels. A generic drug is bioequivalent to the previously approved drug if the rate and extent of absorption of the generic drug are not
significantly different from that of the previously approved brand-name drug.



The FDA may deny an ANDA if applicable regulatory criteria are not satisfied. The FDA may withdraw product approvals if compliance with regulatory standards is not maintained or if new evidence demonstrating that the
drug is unsafe or lacks efficacy for its intended uses becomes known after the product reaches the market. The timing of final FDA approval of ANDA applications depends on a variety of factors, including whether or not the maker of the applicable
branded drug is entitled to the protection of one or more statutory exclusivity periods, during which the FDA is prohibited from approving generic products. FDA approval is required before each dosage form of any new drug can be marketed.
Applications for FDA approval must contain information relating to bio-equivalency, product formulation, raw material suppliers, stability, manufacturing processes, packaging, labeling and quality control. FDA procedures require full-scale
manufacturing equipment to be used to produce test batches for FDA approval. Validation of manufacturing processes by the FDA also is required before a company can market new products. The FDA conducts pre-approval and post-approval reviews and
plant inspections to enforce these rules. Supplemental filings are required for approval to transfer products from one manufacturing site to another and may be under review for a year or more. In addition, certain products may only be approved for
transfer once new bio-equivalency studies are conducted.



The
FDA issued a final rule on June 18, 2003, which became effective on August 18, 2003, streamlining the generic drug approval process by limiting a drug company to only one 30-month stay of a generic drugs entry into the market for resolution of
a patent challenge. This will help maintain a balance between the innovator companies intellectual property rights and the desire to get generic drugs on the market in a timely fashion. The rule clarifies



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the types of patents that innovators must submit for listing and prohibits the submission of patents claiming packaging,
intermediates or metabolite innovations. Patents claiming a different polymorphic form of the active ingredient described in a NDA must be submitted if the NDA holder has test data demonstrating that the drug product containing the polymorph will
perform in the same way as the drug product described in the NDA. The final rule also clarifies the type of patent information required to be submitted and revises the declaration that NDA applicants must provide regarding their patents to help
ensure that NDA applicants submit only appropriate patents.



The final rule is intended to make the patent submission and listing process more efficient, as well as enhance the ANDA and 505(b)(2) application approval process. The changes are designed to enable consumers to save billions of dollars
each year by making it easier for generic drug manufacturers to get safe and effective products on the market when the appropriate patent protection expires.



In addition to the federal government, various states have laws regulating the manufacture and distribution of pharmaceuticals, as well as regulations
dealing with the substitution of generic drugs for brand name drugs. The Companys operations are also subject to regulation, licensing requirements and inspection by the states in which its operations are located and/or it conducts business.



Certain activities of the Company may also be subject to FTC
enforcement. The FTC enforces a variety of antitrust and consumer protection laws designed to ensure that the nations markets function competitively, are vigorous, efficient and free of undue restrictions.



We are also is governed by federal and state laws of general applicability,
including laws regulating matters of environmental quality, working conditions and equal employment opportunity.



The manufacture, packaging, labeling, advertising, promotion, distribution and sale of our dietary supplements manufactured is subject to regulation by
numerous governmental agencies, particularly the FDA, which regulates our products under the Federal Food, Drug and Cosmetic Act, and the FTC, which regulates the advertising of our products under the Federal Trade Commission Act. Our products are
also subject to regulation by, among other regulatory agencies, the Consumer Product Safety Commission, the United States Department of Agriculture, the United States Department of Environmental Regulation and the Occupational Safety and Health
Administration. The manufacture, labeling and advertising of our products is also regulated by the Occupational Safety and Health Administration through various state and local agencies where our products are distributed.



Our manufacture of dietary supplements is subject to significant labeling
regulation. Labeling claims are governed by the Food and Drug Administration, the Federal Food, Drug and Cosmetic Act, and the recent Dietary Supplement Health and Education Act of 1994 (DSHEA). Our manufacture of over-the-counter drugs must comply
with all Food and Drug Administration guidelines and Food and Drug Administration enforced Good Manufacturing Practices (GMP) regulations for those products as set forth in official monographs of the United States Pharmacoepia and other applicable
laws enforced by the Food and Drug Administration. These include manufacturing and product information, such as claims in a products labeling, package inserts, and accompanying literature. The Dietary Supplement Health and Education Act of
1994 guidelines permit certain dietary supplement labeling claims without prior authorization by the Food and Drug Administration, provided that the manufacturer has substantiation for the claims and complies with certain notification and disclaimer
requirements. The legislation gives dietary supplement manufacturers more freedom to market their products, while providing consumers adequate information for informed decisions on the use of supplements.



Under the Dietary Supplement Health and Education Act of 1994 and previous
food labeling laws, supplement manufacturers may use three types of labeling claims, with the approval of the Food and Drug Administration. These claims include nutrient-content claims, disease claims, and nutrition-support claims, which include
structure-function claims. Nutrient-content claims describe the level of a nutrient in a food or dietary supplement. For example, a supplement containing at least 200 mg of calcium per serving could carry the claim high in
calcium. Disease claims show a link between a substance and a disease or health-related condition. The Food and Drug Administration authorizes disease claims based on a direct review of scientific evidence or documentation of established
diet-to-health links from highly regarded scientific bodies, such as the National Academy of Sciences. For example, it is permissible to advertise a link between calcium and a lower risk of osteoporosis, if the supplement contains sufficient amounts
of calcium. Nutrition-support claims describe a link between a nutrient and deficiency



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diseases that may result from diets lacking the nutrient. For example, the label of a Vitamin C supplement could state
that Vitamin C prevents scurvy. When these types of claims are used, the label must mention the prevalence of the nutrient-deficiency disease in the United States. Finally, structure-function claims refer to the supplements effect on the
bodys structure or function, including its overall effect on a persons well-being. For example, a structure-function claim could state antioxidants maintain cell integrity. Structure-function claims must be accompanied by the
disclaimer This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. Manufacturers who plan to use a structure-function claim on a particular
product must inform the Food and Drug Administration of the use of the claim no later than 30 days after the product is first marketed. The Food and Drug Administration may then advise the manufacturer to change or delete the claim. Claims made for
our dietary supplement products may include statements of nutritional support and health and nutrient content. The Food and Drug Administrations interpretation of what constitutes an acceptable statement of nutritional support may change in
the future thereby requiring that we revise our labels. The Food and Drug Administration recently issued a proposed rule on what constitutes permitted structure/function claims as distinguished from prohibited disease claims. Although we believe our
product claims comply with the law, depending on the content of the final regulation, we may need to revise our labels.



Our advertising of dietary supplement products is also subject to regulation by the Federal Trade Commission under the Federal Trade Commission Act, in
addition to state and local regulation. The Federal Trade Commission Act prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. The Federal Trade Commission Act also provides that the
dissemination or the causing to be disseminated of any false advertisement pertaining to drugs or foods, which would include dietary supplements, is an unfair or deceptive act or practice. Under the Federal Trade Commissions Substantiation
Doctrine, an advertiser is required to have a reasonable basis for all objective product claims before the claims are made. Failure to adequately substantiate claims may be considered either deceptive or unfair practices. Pursuant to
this Federal Trade Commission requirement we are required to have adequate substantiation for all material advertising claims made for our products.



In recent years the Federal Trade Commission has initiated numerous investigations of dietary supplement and weight loss products and companies. The
Federal Trade Commission is reexamining its regulation of advertising for dietary supplements and has announced that it will issue a guidance document to assist supplement marketers in understanding and complying with the substantiation requirement.
Upon release of this guidance document we will be required to evaluate our compliance with the guideline and may be required to change our advertising and promotional practices. We may be the subject of investigation in the future. The Federal Trade
Commission may impose limitations on our advertising of products. Any such limitations could materially adversely affect our ability to successfully market our products. The Federal Trade Commission has a variety of processes and remedies available
to it for enforcement, both administratively and judicially, including compulsory processes, cease and desist orders, and injunctions. Federal Trade Commission enforcement can result in orders requiring, among other things, limits on advertising,
corrective advertising, consumer redress, divestiture of assets, rescission of contracts and such other relief as may be deemed necessary. A violation of such orders could have a material adverse affect on our business, financial condition and
results of operations.



Governmental regulations in foreign
countries where our plans to commence or expand sales may prevent or delay entry into the market or prevent or delay the introduction, or require the reformulation, of certain of our products. Compliance with such foreign governmental regulations is
generally the responsibility of our distributors for those countries. These distributors are independent contractors over whom we have limited control.



We manufacture certain products pursuant to contracts with customers who distribute the products under their own or other trademarks. Such private label
customers are subject to government regulations in connection with their purchase, marketing, distribution and sale of such products. We are subject to government regulations in connection with our manufacturing, packaging and labeling of such
products. Our private label customers are independent companies and their labeling, marketing and distribution of their products is beyond our control. The failure of these customers to comply with applicable laws or regulations could have a
materially adverse effect on our business, financial condition, results of operations and cash flows.



We may be subject to additional laws or regulations by the Food and Drug Administration or other federal, state or foreign regulatory authorities, the
repeal of laws or regulations which we consider favorable, such as the



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Dietary Supplement Health and Education Act of 1994, or more stringent interpretations of current laws or regulations,
from time to time in the future. We are unable to predict the nature of such future laws, regulations, interpretations or applications, nor can we predict what effect additional governmental regulations or administrative orders, when and if
promulgated, would have on our business in the future. The Food and Drug Administration or other governmental regulatory bodies could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of
certain products not able to be reformulated, imposition of additional record keeping requirements, expanded documentation of the properties of certain products, expanded or different labeling and scientific substantiation. Any or all of such
requirements could have a materially adverse affect on our business, financial condition, results of operations and cash flows.



Innovative Health Products nutriaceutical facility was inspected by the Department of Agriculture and the FDA in November 2003 and in November 2004,
and although we did receive an FDA 483, a written list of observations, were found to be generally in compliance with current Good Manufacturing Practices (GMP) and do not believe the observations were material. We have taken appropriate corrective
actions based on the FDA inspection findings.



Belcher
Pharmaceuticals facility was inspected by the FDA, the DEA and the Department of Agriculture all of which found us generally in compliance. As we have in the past, we will continue our strong focus on compliance activities at all levels of our
Company in support of our current and future strategic growth plans .



As a public company, the Company is subject to the recently enacted Sarbanes-Oxley Act of 2002 . This Act contains a variety of provisions affecting public companies, including requiring an evaluation of its internal disclosure controls and
procedures surrounding the Companys executive management, personnel, and the summarization and control over accurate financial reporting. During the fiscal year ended March 31, 2004, we appointed two new independent directors, Dr. Barry H.
Dash and Shan Shikarpuri, to comply with the requirements of the Sarbanes-Oxley Act of 2002 and the regulations of the Nasdaq Stock Exchange. The Company is not required to be in compliance with Section 404 of the Sarbanes-Oxley Act until its fiscal
year ending March 31, 2006.



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Manufacturing



Our primary manufacturing facility is located in 33,222 square feet of leased space in Largo, Florida. We use this location
for our executive offices and for the manufacturing, packaging and warehousing of products, laboratory services, research and development, marketing and final distribution. Our manufacturing facilities at this site utilize high-speed encapsulating,
tableting, packaging and other production line equipment. The facility is large enough to handle bulk orders, but versatile enough to provide quick response to customer needs. This site also houses our graphic arts department, which assists us and
our customers print layout and graphic needs.



Our second
manufacturing facility is located in 10,000 square feet of leased space in Largo, Florida. This facility is registered with the United States Food and Drug Administration and is used for our laboratory services, research and development,
manufacture, packaging and distribution of our over-the-counter, generic drug and cosmetic products.



Our warehousing facility is located in 30,000 square feet of leased space in Largo, Florida. We use this location for our warehousing of our distribution
segments finished goods in addition to housing additional manufacturing packaging.



Currently, we can manufacture approximately 900 million tablets and capsules annually. For the fiscal year ended March 31, 2005, we operated at approximately 40% of our total capacity. Our manufacturing facilities
normally operate two shifts per day, five days per week. Certain packaging lines or capsule and tablet production lines run longer as demand warrants. We operate flexible manufacturing lines that can shift output efficiently among various pieces of
equipment depending upon factors such as batch size, tablets or capsule count, and labeling requirements. We strive to fulfill and ship all orders within 30-60 days. While we believe we can double our sales volume without expanding our current
facilities, we will expand our manufacturing capacities upon receiving Food and Drug Administration registration for production of generic and other over-the-counter drugs. An increase in



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production would require additional space and personnel for warehousing and shipping operations, but would not
necessarily require substantial capital investment. Our manufacturing revenues are generated by fulfilling sales orders received from our customers within an average turn-around time ranging from 30-60 days. Consequently, we experience a backlog for
future revenues at all times. As of March 31, 2004 and 2005, we had approximately $1,900,000 and $3,879,000, respectively, in backlog manufacturing sales orders.



Private Label Products-Manufacturing



Sales of our manufactured private label products accounted for approximately 41.4% of our total consolidated revenues, or $11,685,484 for the year
ended March 31, 2005 and 60.6%, or $13,934,052 for the year ended March 31, 2004. We currently manufacture products for over 400 private label customers in 47 states in the United States and ship to several countries internationally. Our private
label business has a widely distributed revenue base. For the year ended March 31, 2005, we had sales of 5% or more of total consolidated revenues to one of our nonaffiliate private label customers, Spectrum Group, of which accounted for 11.2% of
total consolidated revenues. For the year ended March 31, 2004, we had sales of 5% or more of total consolidated revenues to one of our private label customers, Metabolife International, of which accounted for 14.4% of total consolidated revenues.
For the year ended March 31, 2005 and 2004, we did not have sales of 5% or more of total consolidated revenues to any company that is a party to an exclusive manufacturing agreement with us.



Branded Products-Distribution



Sales of our branded product lines sold within our distribution segment
accounted for approximately 14.2% of our total consolidated revenues, or $4,004,560 for the year ended March 31, 2005 as compared to approximately 13.3% of consolidated revenues, or $3,048,532, for the year ended March 31, 2004. Our distribution
product line has a widely distributed revenue base whereas for the year ended March 31, 2005 and 2004, no one customer accounted for more than 5% of total consolidated revenues. For the fiscal year ended March 31, 2005, with distribution segment
revenues of $4,004,560; approximately 59.9% of the total distribution revenues were derived from the CarbSlim candy line, approximately 8.8% from the Lean Protein Bites product line, 2.8% from Thermo ZXE and 28.5% of the total being derived from our
branded dietary supplement product lines. For the fiscal year ended March 31, 2004, our distribution segment revenues totaled approximately $3,048,000; approximately 65.6% of the total distribution revenues were derived from the CarbSlim candy line,
approximately 32% from the Lean Protein Bites product line and 2.5% of the total being derived from our Thermo ZXE energy product line.



Pharmacy Benefit Management



Sales generated from our pharmacy benefit management subsidiary accounted for approximately 40.5% of our total consolidated revenues, or $11,437,659 for
the year ended March 31, 2005 and accounted for 25.9% of consolidated revenues, or $5,936,176 for the year ended March 31, 2004. 100% of the Companys pharmacy benefit management revenues are derived from a contract with CarePlus Health, an
affiliate of the Company based on a relationship with Joseph Zappala, a former board member who resigned from the Companys board on December 3, 2004.



Employees



As of March 31, 2005 we had 103 employees as compared to 83 employees as of March 31, 2004. Of these 103 employees as of March 31, 2005, four were engaged
in marketing and sales, eighty-three were devoted to production, laboratory and distribution and sixteen were responsible for management and administration. None of our employees are covered by a collective bargaining agreement. We believe we have
good relations with our employees. Employees are permitted to participate in employee benefit plans of the Company that may be in effect from time to time, to the extent eligible, and employees may be entitled to receive an annual bonus as
determined at the sole discretion of the Companys Board of Directors based on the Boards evaluation of the employees performance and the financial performance of the Company.



Risk Factors



New or Amended Government Regulation Could Adversely Impact Our Business and Operations: We may be subject to
additional laws or regulations by the Food and Drug Administration or other federal, state or foreign regulatory authorities, subject to the repeal of laws or regulations which we consider favorable, such as the Dietary Supplement Health and
Education Act of 1994, or subject to more stringent interpretations of current laws or regulations, from time to time in the future. We are unable to predict the nature of such future laws, regulations, interpretations or applications, nor can we
predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. We also can not predict what effect these regulations, and the related publicity from promulgation
of such regulations, could have on consumer perceptions related to the nutraceutical market in which we operate. The Company, and its customers, depend on positive publicity as it relates to the efficacy and overall health benefits derived from
certain products we manufacture for others. This could have a materially adverse affect on our business, financial condition, results of operations and cash flows. The Food and Drug Administration has also announced that it is considering
promulgating new Good Manufacturing Practices regulations, specific to dietary supplements. Such regulations, if promulgated, may be significantly more rigorous than currently applicable regulations and contain quality assurance requirements similar
to Good Manufacturing Practices regulations for drug products. Therefore, we may be required to expend additional capital resources on upgrading manufacturing processes and/or equipment in the future in order to comply with the law.The Food and Drug
Administration or other governmental regulatory bodies could require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, imposition of additional record keeping
requirements, expanded documentation of the properties of certain products and expanded or different labeling and scientific substantiation. Any or all of such requirements could have a materially adverse affect on our business, financial condition,
results of operations and cash flows. Our failure to comply with applicable Food and Drug Administration regulatory requirements could result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and possible
criminal prosecutions.



Product Acceptance into the Generic
Drug Market:Certain manufacturers of brand name drugs and/or their affiliates have introduced generic pharmaceutical products equivalent to their brand name drugs at relatively lower prices or partnered with generic companies to introduce
generic products. Such actions have the effect of reducing the potential market share and profitability of generic products developed by the Company and may inhibit it from developing and introducing generic pharmaceutical products comparable to
certain brand name drugs. This price competition has led to an increase in customer demand for downward price adjustments by the manufacturers of generic pharmaceutical products, including the Company, for certain products that may have planned to
manufacture in the future. There can be no assurance that such price reductions for these products or others, will not continue, or even increase, and therefore could have a material adverse effect on the Companys revenues, gross margins,
income generated from operations and cash flows.



The
Unavailability of Raw Materials When Needed Could Adversely Impact Our Business and Operations: Since the federal drug application process requires specification of raw material suppliers as related to the production of generic drugs, if raw
materials from a specified supplier were to become unavailable, FDA approval of a new supplier would be required. A delay of six months or more in the manufacture and marketing of the drug involved while a new supplier becomes qualified by the FDA
and its manufacturing process is found to meet FDA standards could, depending on the particular product, have a material adverse effect on the Companys results of operations and financial condition. Generally the Company attempts to minimize
the effects of any such situation by providing for, where economically and otherwise feasible, two or more suppliers of raw materials for the drugs it manufactures.



FDA Approvals: The Company plans to submit generic drug human and animal ANDA for the FDAs approval to manufacture
generic drugs for animals and humans in the future. The Company can not predict, nor guarantee, that the FDA will approve any or all applications submitted, nor can the Company predict when such applications will be reviewed or approved. Failure for
the FDA to approve certain generic drug products as they are submitted by the Company could have an adverse effect on future revenues, cash flows and financial position.



We Can Not Predict the Effects of Terrorism on the Economy or on our Company: The terrorist attacks on September 11,
2001, exacerbated an already fragile economic situation and have added to a growing level of uncertainty and caution in the marketplace. The adverse impacts to our business may include, but are not limited to, a delay in placing or a decrease in the
size of orders, a lengthening of sales cycles and increased credit risks. We can give no estimate of how long these effects may last. The occurrence of any future terrorist activity will further exacerbate these effects.



The Unavailability of Additional Funds When Needed Could Adversely Impact
Our Business and Operations: Management believes that cash expected to be generated from operations, current cash reserves, and existing financial arrangements will be sufficient for the Company to meet its capital expenditures and working
capital needs for its operations as presently conducted. In addition, the Company may require more significant capital to expand operations or complete cash based acquisitions. If cash flows from operations, current cash reserves and available
credit facilities are not sufficient, it will be necessary for the Company to seek additional financing. There can be no assurance that such financing would be available in amounts and on terms acceptable to the Company.



Litigation:In December 2004 and January 2005 five securities class
action lawsuits were filed in the Federal District Court, Southern District of New York against GeoPharma and certain of its officers, alleging violations of federal securities laws in connection with certain press releases issued by the Company
relating to Belcher Pharmaceuticals planned introduction of Mucotrol: Mat eVentures v. Kotha Sekharam and GeoPharma, Inc. (SDNY 04 Civ. 9463); Moshayedi v. GeoPharma, Inc., Jugal Taneja, Mihir Taneja, and Kotha Sekharam (SDNY 04 Civ. 9736);
Sarno v. Mihir Taneja, Kotha Sekharam, and GeoPharma, Inc. (SDNY 04 Civ. 9975); Farwell v. Kotha Sekharam and GeoPharma, Inc. (SDNY 05 Civ. 188); and Taylor v. Kotha Sekharam and GeoPharma, Inc. (SDNY 05 Civ. 258). Plaintiffs, on behalf of
themselves and all others similarly situated, seek unspecified damages allegedly suffered in connection with their respective purchases and sales of the Companys securities during the Class period. On March 9, 2005 the Court consolidated the
actions and appointed lead plaintiff and lead counsel. On April 18, 2005 plaintiffs filed a Consolidated Amended Class Action Complaint. On June 6, 2005 defendants filed a Motion to Dismiss the action. Plaintiffs Opposition papers are due to
be filed by July 8, 2005, and defendants Reply papers are due to be filed by July 25, 2005. It is not possible to predict with certainty the ultimate outcome of these lawsuits. Although the Company has certain insurance, if these matters are
resolved unfavorably, they could have a material adverse effect on the Companys operating results or cash flows.



The company received a letter dated April 11, 2005 addressed to its Board of Directors, constituting a shareholder demand pursuant to Florida Statute Sec.
607.07401 from a San Diego law firm representing an alleged shareholder of GeoPharma, Inc. S uch letter demanded that the company commence legal proceedings against each Board member and each officer of the company for alleged breaches of fiduciary
duty arising out of and/or evidenced by the same actions and circumstances involved in the class action referred to above. At its Board meeting of June 7, 2005, the Board of Directors appointed a committee of independent directors to investigate the
allegations outlined in such letter.



Litigation concerning
patents and proprietary rights is possible and often expensive. Pharmaceutical companies with patented brand products are increasingly suing companies that produce generic forms of their patented brand name products for alleged patent infringement
or other violations of intellectual property rights, which may delay or prevent the entry of such generic products into the market. There is a risk that a branded pharmaceutical company may sue the filing person for alleged patent infringement or
other manufacturing, developing and/or selling the same generic pharmaceutical products may similarly file lawsuits against the Company or its strategic partners claiming patent infringement or invalidity. Such litigation is time consuming, and
could result in a substantial delay in, or prevent, the introduction and/or marketing of products, which could have a material adverse effect on the Companys business, financial condition and results of operations.



Our Insurance Coverage May not be Sufficient to Cover All Risk
Exposure: The Company has maintained its insurance coverages for its directors and officers, general liability insurance, and product liability insurance at levels deemed adequate by the Companys Board of Directors. The Company can not
guarantee that these same levels of insurance, at premiums acceptable to the Company, will be available in the future. As related to product liability insurance, a reduction in coverage or an exclusion for one or more key raw materials, may
adversely affect our ability to continue our business as currently conducted. In addition, a loss of one or more of any of these insurance policies, or a claim-related loss in excess of insured limits will adversely affect our ability to continue
our business as currently conducted.



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ITEM 2. DESCRIPTION OF PROPERTY



Our primary manufacturing facility is located in 33,222 square feet of leased space in Largo, Florida. We use this location
as our corporate offices, for Innovative Health Products manufacturing, research, development, packaging and warehousing of our products and for Breakthrough Engineered Nutritions administrative and sales office. We leased this facility
from an affiliate, Dynamic Health Products, Inc, pursuant to a ten year triple-net lease that was due to expire on September 30, 2009, at a monthly rental of approximately $18,333, subject to annual inflationary adjustments. On October 28, 2004, we
purchased this leased facility from our affiliate for $1.925 million based on an independent appraisal.



Our second manufacturing facility is located in 10,000 square feet of leased space in Largo, Florida. Belcher Pharmaceuticals uses this facility for the
manufacture and packaging of over-the-counter, pharmaceutical, generic drug and cosmetic products. This facility is registered with the United States Food and Drug Administration. We lease this facility from an unrelated third party pursuant to a
fiveyear lease currently at a monthly rental of approximately $5,500 subject to annual inflationary adjustments.



Our warehouse facilities for Belcher Pharmaceuticals and Innovatives manufacturing packaging components as well as a storage facility for
Breakthroughs finished goods is located in his 30,000 square feet of space located in Largo, Florida. It is leased from an unrelated third party pursuant to a fiveyear lease triple-net lease currently at a monthly rental of approximately
$16,500 subject to annual inflationary adjustments.



ITEM 3. LEGAL
PROCEEDINGS



In December 2004 and January 2005 five
securities class action lawsuits were filed in the Federal District Court, Southern District of New York against GeoPharma and certain of its officers, alleging violations of federal securities laws in connection with certain press releases issued
by the Company relating to Belcher Pharmaceuticals planned introduction of Mucotrol: Mat eVentures v. Kotha Sekharam and GeoPharma, Inc. (SDNY 04 Civ. 9463); Moshayedi v. GeoPharma, Inc., Jugal Taneja, Mihir Taneja, and Kotha Sekharam (SDNY 04
Civ. 9736); Sarno v. Mihir Taneja, Kotha Sekharam, and GeoPharma, Inc. (SDNY 04 Civ. 9975); Farwell v. Kotha Sekharam and GeoPharma, Inc. (SDNY 05 Civ. 188); and Taylor v. Kotha Sekharam and GeoPharma, Inc. (SDNY 05 Civ. 258). Plaintiffs, on behalf
of themselves and all others similarly situated, seek unspecified damages allegedly suffered in connection with their respective purchases and sales of the Companys securities during the Class period. On March 9, 2005 the Court consolidated
the actions and appointed lead plaintiff and lead counsel. On April 18, 2005 plaintiffs filed a Consolidated Amended Class Action Complaint. On June 6, 2005 defendants filed a Motion to Dismiss the action. Plaintiffs Opposition papers are due
to be filed by July 8, 2005, and defendants Reply papers are due to be filed by July 25, 2005. It is not possible to predict with certainty the ultimate outcome of these lawsuits. Although the Company has certain insurance, if these matters
are resolved unfavorably, they could have a material adverse effect on the Companys operating results or cash flows.



The company received a letter dated April 11, 2005 addressed to its Board of Directors, constituting a shareholder demand pursuant to Florida Statute Sec.
607.07401 from a San Diego law firm representing an alleged shareholder of GeoPharma, Inc. Such letter demanded that the company commence legal proceedings against each Board member and each officer of the company for alleged breaches of fiduciary
duty arising out of and/or evidenced by the same actions and circumstances involved in the class action referred to above. At its Board meeting of June 7, 2005, the Board of Directors appointed a committee of independent directors to investigate the
allegations outlined in such letter.



On April 11, 2003 the
company filed a lawsuit against Joseph Zappala, a member of the companys Board of Directors in the Sixth Judicial Circuit in and for Pinellas County, Florida. The lawsuit sought to rescind a purported agreement between the company and Mr.
Zappala, breach of a consulting agreement between the company and Mr. Zappala and related claims involving those agreements. Mr. Zappala denied the material allegations against him and has filed a counterclaim against the Company for breach of the
consulting agreement.



On April 20, 2004, the Company and Mr.
Zappala entered into an agreement (Settlement Agreement) pursuant to which each party expressly disclaimed any liability and each party released the other (and all related



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parties) from all claims, and liabilities arising from the Merger Agreement, the Consulting Agreement and/or the subject
matter of the Companys lawsuit against Mr. Zappala and Go2 (Lawsuit), and the parties agreed to dismiss the Lawsuit with prejudice. As provided by the Settlement Agreement: (i) Mr. Zappala transferred ownership of 500,000 shares of
the Companys common stock to the Company; (ii) the Consulting Agreement was terminated without further liability to either party; and (iii) Mr. Zappala agreed, that during his tenure as a Director of the Company, he would not sell his
remaining shares of Company common stock, unless another Director of the Company sells shares of Company common stock. The Company filed Form 8-K on April 26, 2004. On December 3, 2004, Mr. Zappala resigned from the Companys board of
directors.



From time to time we are subject to litigation
incidental to our business including possible product liability claims. Such claims, if successful, could exceed applicable insurance coverage.



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



None.



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PART II



ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES



Market For Securities



The Companys $.01 par value common stock, is listed on the Nasdaq SmallCap Market under the symbol GORX
and on the Boston Stock Exchange under the symbol GORX. The Company began its initial trading November 14, 2000; its high and low sales prices since that time, by quarter-ended date, are as follows:



|                   |  |      |       |     |   |     
|------------------ |  | ---- | ----- | --- | - | ----
|                   |  | High |       | Low
|December 31, 2000  |  | $    | 7.88  |     | $ | 1.82
|March 31, 2001     |  | $    | 4.38  |     | $ | 0.88
|June 30, 2001      |  | $    | 3.10  |     | $ | 0.92
|September 30, 2001 |  | $    | 2.22  |     | $ | 0.66
|December 31, 2001  |  | $    | 2.90  |     | $ | 0.77
|March 31, 2002     |  | $    | 1.11  |     | $ | 0.45
|June 30, 2002      |  | $    | 1.02  |     | $ | 0.55
|September 30, 2002 |  | $    | 1.60  |     | $ | 0.74
|December 31, 2002  |  | $    | 1.40  |     | $ | 0.67
|March 31, 2003     |  | $    | 1.05  |     | $ | 0.65
|June 30, 2003      |  | $    | 4.04  |     | $ | 0.79
|September 30, 2003 |  | $    | 4.60  |     | $ | 1.75
|December 31, 2003  |  | $    | 5.35  |     | $ | 2.60
|March 31, 2004     |  | $    | 7.88  |     | $ | 4.75
|June 30, 2004      |  | $    | 7.00  |     | $ | 4.10
|September 30, 2004 |  | $    | 5.89  |     | $ | 2.85
|December 31, 2004  |  | $    | 11.25 |     | $ | 3.36
|March 31, 2005     |  | $    | 5.45  |     | $ | 2.53



As of June 24, 2005,
there were approximately 1100 stockholders of record according to ADP and our stock transfer agent, Registrar and Transfer Company, Inc. located in Cranford, New Jersey.



Dividend Policy



As of March 31, 2005, our subsidiary, Belcher Capital Corporation paid $203,333 using a combination of cash and the Companys common stock, in
preferred dividends as related to the 6%, Series A, $5 million convertible preferred stock issued to Laurus Master Fund, Ltd. Dividends are due the first of every month. The 6% Series A, $5 million convertible preferred stock was issued on February
10, 2004 as a part of a private placement. During December 2004, the holders of the Series A preferred stock converted all of their outstanding shares in exchange for 800,000 shares of the Companys, $.01 par value, common stock.



As of March 31, 2005, we paid $318,429 using the Companys $.01 par
value common stock, in preferred dividends as related to the 6%, Series B, $5 million convertible preferred stock issued to MidSummer Capital and Omicron Capital Master Funds. Dividends are due the first day of the last month of every quarter. The
6% Series A, $5 million convertible preferred stock was issued during March 2004 as a part of a private placement.



We have not paid any cash dividends on our common stock and we currently intend to retain any future earnings to fund the development and growth of our
business. Any future determination to pay dividends on our common stock will depend upon our results of operations, financial condition and capital requirements, applicable restrictions under any credit facilities or other contractual arrangements
and such other factors deemed relevant by the Companys board of directors.



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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



The statements contained in this Report that are not historical are
forward-looking statements, including statements regarding the Companys expectations, intentions, beliefs or strategies regarding the future. Forward- looking statements include the Companys statements regarding liquidity, anticipated
cash needs and availability and anticipated expense levels. All forward-looking statements included in this Report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such
forward-looking statement. It is important to note that the Companys actual results could differ materially from those in such forward-looking statements. Additionally, the following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere in this Report. The discussion is based upon such financial statements which have been prepared in accordance with U.S. Generally Accepted Accounting Principles and the Standards of the
Public Company Accounting Oversight Board (United States).



SELECTED
QUARTERLY DATA



|                                                           |  |                              |           |   |                |   |           |               |  |   |               |   |  |   |           |  
|---------------------------------------------------------- |  | ---------------------------- | --------- | - | -------------- | - | --------- | ------------- |  | - | ------------- | - |  | - | --------- | -
|                                                           |  | Quarter ended: June 30, 2004 |           |   | Sept. 30, 2004 |   |           | Dec. 31, 2004 |  |   | Mar. 31, 2005 |  
|Net sales                                                  |  | $                            | 6,913,616 |   |                | $ | 6,039,352 |               |  | $ | 6,930,721     |   |  | $ | 8,346,551 |  
|Gross profit                                               |  | $                            | 1,627,377 |   |                | $ | 1,351,455 |               |  | $ | 964,586       |   |  | $ | 1,835,075 |  
|SGA                                                        |  | $                            | 1,197,917 |   |                | $ | 1,321,911 |               |  | $ | 1,538,271     |   |  | $ | 2,013,312 |  
|Depreciation & amortization                                |  | $                            | 144,975   |   |                | $ | 147,230   |               |  | $ | 156,038       |   |  | $ | 157,454   |  
|Other income/ (expense), net                               |  | $                            | (103,134  | ) |                | $ | 76,733    |               |  | $ | (104,825      | ) |  | $ | (53,749   | )
|Income tax benefit/ (expense)                              |  | $                            | (14,442   | ) |                | $ |          |               |  | $ |              |   |  | $ | 216,340   |  
|Preferred dividends                                        |  | $                            | 150,833   |   |                | $ | 170,095   |               |  | $ | 125,833       |   |  | $ | 75,000    |  
|Net income/(loss) available to common shareholders         |  | $                            | 16,076    |   |                | $ | (211,048  | )             |  | $ | (960,381      | ) |  | $ | (248,101  | )
|Basic earnings (loss) per share                            |  | $                            | 0.00      |   |                | $ | (0.03     | )             |  | $ | (0.12         | ) |  | $ | (0.02     | )
|Basic weighted average number of common shares outstanding |  |                              | 7,713,899 |   |                |   | 7,724,475 |               |  |   | 8,188,452     |   |  |   | 8,111,851 |  
|SELECTED QUARTERLY DATA                                    |  |                              |           |   |                |   |           |               |  |   |               |   |  |   |           |  
|                                                           |  | Quarter ended: June 30, 2003 |           |   | Sept. 30, 2003 |   |           | Dec. 31, 2003 |  |   | Mar. 31, 2004 |  
|Net sales                                                  |  | $                            | 4,106,206 |   |                | $ | 6,098,200 |               |  | $ | 5,920,586     |   |  | $ | 6,844,852 |  
|Gross profit                                               |  | $                            | 968,889   |   |                | $ | 1,816,600 |               |  | $ | 1,696,342     |   |  | $ | 1,475,661 |  
|SGA                                                        |  | $                            | 821,925   |   |                | $ | 1,079,756 |               |  | $ | 1,023,740     |   |  | $ | 1,385,290 |  
|Depreciation & amortization                                |  | $                            | 103,078   |   |                | $ | 103,463   |               |  | $ | 112,285       |   |  | $ | 128,756   |  
|Other income/ (expense), net                               |  | $                            | (11,526   | ) |                | $ | 49,031    |               |  | $ | (16,851       | ) |  | $ | 370,850   |  
|Income tax benefit/ (expense)                              |  | $                            |          |   |                | $ |          |               |  | $ | (69,204       | ) |  | $ | (242,596  | )
|Preferred dividends                                        |  | $                            |          |   |                | $ |          |               |  | $ | 13,500        |   |  | $ | 98,390    |  
|Net income/(loss) available to common shareholders         |  | $                            | 6,290     |   |                | $ | 656,342   |               |  | $ | 460,762       |   |  | $ | (116,275  | )
|Basic earnings (loss) per share                            |  | $                            | 0.00      |   |                | $ | 0.09      |               |  | $ | 0.06          |   |  | $ | (0.02     | )
|Basic weighted average number of common shares outstanding |  |                              | 7,569,674 |   |                |   | 7,572,681 |               |  |   | 7,654,922     |   |  |   | 7,682,258 |  



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Managements Discussion and Analysis of Financial Condition and Results of Operations



We derive our revenues from developing, manufacturing and distributing a
wide variety of cosmetics, over-the-counter, pharmaceutical and generic drugs, and prescription and non-prescription products. We also derive revenues from the distribution of our branded product lines, CarbSlim, Lean Protein and from our branded
dietary supplement product lines that this year include Oxylene. Revenues are billed and recognized as product is produced and shipped, net of discounts, allowances, returns and credits. In addition, we derive revenues from the services provided in
connection with pharmacy benefit management. Service revenues are billed and recognized once the service has been provided. The PBMs revenues are comprised of amounts billed and recognized based on the number of eligible plan members enrolled
in the HMO insurance programs, plan member claims caused by the fulfillment of an eligible HMO members drug prescription and related administration costs for pharmacys fulfilling drug prescriptions for the number of members and the
number of claims for the period.



Cost of goods sold is
comprised of direct manufacturing and manufacturing and distribution material product costs, contracted service fees, direct personnel compensation and other statutory benefits and indirect costs relating to labor to support product manufacture,
distribution and the warehousing of production and other manufacturing overhead. In addition, for the distribution segment, the cost of all free goods for the purpose of product introduction or other incentive-based product costs are also charged.
The PBM cost of sales amounts recognized represent the direct and indirect costs of the prescription drug claims arising from the pharmacys fulfillment of HMO member drug prescriptions that were filled, completed and received by eligible HMO
insurance plan members for the period.



Research and
development expenses that benefit us and that benefit our customers are charged against either cost of goods sold or included within selling, general and administrative expenses as incurred dependent upon whether the R&D relates to direct
product materials expended, direct laboratory and manufacturing production costs or whether it relates to indirect or more facility and administrative type costs representing indirect salaries.



Selling, general and administrative expenses include management and general
office salaries, advertising and promotional expenses, depreciation and amortization, insurance expenses, legal and accounting costs, sales and marketing and other indirect operating costs.



Interest expense, net, consists primarily of interest expense associated with
borrowings to finance capital equipment expenditures and other working capital needs as partially offset by interest income earned on our funds held at banks.



Other income (expense) net, consists primarily of amounts received from an insured loss that occurred on August 27, 2002, where a commercial building
where one of our manufacturing facilities is located, was involved in a fire. Although this fire was not in our leased space, nor was the fire caused by the Company or any of its related parties, our facility was exposed to and incurred smoke and
water damage. The company that had the fire is not a related party. Innovative has adequate insurance coverage that covers replacement cost of the facilities contents which includes inventory and leasehold improvements, in addition to business
interruption insurance which covers lost profits based on certain coverage formulas and policy limits. As of March 31, 2005, the final financial assessment has not been made by our Company or by our insurance company.



Upon consummation of the merger of the Florida corporation, Go2Pharmacy, Inc.
and the Delaware corporation, Go2Pharmacy.com, Inc. on November 7, 2000, the Company charged $23,625,000 to marketing expense representing the issuance of 3,000,000 shares of the Companys stock at the initial public offering price of $7.875.
This was reflected in the Companys financial statements as a noncash, nonrecurring marketing expense and was included in the operations of the Company for the year ended March 31, 2001 and is carried forward in subsequent years as a charge
within shareholders equity.



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##### Table of Contents

Results of Operations



The following table sets forth selected consolidated statements of operations data as a percentage of revenues for the periods indicated.



|                                                                                       |  |                      |    |  |       |   
|-------------------------------------------------------------------------------------- |  | -------------------- | -- |  | ----- | --
|                                                                                       |  | Year Ended March 31, |   
|                                                                                       |  | 2005                 |    |  | 2004  |   
|Revenues                                                                               |  | 100.0                | %  |  | 100.0 | % 
|Cost of goods sold (excluding depreciation and amortization)                           |  | 79.5                 | %  |  | 74.1  | % 
|                                                                                       |  |                      |    |  |       |   
|Gross profit                                                                           |  | 20.5                 | %  |  | 25.9  | % 
|                                                                                       |  |                      |    |  |       |   
|Selling, general and administrative expenses (including depreciation and amortization) |  | 23.7                 | %  |  | 20.7  | % 
|                                                                                       |  |                      |    |  |       |   
|Other income (expense), net                                                            |  | (.7                  | )% |  | 1.0   | % 
|                                                                                       |  |                      |    |  |       |   
|Income (loss) before income taxes and preferred dividends                              |  | (3.8                 | )% |  | 6.2   | % 
|                                                                                       |  |                      |    |  |       |   
|Income tax (expense) / benefit                                                         |  | .1                   | %  |  | (1.4  | )%
|                                                                                       |  |                      |    |  |       |   
|Preferred dividends                                                                    |  | 1.9                  | %  |  | 0.5   | % 
|                                                                                       |  |                      |    |  |       |   
|Net income (loss)                                                                      |  | (5.0                 | )% |  | 4.4   | % 
|                                                                                       |  |                      |    |  |       |   



Fiscal Year Ended March 31, 2005,
Compared to Fiscal Year Ended March 31, 2004



Revenues. Total consolidated revenues increased approximately $5.3 million, or 22.9%, to approximately $28,230,000 for the fiscal year ended March 31, 2005, as compared to approximately $22,970,000 for the fiscal year
ended March 31, 2004.



Manufacturing revenues decreased
approximately $2,200,000, or 15.8%, to approximately $11,685,000 for the fiscal year ended March 31, 2005, as compared to approximately $13,884,000 for the corresponding period. The decrease was primarily due to the prior years sales to
customers of weight loss and energy products containing ephedra. The FDA banned ephedra sales effective April 2004. The Company and its customers are continuing to reformulate their products to meet FDA guidelines. Overall, manufacturing capacities
and capabilities continue to be increased as we have added additional more advanced, higher speed production equipment.



Distribution revenues increased approximately $956,000 or 31.4% to approximately $4,004,000 for the fiscal year ended March 31, 2005, as compared to
$3,048,000 for the fiscal year ended March 31, 2004. Overall, sales prices vary for all product lines dependent upon a customers individual as well as aggregate purchase volumes in addition to the number of distribution points of sale and
advertising dollars projected to be spent. For the fiscal year ended March 31, 2005, 53,552 cases of CarbSlim were sold versus 40,747 cases sold for the fiscal year ended March 31, 2004, a 31.4% case-sale increase. The increase in case sales are due
to the increase in the number of national and regional distribution points in addition to an increase in the number of CarbSlim SKUs. CarbSlim is comprised of ten SKUs, two sizes of: peanut butter crunch, chocolate caramel crunch, mint, peanut
butter cookie dough, chocolate chip cookie dough, during the fiscal year end March 31, 2005 versus four SKUs, two sizes of peanut butter crunch and two sizes of chocolate caramel crunch during March 31, 2004. The Lean Protein Bites product line is
comprised of four SKUs, milk chocolate, white chocolate, peanut butter and the newly introduced lemon. For the fiscal year ended 2005, 7,534 total cases were sold as compared to the fiscal year ended 2004, where 22,271 total cases were sold, a
case-sale decline of approximately 66.2%. The decline in sales was primarily due to two factors; certain distributors and retailers chose to carry our new product line, CarbSlim versus the Lean Protein product line in addition to the Company
spending higher advertising dollars on the introduction of the CarbSlim line. The Thermo ZXE product line was comprised of five SKUs, cranapple, grape, lemonade, fruit punch and tangerine where 4,396 cases were sold during the fiscal year ended 2004
with no cases sold during the fiscal year ended March 31, 2005. The decline in the sales volumes of Thermo ZXE was attributable to state-enforced governmental regulatory issues for this energy-based formulas main ingredient, Ma Huang or
Ephedra.



Pharmacy benefit management revenues increased 92.7%
or approximately $5,501,000 to $11,438,000 for the fiscal year ended March 31, 2005, as compared to $5,936,000 for the fiscal year ended March 31, 2004. The increase results from the increase in overall membership and prescriptions filled in the two
health plans as compared to the fiscal year ended March 31, 2004. Revenue per member remained constant for both of the fiscal years.



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Pharmaceutical revenues increased to approximately $1,102,000 for the fiscal year ended March 31, 2005 as
compared to $101,000 sales for this business segment for the fiscal year ended March 31, 2004. The pharmaceutical business segment generated its revenues based on over-the-counter sales of $602,000 in addition to a $500,000 licensing fee received
from a European company for licensing our brand of Levothyroxine as compared to $101,000 of fiscal 2004 sales as generated from the sales of customers repackaged pharmaceuticals procured from a unrelated third party manufacturer in addition to
revenue derived from a $50,000 licensing fee.



Gross
Profit. Total gross profit decreased approximately $179,000 or 3.0%, to $5,778,000 for the fiscal year ended March 31, 2005, as compared to $5,957,000 for the fiscal year ended March 31, 2004. Total gross margins decreased to 20.5%
for the fiscal year ended March 31, 2005 from 25.9% for the fiscal year ended March 31, 2004.



Manufacturing gross profit decreased approximately $849,000, or 19.4%, to approximately $3,517,000 for the fiscal year ended March 31, 2005, as compared to approximately $4,366,000 in the corresponding period in 2004.
For the fiscal year ended March 31, 2005 manufacturing gross margin decreased to 30.1%, from 31.7% in the corresponding period in 2004. Sales and gross profits have decreased proportionately in addition to higher costs due to increases in resin and
plastic-based packaging components as well as increased labor costs. Current increases in these type of labor-based direct overhead costs are in line with the Companys planned improvements surrounding enhanced standard operating and
manufacturing procedures in both its manufacturing plants. The Company expects that these improvements will continue to increase the Companys visibility in the marketplaces that the Company competes in for new and expanded business for the
upcoming fiscal year.



Distribution gross profits increased
1.2% or approximately $15,000 to approximately $1,210,000 for the fiscal year ended March 31, 2005, as compared to approximately $1,195,000 for the fiscal year ended March 31, 2004, with distribution gross margins decreasing to 30.2% for the fiscal
year ended March 31, 2005 as compared to 39.2% for the fiscal year ended March 31, 2004. Although gross profits increased, gross margins decreased as related to increases in sales volumes and where the value of free goods were included based on the
decreased demand for low-carb products, like CarbSlim, as partially offset by new introductions and sales for Oxylene, its own branded dietary supplement product line that has a higher unit sales price and higher profit margin.



Pharmacy Benefit Management gross profit decreased approximately $57,000 or
18.1% to approximately $260,000 for the fiscal year ended March 31, 2005, as compared to approximately $317,000 for the fiscal year ended March 31, 2004. Pharmacy benefit management gross margin was 5.4% for the fiscal year ended March 31, 2004 as
compared to 2.3% for the fiscal year ended March 31, 2005. Gross profit and margin decreased based on continued industry pressure on controlling per member and per claim revenues as they continue to decline coupled with growing membership, rising
number of claims in addition to the rising prescription costs.



Pharmaceutical gross profits increased $712,000 to approximately $791,000 for the fiscal year ended March 31, 2005 as compared to $79,000 in gross profits for this business segment for the fiscal year ended March 31, 2004. Pharmaceutical
gross margins were 71.8% for the year ended 2005 as compared to 78.0% for the fiscal year ended March 31, 2004. This was based primarily on the sale of repackaged pharmaceuticals with a 2005 gross margin of 51.6% as compared to the 2004 gross margin
of 43% in addition to the licensing fee gross margins for both years of 100%. The number of manufacturing and laboratory personnel increased from the 2004 fiscal year to the 2005 fiscal year in accordance with our strategic business plans related to
generic drug manufacturing and distribution.



Selling,
General and Administrative Expenses. Selling, general and administrative (SGA) expenses consist of advertising and promotional expenses; insurance costs, research and development costs associated with the generic drug segment,
personnel costs related to general management functions, finance, accounting and information systems, payroll expenses and sales commissions; professional fees related to legal, audit and tax matters; and depreciation and amortization expenses.
Selling, general and administrative expenses, inclusive of depreciation and amortization, increased approximately $1,919,000, or 40.3%, to approximately $6,677,000 for the fiscal year ended March 31, 2005, as compared to approximately $4,758,000 in
the corresponding period. The increase is primarily attributable to additional advertising and promotional expenses associated with promoting our distribution segment and related branded product lines, including CarbSlim, Lean Protein and Oxylene.
All insurance costs have increased, including health, general and product liability insurances; health insurance increased primarily due to an increase in the cost per employee and the number of employees;



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in addition to external insurance market influences surrounding higher premium costs for all of the Companys
business segments based on our increasing sales revenues. Officer and employee salaries have increased in total based on increases in the number of personnel in addition to merit increases. Rents increased based on the additional warehousing and
distribution square footage required with growing manufacturing and distribution segments. As a percentage of sales, selling, general and administrative expenses increased to 23.7% for the fiscal year ended March 31, 2005 from 20.7% in the
corresponding period in 2004.



Other Income (Expense),
Net. For the fiscal year ended March 31, 2005, the balance in other income/(expense), net, changed from other income, net in 2004 to other expense, net in 2005 changing approximately $391,000 or 168.8%, to $(159,000) as compared to $231,000
for the corresponding 2004 period. For the fiscal year ended 2005, the $159,000 was primarily comprised of $465,000 of interest expense as partially offset by other income of $306,000. Interest expense, net of interest income, increased
approximately $305,000 to approximately $465,000 for the fiscal year ended March 31, 2005, from approximately $160,000 for the fiscal year ended March 31, 2004. The $305,000 net increase in interest expense was primarily due to the $5 million 6%
convertible three-year term note closed during January 2004. Approximately 50% of the Companys interest expense relates to the non-cash amortization of the debt discount based on the Black-Scholes valuation method applied to the three-year
term notes warrants. Interest income for the fiscal year ended March 31, 2005 was approximately $106,000 as compared to approximately $28,000 for the fiscal year ended March 31, 2004. The increase in interest income was due to the higher
dollar amounts held in interest earning accounts at banks based with the source of the funds primarily being derived from our private placement funding received during February and March 2004. Of the $306,000 of other income, $175,000 represents the
Companys current minimum known estimatable and measurable business interruption loss amount that will be received upon full settlement of the insurance claim as of the date of this public filing with the Securities and Exchange Commission;
however, as of March 31, 2005 through the date of the public filing, the final financial assessment has not been made by our Company or by our insurance company.



Income Taxes. At March 31, 2005, the Company had recorded $202,000 of deferred income tax benefit as compared
to an income tax expense of $(312,800) for the fiscal year ended March 31, 2004. The deferred tax benefit was calculated based on temporary and permanent differences using the effective tax rates applied to our net loss amounts this fiscal year,
changes in information gained related to underlying assumptions about the future operations of the Company as well as the utilization of available operating loss carryforwards.



Management believes that there was no material effect on operations or the financial condition of the Company as a result of
inflation as of and for the year ended March 31, 2005. Management also believes that its business is not seasonal, however significant promotional activities can have a direct impact on sales volume in any given quarter.



Financial Condition, Liquidity and Capital Resources



The Company has financed its operations through available borrowings under its credit line
facilities, loans from within the Company, cash provided from operations and receipt of $15 million of gross private placement proceeds based on a $10 million 6% convertible preferred stock private placement together with a total of 412,500 warrants
at exercise prices ranging from $6.29 to $8.51 exercisable through February 2011 and a $5 million convertible 6%, three-year term debt together with a total of 150,000 warrants at exercise prices ranging from $7.34 to $8.62 exercisable through
January 2011 closed during the months of January 2004 through March 2004. Approximately $4,800,000 of the proceeds from the sale of the 6% convertible preferred stock were placed in a restricted account and pledged as collateral against any portion
of such stock which has not been converted. During December 2004, the holders of the $5 million Series A convertible preferred stock converted all of their preferred shares outstanding in exchange for 800,000 of the Companys $.01 par value
common stock thus releasing the restrictions surrounding the $4.8 million cash received January 2004.



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As a direct result of issuing warrants with the $5 million 6% convertible debt in January 2004, the
Company recorded $932,365 discount on the three-year term note based on applying a Black-Scholes valuation which lowered the gross amount of the note payable with the $932,365 offset recorded within Additional Paid in Capital (APIC). The
$932,365 discount will be straight-line amortized to interest expense over the three-year life of the note. As a direct result of issuing warrants with the $10 million 6% convertible preferred stock in February and March, the Company recorded a
total of $3,580,963 discount on the $10 million 6% convertible preferred stock based on applying a Black-Scholes valuation which resulted in a net reclassification of $3,580,963 lowering retained earnings and increasing APIC. All Black-Scholes
valuations referenced and related entries are noncash transactions. The Company had working capital of approximately $10,571,459 at March 31, 2005, inclusive of current portion of long-term obligations, as compared to a working capital of
approximately $16,318,070 at March 31, 2004.



During March
2005, the Company negotiated with an international media company to exchange excess CarbSlim inventory for future credit for use on custom print, radio and television advertising. Based on the Companys expansion into its own branded consumer
product lines coupled with the decline in customer demand for low-carb products, this excess inventory was able to be redeemed with the media credits having a three-year life. The media credits were recorded based on the net cost of CarbSlim
inventory that was exchanged.



Net cash used by operating
activities was $(2,608,773) for the fiscal year ended March 31, 2005, as compared to net cash provided by operating activities of $469,493 for the fiscal year ended March 31, 2004. Cash used of $2,608,773 was primarily attributable to a net loss
before preferred dividends of $(867,250) based on consolidated gross profits decreases of approximately $179,000, decreases in trade accounts payable representing net payments of approximately $303,000, changes in deferred taxes of $216,000,
increased trade accounts receivable of approximately $632,000 based on increases in credit sales, and increases in inventory, including media credit purchases, of approximately $1.3 million in order to meet manufacturing and distribution open
orders, prepaid expense payments, primarily for insurance premiums, represented approximately $181,000 and other asset purchases related to ANDAs of approximately $115,000 as partially offset by depreciation and amortization expense totaling
$605,000 for the 2005 fiscal year, decreases in affiliate-trade accounts receivable, net, of approximately $264,000 based on net payments received on account and increases of $263,000 in accrued expenses surrounding operational expenses incurred.



Net cash used in investing activities was $(3,120,038) for the
fiscal year ended March 31, 2005 as compared to the net cash used of $(770,429) for the fiscal year ended March 31, 2004. Investing activities represented the cash purchase of our corporate and manufacturing facility for $1.925 million during
October 2004, R&D related purchases and upgrades of plant and laboratory equipment for generic drug manufacturing and distribution plant, Belcher Pharmaceuticals, of $719,606 with other equipment and machinery purchases totalling approximately
$475,000.



Net cash used by financing activities was
$(1,005,943) for the fiscal year ended March 31, 2005 as compared to cash provided by financing activities of $13,049,690 for the fiscal year ended March 31, 2004. The 2004 financing activity cash provided of $13,049,690 was primarily attributable
to $15 million private placement and convertible debt funding. The $(1,005,943) of cash used was comprised of payments of long-term obligations of $798,000, purchase of 152,900 common shares of treasury stock for $696,000, $152,500 of preferred
stock dividends, as partially offset by proceeds from stock option exercises of $278,000 and $308,000 related to the amortization of the convertible debt discount and proceeds from issuance of debt obligations of $60,000.



Management believes that cash expected to be generated from operations,
current cash reserves, and existing financial arrangements will be sufficient for the Company to meet its capital expenditures and working capital needs for its operations as presently conducted. The Companys future liquidity and cash
requirements will depend on a wide range of factors, including the level of business in existing operations, expansion of facilities, expected results from recent procedural changes surrounding the acceptance of manufacturing sales orders, and
possible acquisitions. In particular, we have added additional manufacturing lines and have purchased additional fully automated manufacturing equipment to meet our present and future growth. Our plans may require the leasing of additional
facilities and/or the leasing or purchase of additional equipment in the future to accommodate further expansion of our manufacturing, warehousing and related storage needs. If cash flows from operations, current cash reserves and available credit
facilities are not sufficient, it will be necessary for the Company to seek additional financing. There can be no assurance that such financing would be available in amounts and on terms acceptable to the Company.



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ITEM 7. FINANCIAL STATEMENTS



All financial information required by this Item is attached hereto beginning on Page 42.



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE



None.



ITEM 8A. CONTROLS AND PROCEDURES



Evaluation of disclosure controls and procedures. An evaluation was
performed under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure procedures. Based on
managements evaluation as of the end of the period covered by this Annual Report, our principal executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) were sufficiently effective to ensure that the information required to be disclosed by us in the reports that we file under the Exchange Act is gathered,
analyzed and disclosed with adequate timeliness, accuracy and completeness.



Changes in internal controls. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to
above, nor were there any significant deficiencies or material weaknesses in our internal controls. Accordingly, no corrective actions were required or undertaken.



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PART III



ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Our executive officers, directors and key employees and their ages and their respective positions as of March 31, 2005 were as follows:



|                        |  |     |  |                                                     
|----------------------- |  | --- |  | ----------------------------------------------------
|Name                    |  | Age |  | Position                                            
|Jugal K. Taneja         |  | 61  |  | Chairman of the Board and Director                  
|Mihir K. Taneja         |  | 30  |  | Chief Executive Officer, Secretary and Director     
|Kotha S. Sekharam, Ph.D |  | 54  |  | President and Director                              
|Carol Dore-Falcone      |  | 40  |  | Vice President, Chief Financial Officer and Director
|Barry H. Dash, Ph.D     |  | 73  |  | Director                                            
|Shan Shikarpuri         |  | 54  |  | Director                                            
|George L. Stuart, Jr.   |  | 59  |  | Director                                            



MIHIR K. TANEJA has
served as our Chief Executive Officer, Secretary and a Director since November 1999. Prior to this he served as our Vice President of Marketing since June 1998. He also served as Dynamics Vice President of Marketing from July 1996 to November
1999. Prior to joining Dynamic, Mr. Taneja served as a market and financial analyst for Bancapital Corporation from 1994 to 1996. Mr. Taneja holds Bachelor of Arts degrees in finance and marketing from the University of Miami. Mr. Taneja is the son
of Jugal K. Taneja, the Companys Chairman of the Board.



DR. KOTHA S. SEKHARAM currently serves as our President and a Director. Prior to this, Dr. Sekharam was a founder and director of Nu-Wave Health Products, Inc., a developer and manufacturer of over-the-counter analgesic roll-ons and creams,
dietary supplements and health and beauty care products. Dynamic acquired 80% of Nu-Wave in September 1995 and the additional 20% of Nu-Wave in July 1997. Dr. Sekharam served as President of Nu-Wave from June 1996 through March 1998 and Vice
President of Nu-Wave from September 1995 until June 1996. From 1992 until September 1995, he served as Director of Research and Development of Energy Factors, Inc., our predecessor. He has served as President of Dynamic since June 1996 and served as
our President since June 1998. Presently, he continues to serve as our President and as President of Dynamic. Dr. Sekharam holds a Ph.D. in food sciences from Central Food Technological Research Institute, Mysore, India, a United Nations university
center and has been employed in the food and health industry since 1982.



CAROL DORE-FALCONE has served as our Vice President and Chief Financial Officer since August 1999. She has also served as Vice President and Chief Financial Officer of Dynamic from August 1999 until November 7, 2000.
During March 2005, she was appointed as a board of director. Prior to joining us, Ms. Dore-Falcone was employed as an audit manager with Deloitte & Touche, Certified Public Accountants, where she had served in various capacities since January
1990. Ms. Dore-Falcone is a certified public accountant and holds a B.S. degree in Accounting from Montclair State University and an M.B.A. from the University of Tampa. Effective March 28, 2005 Ms. Dore-Falcone was nominated to the Companys
board of directors.



JUGAL K. TANEJA has served as our Chairman
of the Board since June 1998. Until June 1998, he also served as Chief Executive Officer for Dynamic. From November 1991 until December 1998, he also served as the Chairman of the Board and Chief Executive Officer of NuMed Home Health Care, Inc., a
provider of home health care services and contract staffing of health care employees. From June 1993 until March 1998, he was also the Chief Executive Officer of National Diagnostics, Inc., a provider of medical diagnostic services. NuMed Home
Health Care, Inc and National Diagnostics, Inc., are publicly traded companies. Since April 1996, Mr. Taneja is also a Director of DrugMax, Inc., a public company operating as an online business to business wholesaler and retailer of
pharmaceuticals, over-the-counter drugs, health and beauty care products and private label dietary supplements. Although he devotes substantial time to our operations and business, Mr. Taneja does not devote his full time to our business. Mr. Taneja
is the father of Mihir K. Taneja, our chief executive officer.



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GEORGE L. STUART, JR. has served as a Director since March 2000. Mr. Stuart is the President of George
Stuart & Associates, a management consulting firm. In addition, Mr. Stuart was the Chief Executive Officer of DoctorSurf.com, Inc. from December 1, 1999 to July 2000. From July 1997 to December 1999, Mr. Stuart was Vice President and a Director
of Leapfrog Smart Products, Inc., a high-technology smart card development company in Orlando, Florida. From January 1995 to July 1997, Mr. Stuart was a partner in Stuart/Cloud Enterprises, Ltd. A government relations business development and
organizational consulting firm in Tallahassee, Florida. Mr. Stuart was a Florida State Senator from 1978 through 1990. From January 1991 to January 1995, Mr. Stuart served as the Secretary and Chief Executive Officer of the State of Floridas
Department of Business and Professional Regulation. Mr. Stuart holds a B.A. degree in Economics from the University of Florida and an M.B.A. from Harvard Universitys Graduate School of Business.



SHAN SHIKARPURI has served as a Director since November 2003. In addition, he
is the founding principal of his Palm Harbor accounting firm, Shan Shikarpuri & Associates, P.A., which has been doing business in Florida for the past twenty years. Shan earned three degrees from Florida State University, has taught accounting
and income tax law at the University of South Florida and the University of Virginia, and had trained auditors at the Office of Inspectors General in Washington, D.C. He is a past president of the Palm Harbor Chamber of Commerce, is active in many
civic organizations and is a frequent speaker on tax and accounting issues. Shan is a member of the Tampa Bay Regional Planning Council representing Pinellas County. He has served on the board of directors of the Sun Coast Chapter of the Florida
Institute of CPAs and is currently on the board of numerous privately held corporations and not-for-profit organizations in the Tampa Bay area.



DR. BARRY H. DASH has served as a Director since January 2004. In addition, Dr. Dash has been President of Dash Associates, LLC since 1995, where he
provides consulting to the pharmaceutical and health and beauty aid industries. Prior to this he served 31 years as Senior Vice President of American Home Products Corporation, Whitehall-Robins Healthcare, now Wyeth; and served as a professor at
Columbia University College of Pharmaceutical Sciences from 1956-1962. Dr. Dash holds a Ph.D. in Medicinal Chemistry and Pharmaceutics from the University of Florida, MS in Pharmacy and a BS in Pharmaceutical Sciences both from Columbia University.



Compensation of Directors



We reimburse each of our directors for reasonable expenses incurred in
attending meetings of our Board of Directors. Each non-employee director receives compensation in the form of a fee of $2,000 per quarter. Additionally, all directors are eligible to receive stock options under the Companys 1999 Stock Option
Plan, and directors who are also employees of the Company, or a subsidiary of the Company, are eligible to receive Incentive Stock Options when and as approved by the Board of Directors. During April 2001, the Company established a policy providing
that all directors will receive 25,000 stock options per fiscal year if they attend at least two meetings in such fiscal year. Additionally, each member of a committee of the Board of Directors shall receive 5,000 additional stock options per fiscal
year and the Chairman of the Board shall receive 10,000 stock options per fiscal year. The options granted under this policy to directors are exercisable in accordance with a three-year vesting schedule from date of grant, provided that should any
director resign prior to the end of the relevant term of office, the options granted for during such fiscal term shall be immediately forfeited. During the fiscal year ended March 31, 2004 and 2005, 230,000 and 460,000 options, respectively, were
granted to the directors.



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Committees of the Board of Directors



The Board of Directors have formed the following committees with each of its respective members listed: Audit Committee
consists of Mssrs. Stuart, Jr., and Shikarpuri, with Mssr. Shikarpuri representing the audit committee financial expert, Nominating Committee: Mssrs. Dash, Stuart and Shikarpuri, Executive Committee: Mssrs. Dash, Sekharam and M. Taneja with the
compensation committee consisting of Mssrs. Dash, Stuart and Dore-Falcone.



Section 16(a) Beneficial Ownership Reporting Compliance



Based solely upon a review of Forms 3, 4 and 5, and amendments thereto, furnished to the Company during fiscal year 2004 and 2005, the Company is not aware of any director, officer or beneficial owner of more than ten
percent of the Companys Common Stock that failed to file reports required by Section 16(a) of the Securities Exchange Act of 1934 on a timely basis during fiscal year 2005.



ITEM 10. EXECUTIVE COMPENSATION



The following table sets forth certain summary information with respect to the compensation paid to the Companys Chief Executive Officer, President
and Chief Financial Officer for services rendered in all capacities to the Company for the fiscal periods ended March 31, 2005, 2004 and 2003. Other than as listed below, the Company had no executive officers whose total annual salary and bonus
exceeded $100,000 for that fiscal year:



SUMMARY COMPENSATION
TABLE



|                                                               |  |                     |  |            |                       |           |       |                               |     |                                 |               |                                                    |                      |                  |     |                            |    
|-------------------------------------------------------------- |  | ------------------- |  | ---------- | --------------------- | --------- | ----- | ----------------------------- | --- | ------------------------------- | ------------- | -------------------------------------------------- | -------------------- | ---------------- | --- | -------------------------- | ---
|                                                               |  | Annual Compensation |  |            |                       |           |       | Long-Term Compensation       
|                                                               |  |                     |  |            |                       |           |       |                               |     |                                 |               | Awards                                             |                      |                  |     | Payouts                   
|Name and Principal
Position                                    |  | Year                |  | Salary ($) |                       | Bonus ($) |       | Other Annual Compensation ($) |     | Restricted Stock Award (shares) |               | Securities Underlying Options / SARs (#) (1)(2)(3) |                      | LTIP Payouts ($) |     | All Other Compensation ($)
|Mihir K. Taneja, Chief Executive Officer                       |  | 200520042003        |  | $$$        | 176,394161,473158,917 |           |    |                               |  |                                 | 40,00040,000 |                                                    | 225,00025,000125,000 |                  |  |                            | 
|                                                               |  |                     |  |            |                       |           |       |                              
|Kotha S. Sekharam, Ph.D., President                            |  | 200520042003        |  | $$$        | 134,25499,16091,951   |           |    |                               |  |                                 | 30,00025,000 |                                                    | 175,00025,00075,000  |                  |  |                            | 
|                                                               |  |                     |  |            |                       |           |       |                              
|Carol Dore-Falcone, Vice President and Chief Financial Officer |  | 200520042003        |  | $$$        | 134,369120,560118,149 |           |    |                               |  |                                 | 20,00020,000 |                                                    | 100,00050,000       |                  |  |                            | 

---

|(1) | On September 1, 2004, each of the officers were granted restricted common stock and common stock options by action of the Board of Directors. The stock options vest prorata over a
three year period. The exercise price of the options for the September 1, 2004 grant was $4.55 as based on the closing price of the Companys stock on the Nasdaq SmallCap Market the business date of the grant.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | On June 20, 2002, each of the officers were granted common stock options by action of the Board of Directors. The options vest prorata over a three year period. The exercise price
of the options for the June 20, 2002 grant was $0.85 as based on the closing price of the Companys stock on the Nasdaq SmallCap Market the business date of the grant.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | For Mssrs. M. Taneja and Sekharam, amounts presented for stock option awards include officer and board member option grants. April 1, 2002, 2003 and 2004 as a part of a board of
directors compensation, Mssrs. M. Taneja and Sekharam received 25,000 options. The prices of the stock option grants at April 1, 2002 were equal to a price of $0.80 and at April 1, 2003, were equal to $0.80 and April 1, 2004 were equal to
$6.15 based on the closing price of the Companys stock on the Nasdaq SmallCap Market the business date of the grant and vest over a three-year period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Employment Arrangements



During February 2004, effective April 1, 2004, the Company renewed all officers three-year employment agreements with Mihir K. Taneja, Chief
Executive Officer, Kotha S. Sekharam, President, and Carol Dore-Falcone, Vice President and Chief Financial Officer, at annual salaries of $175,000, $135,000 and $130,000, plus benefits, respectively. In addition, the Company renewed the consulting
agreement with the Chairman of the Board, Jugal K. Taneja, pursuant to which he is paid an annual fee of $200,000.



Officers and employees are permitted to participate in our benefits and employee benefit plans that may be in effect from time to time, to the extent
eligible, and each employee is entitled to receive an annual bonus as determined in the sole discretion of our Board of Directors based on the Boards evaluation of the officers or employees performance as well as the Companys
financial performance.



Employee and Non-Employee Stock Option Plans



1999 Employee Stock Option Plan



On September 30, 1999, our Board of Directors and our sole stockholder at
that time adopted our 1999 Stock Option Plan. The 1999 plan will enable us to attract and retain top-quality employees, officers, directors and consultants and to provide such employees, officers, directors and consultants with an incentive to
enhance stockholder return. The 1999 plan will allow the grant of options to purchase a maximum aggregate of 1,000,000 shares of common stock to our officers, directors, or other key employees and consultants. The plan was amended on May 18, 2004
based on shareholder approval, increasing the number of shares to a total of 1,500,000 shares of common stock.



The Board of Directors or a committee of the Board may administer the 1999 plan, and has complete discretion to select the optionees and terms and
conditions of each option, subject to the provisions of the 1999 plan. Options granted under the 1999 plan may be incentive stock options as defined in Section 411 of the Internal Revenue Code of 1986 or so-called nonqualified options.



The exercise price of incentive stock options may not be less
than 100% of the fair market value of the common stock as of the date of grant (110% of the fair market value if the grant is to an employee who owns more than 10% of the total combined voting power of all classes of capital stock of the company).
The Internal Revenue Code currently limits to $100,000 the aggregate value of common stock that may be acquired in any one year pursuant to incentive stock options under the 1999 plan or any other option plan adopted by a company.



Nonqualified options may be granted under the 1999 plan at an exercise price
of not less than 100% of the fair market value of the common stock on the date of grant. Nonqualified options also may be granted without regard to any restriction on the amount of common stock that may be acquired pursuant to such options in any
one year.



Subject to the limitations contained in the 1999
plan, options become exercisable at such times and in such installments (but not less than 20% per year) as the Committee shall provide in the terms of each individual stock option agreement. The Committee must also provide in the terms of each
stock option agreement when the option expires and becomes unexercisable, and may also provide the option expires immediately upon termination of employment for any reason. No option held by directors, executive officers or other persons subject to
Section 16 of the Securities Exchange Act of 1934 may be exercised during the first six months after such option is granted.



Unless otherwise provided in the applicable stock option agreement, upon termination of employment of an optionee, all options that were then exercisable
would terminate three months (twelve months in the case of termination by reason of death or disability) following termination of employment. Any options which were not fully vested and exercisable on the date of such termination would immediately
be cancelled concurrently with the termination of employment.



Options granted under the 1999 plan may not be exercised more than ten years after the grant (five years after the grant if the grant is an incentive stock option to an employee who owns more than 10% of the total combined voting power of
all classes of capital stock of the company). Options granted under the 1999 plan are not



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transferable and may be exercised only by the respective grantees during their lifetime or by their heirs, executors or
administrators in the event of death. Under the 1999 plan, shares subject to cancelled or terminated options are reserved for subsequently granted options. The number of options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock splits or stock dividends. The 1999 plan is effective for ten years, unless sooner terminated or suspended.



Employees



The following represents the employees common stock options outstanding as of March 31, 2005:



|                                           |  |         |  
|------------------------------------------ |  | ------- | -
|Option balance outstanding, March 31, 2004 |  | 507,219 |  
|Granted                                    |  | 200,000 |  
|Exercised                                  |  | (39,300 | )
|Forfeited                                  |  | (34,719 | )
|                                           |  |         |  
|Option balance outstanding, March 31, 2005 |  | 633,200 |  
|                                           |  |         |  



On September 1, 2004, the board
approved the grant of 200,000 options to Company employees. The exercise price of the granted options was $4.55 which was the closing price of the Companys stock. Forfeited options represent options granted to one or more employees of record
whose employment is terminated, voluntarily or involuntarily, and based on their termination date, such options were considered nonvested. As of March 31, 2005, of the 633,200 options outstanding, 351,134 options were vested with 282,066 options
being nonvested.



The following represents the employees
common stock options outstanding as of March 31, 2004:



|                                           |  |         |  
|------------------------------------------ |  | ------- | -
|Option balance outstanding, March 31, 2003 |  | 465,000 |  
|Granted                                    |  | 20,000  |  
|Exercised                                  |  | (27,781 | )
|Transfer in from Officer group             |  | 50,000  |  
|Forfeited                                  |  |        |  
|                                           |  |         |  
|Option balance outstanding, March 31, 2004 |  | 507,219 |  
|                                           |  |         |  



As of March 31, 2004, of the 507,219
options outstanding, 287,219 options were vested with 220,000 options being nonvested. 20,000 options were granted during the fiscal year ended March 31, 2004 at a price of $2.99 to one new middle management-level employee as a hiring incentive. The
$2.99 exercise price was the Nasdaq closing price on August 29, 2003, the date the employee accepted the position offered. Forfeited options represent options granted to one or more employees of record whose employment is terminated, voluntarily or
involuntarily, and based on their termination date, such options were considered nonvested. The 50,000 transfer in was a grant originally included in the June 2002 officers grant but was reclassified as an employee grant.



Officers



The following represents the officers common stock options outstanding as of March 31,2005:



|                                           |  |         |  
|------------------------------------------ |  | ------- | -
|Option balance outstanding, March 31, 2004 |  | 323,333 |  
|Granted                                    |  | 450,000 |  
|Exercised                                  |  | (3,400  | )
|Forfeited                                  |  |        |  
|                                           |  |         |  
|Option balance outstanding, March 31, 2005 |  | 769,933 |  
|                                           |  |         |  



On September 1, 2004,
the board awarded the officers of the Company 450,000 options at an exercise price of $4.55 which was the closing price of the Companys stock on the date of the grant.



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As of March 31, 2005, of the 769,933 options outstanding, 319,933 of those options were vested with
459,000 options being nonvested.



The following represents the
officers common stock options outstanding as of March 31,2004:



|                                           |  |         |  
|------------------------------------------ |  | ------- | -
|Option balance outstanding, March 31, 2003 |  | 400,000 |  
|Granted                                    |  |        |  
|Exercised                                  |  | (26,667 | )
|Transfer out to Employee group             |  | (50,000 | )
|Forfeited                                  |  |        |  
|                                           |  |         |  
|Option balance outstanding, March 31, 2004 |  | 323,333 |  
|                                           |  |         |  



The 50,000 transfer
out was a grant originally included in the June 2002 officers grant but was later reclassified as an employee grant. As of March 31, 2004, of the 323,333 options outstanding, 190,000 of those options were vested with 133,333 options being
nonvested. Forfeited options represent options granted to one or more officers of record whose employment is terminated, voluntarily or involuntarily, and based on their termination date, such options were considered nonvested.



1999 Non-Employee Stock Option Plan



On September 30, 1999, our Board of Directors and sole stockholder adopted
our 1999 non-employee stock option plan. The 1999 non-employee plan enables us to attract and retain top-quality directors and consultants and to provide such directors and consultants with an incentive to enhance stockholder return. The 1999
non-employee plan allows the grant of options to purchase a maximum aggregate of 500,000 shares of common stock to non-employee directors. The plan was amended on May 18, 2004 based on shareholder approval, increasing the number of shares to a total
of 1,000,000 shares of common stock.



The Board of Directors or
a committee of the Board may administer the 1999 non-employee plan, and has complete discretion to select the optionees and terms and conditions of each option, subject to the provisions of the 1999 non-employee plan. Options granted under the 1999
non-employee plan will not be incentive stock options as defined in Section 411 of the Internal Revenue Code of 1986, they will be so-called nonqualified options.



Nonqualified options may be granted under the 1999 non-employee plan at an exercise price of not less than 100% of the fair
market value of the common stock on the date of grant. Nonqualified options also may be granted without regard to any restriction on the amount of common stock that may be acquired pursuant to such options in any one year.



Subject to the limitations contained in the 1999 non-employee plan, options
become exercisable at such times and in such installments as the Committee shall provide in the terms of each individual stock option agreement. The Committee must also provide in the terms of each stock option agreement when the option expires and
becomes unexercisable, and may also provide the option expires immediately upon termination of services for us or for any other reason. No option held by persons subject to Section 16 of the Securities Exchange Act of 1934 may be exercised during
the first six months after such option is granted.



Unless
otherwise provided in the applicable stock option agreement, upon termination of engagement of an optionee, all options that were then exercisable would terminate three months (twelve months in the case of termination by reason of death or
disability) following termination of services. Any options which were not fully vested and exercisable on the date of such termination would immediately be cancelled concurrently with the termination.



Options granted under the 1999 non-employee plan may not be exercised more
than ten years after the grant. Options granted under the 1999 non-employee plan are not transferable and may be exercised only by the respective grantees during their lifetime or by their heirs, executors or administrators in the event of death.
Under the 1999 non-employee plan, shares subject to cancelled or terminated options are reserved for subsequently granted options.



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The number of options outstanding and the exercise price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock dividends. The 1999 non-employee plan is effective for ten years, unless sooner terminated or suspended. We will not grant any options under the 1999 non-employee plan until the
plan is appropriately registered pursuant to Florida Statutes or an exemption therefrom is available.



The following represents the nonemployee common stock options outstanding as of March 31, 2005:



|                                           |  |          |  
|------------------------------------------ |  | -------- | -
|Option balance outstanding, March 31, 2004 |  | 729,531  |  
|Granted                                    |  | 460,000  |  
|Exercised                                  |  | (220,866 | )
|Forfeited                                  |  | (102,000 | )
|                                           |  |          |  
|Option balance outstanding, March 31, 2005 |  | 866,665  |  
|                                           |  |          |  



On April 1, 2004 the
board of directors were granted 210,000 options at an exercise price of $6.15 based on the Companys stock closing price on the date of grant. Forfeited options represent those options that were not vested upon resignation of one director and
one consultant. As of March 31, 2005, of the 866,665 options outstanding, 134,332 of those options were vested with 732,333 options being nonvested.



The following represents the nonemployee common stock options outstanding as of March 31, 2004:



|                                           |  |          |  
|------------------------------------------ |  | -------- | -
|Option balance outstanding, March 31, 2003 |  | 457,000  |  
|Granted                                    |  | 530,000  |  
|Exercised                                  |  | (207,469 | )
|Forfeited                                  |  | (50,000  | )
|                                           |  |          |  
|Option balance outstanding, March 31, 2004 |  | 729,531  |  
|                                           |  |          |  



As of March 31, 2004,
of the 729,531 options outstanding, 120,198 of those options were vested with 609,333 options being nonvested.



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following table sets forth, as of March 31, 2005, certain information concerning beneficial ownership of shares of Common Stock with respect to (i)
each person known to the Company to own 5% or more of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) the executive officers of the Company, and (iv) all directors and officers of the Company as a group:



|               |  |                                          |  |                                               |  |                                  |  
|-------------- |  | ---------------------------------------- |  | --------------------------------------------- |  | -------------------------------- | -
|Title Of Class |  | Name And Address Of Beneficial Owner (1) |  | Amount And Nature Of Beneficial Ownership (2) |  | Approximate Percent of Class (%) |  
|Common         |  | Jugal K. Taneja                          |  | 1,820,701                                     |  | 20.7                             | %
|Common         |  | Mihir K. Taneja                          |  | 643,162                                       |  | 7.2                              | %
|Common         |  | Kotha S. Sekharam, PhD                   |  | 355,067                                       |  | 4.0                              | %
|Common         |  | Carol Dore-Falcone                       |  | 126,433                                       |  | 1.4                              | %
|Common         |  | Joseph Zappala                           |  | 1,269,160                                     |  | 14.6                             | %
|Common         |  | Shan Shikarpuri, CPA                     |  | 20,000                                        |  | 0.2                              | %
|Common         |  | Barry H. Dash, PhD                       |  | 20,000                                        |  | 0.2                              | %
|Common         |  | George Stuart, Jr.                       |  | 36,531                                        |  | 0.4                              | %
|Common         |  | Carnegie Capital                         |  | 582,537                                       |  | 6.7                              | %
|Common         |  | Barclays Global Investors                |  | 561,483                                       |  | 6.5                              | %
|Common         |  | All officers and directors as a group    |  | 3,604,431                                     |  | 38.7                             | %

---

|(1) | Except as noted above, the address for the above identified officers and directors of the Company is c/o GeoPharma, Inc., 6950 Bryan Dairy Road, Largo, Florida 33777.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to the shares shown. Except where
indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them. Percentages are
based upon the assumption that each shareholder has exercised all of the currently exercisable options he or she owns which are currently exercisable or exercisable within 60 days and that no other shareholder has exercised any options he or she
owns.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The following factors have been taken into consideration in calculating the amount and nature of beneficial ownership in GeoPharma:
|--- | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Dr. Kotha Sekharams beneficially owned shares include approximately 26,733 shares beneficially owned by Madhavi Sekharam, Dr. Sekharams wife, as to which Dr. Sekharam
exercises no investment or voting power and disclaims beneficial ownership.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Jugal K. Tanejas beneficially owned shares include approximately 359,206 shares beneficially owned by his wife Manju Taneja. Mr. Taneja exercises no investment or voting power
over any of the shares owned by his wife, and disclaims beneficial ownership of those shares.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Jugal K. Tanejas beneficially owned shares also include 582,537 shares beneficially owned by Carnegie Capital, Ltd, 347,938 shares beneficially owned by Bryan Capital Limited
Partnership and approximately 60,855 shares beneficially owned by First Delhi Trust. Mr. Taneja is the general partner of both Carnegie Capital, Ltd. and First Delhi Trust, and holds sole voting and investment power over these shares. Bryan Capital
Limited Partnership is indirectly owned by Dynamic Health Products, Inc., an affiliate, and who Jugal K. Taneja is the Chairman and CEO.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Joseph Zappalas beneficially owned shares include 358,610 shares beneficially owned by Mr. Zappalas wife and minor child.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The Company has entered into transactions and business relationships with
certain of our officers, directors and principal stockholders or their affiliates. We believe that all of the transactions were on terms equal to those that we could have obtained from or extended to independent third parties.



Revenues: For the fiscal years ended March 31, 2005 and 2004, manufacturing
revenues of approximately $414,073 and $704,769, respectively, were recorded from sales by the Company to subsidiaries or joint ventures of Dynamic Health Products, an affiliate of the Company, and of which Jugal K. Taneja, the Chairman of the Board
of the Company, is a principal shareholder. For the fiscal years ended March 31, 2005 and 2004, revenues of $0, and $41,392, respectively, were recorded from sales by the Company to DrugMax, Inc., an affiliate of the Company, and of which Jugal K.
Taneja, the Chairman of the Board of the Company, is a principal shareholder. For the fiscal years ended March 31, 2005 and 2004, revenues of $348,156 and $852,018 respectively, were recorded from sales by the Company to Vertical Health Inc., an
affiliate of the Company, and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder.



For the fiscal years ended March 31, 2005 and 2004, distribution revenues of approximately $22,176 and $0, respectively, were recorded from sales by the
Company to subsidiaries or joint ventures of Dynamic Health Products and approximately $0 and $3,464, respectively, were recorded from sales by the Company to Vertical Health, Inc.



For the fiscal years ended March 31, 2005 and 2004, pharmacy benefit management revenues of approximately $11,437,659 and
$5,937,473, respectively, were recorded from sales by the Company to CarePlus Health Plan, an affiliate of the Companys former board member Mssr. Zappala. Our wholly-owned subsidiary, Go2PBMServices, Inc., derives 100% of its revenues from
this contract.



33



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##### Table of Contents

Trade Accounts Receivable/ Trade Accounts PayableAmounts due to affiliates and amounts due from
affiliates represent balances owed by or amounts owed to the Company for sales occurring in the normal course of business. Amounts due to and amounts due from these affiliates are in the nature of trade payables or receivables and fluctuate based on
sales volume and payments received.



As of March 31, 2005 and
2004, for the manufacturing segment, $51,460 and $245,535 was due from subsidiaries of Dynamic Health Products. $0 and $57,700, respectively, was due to DrugMax., $57,363 and $216,122 was due from Vertical Health, Inc.



As of March 31, 2005 and 2004, for the pharmacy benefit management segment,
$743,801 and $725,514 was due from CarePlus Health.



Lease /
Debt ObligationsFor each of the years ended March 31, 2005 and 2004, rent expense of $128,529 and $220,334 was paid to Dynamic Health Products, Inc. Monthly rents were approximately $18,333 per month. The Company and Dynamic were parties to a
ten-year, triple net operating lease that would have expired in the year 2009; however, on October 28, 2004 the Company purchased this leased facility for the independent appraised value of $1,925,000.



In September 1999, the Company issued 150,000 shares of redeemable series A
preferred stock to Dynamic Health Care Products, Inc. in satisfaction of $1,500,000 of outstanding liabilities. The shares of preferred stock were subsequently transferred to JB Capital Corp., a company affiliated with our Chairman, Jugal K. Taneja.
Holders of redeemable series A preferred stock vote together with the holders of common stock with respect to all matters as to which such shareholders vote, with each share of redeemable series A preferred stock entitled to one vote. In the event
of liquidation, dissolution or winding-up of our operations, holders of redeemable series A preferred stock will be paid an amount equal to $10.00 per share of redeemable series A preferred stock before any payment is made with respect to our common
stock. The redeemable series A preferred stock pays dividends at the rate of 10% per annum, which is cumulative from the date of issuance and payable quarterly commencing March 31, 2001. For the years ended March 31, 2004, $69,960 of accrued
preferred dividends were paid to JB Capital Corp. During the year ended March 31, 2004, the holders had redeemed the all their remaining shares outstanding with no accrued dividends outstanding.



ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K



The Company filed Form-8K with the Securities and Exchange Commission during
the fiscal year ended March 31, 2005 through the date of this filing are as follows:



|                        |  |                                          
|----------------------- |  | -----------------------------------------
|Date of Form-8K filing: |  | Filing Topic:                            
|April 19, 2004          |  | Nasdaq staff determination letter        
|April 26, 2004          |  | Lawsuit settlement                       
|June 14, 2004           |  | Nasdaq listing qualification panel letter
|October 28, 2004        |  | Acquisition of property                  
|December 3, 2004        |  | Director resignation                     
|March 28, 2005          |  | Director appointment                     



34



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##### Table of Contents

Exhibits



The following Exhibits are filed as part of this Report:



|               |  |                                                                                                                                                                                                                                                                            
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                
|2.1            |  | Agreement and Plan of Reorganization dated June 12, 1998, effective June 15, 1998, by and among Nu-Wave Health Products, Inc., Nu-Wave Acquisition, Inc., Energy Factors, Inc., U.S.
Diversified Technologies, Inc., Paul Santostasi, Chris Starkey, and Marvin Deutsch. **
|               | 
|3.1            |  | Articles of Incorporation of Energy Factors, Inc., filed September 3, 1985.**                                                                                                                                                                                              
|               | 
|3.2            |  | By-Laws of Energy Factors, Inc.**                                                                                                                                                                                                                                          
|               | 
|3.3            |  | Articles of Incorporation of Nu-Wave Acquisition, Inc., dated June 11, 1998 and filed June 12, 1998. **                                                                                                                                                                    
|               | 
|3.4            |  | Articles of Amendment to Articles Innovative changing name.**                                                                                                                                                                                                              
|               | 
|3.5            |  | Agreement with holder of Series A preferred stock dated as of March 25, 2002.**                                                                                                                                                                                            
|               | 
|3.6            |  | Certificate of Designation of Series B preferred stock (2)**                                                                                                                                                                                                               
|               | 
|4.1            |  | Specimen Stock Certificate of the Company **                                                                                                                                                                                                                               
|               | 
|4.2            |  | Form of Underwriters Warrant **                                                                                                                                                                                                                                           
|               | 
|10.1           |  | Promissory note in favor of Nu-Wave Health Products, Inc. from Energy Factors, Inc., dated May 13, 1998.**                                                                                                                                                                 
|               | 
|10.2           |  | Form of 1999 Stock Option Plan **                                                                                                                                                                                                                                          
|               | 
|10.3           |  | Innovative Health Products, Inc. 1999 Stock Option Plan.**                                                                                                                                                                                                                 
|               | 
|10.4           |  | Form of Employment Agreement with Kotha S. Sekharam, Ph.D. **                                                                                                                                                                                                              
|               | 
|10.5           |  | Form of Employment Agreement with Mihir K. Taneja **                                                                                                                                                                                                                       
|               | 
|10.6           |  | Form of Employment Agreement with Carol Dore-Falcone **                                                                                                                                                                                                                    
|               | 
|10.7           |  | Lease of Companys facility at 6950 Bryan Dairy Road, Largo, Florida 33777 **                                                                                                                                                                                              
|               | 
|10.8           |  | Acquisition Agreement between Go2Pharmacy.com, Inc. (Florida) and Go2Pharmacy.com, Inc. (Delaware) **                                                                                                                                                                      
|               | 
|10.9           |  | Agreement between Go2Pharmacy.com, Inc. (Delaware) and CarePlus dated as of March 23, 2000.**                                                                                                                                                                              
|               | 
|10.10          |  | Agreement between Go2Pharmacy.com, Inc. (Delaware) and the Greater New York Health Care Association dated June 27, 2000. **                                                                                                                                                
|               | 
|10.11          |  | Consulting Agreement between Go2Pharmacy.com, Inc. and Joseph Zappala**                                                                                                                                                                                                    
|               | 
|10.12          |  | Promissory Note between Go2Pharmacy, Inc. and First Community Bank of America dated March 8, 2001 in the amount of $551,512 **                                                                                                                                             
|               | 
|10.13          |  | Revolving Line of Credit Promissory Note between Go2Pharmacy, Inc. and First Community Bank of America dated March 8, 2001 in the amount of $650,000**                                                                                                                     
|               | 
|10.14          |  | Consulting Agreement with Jugal K. Taneja dated February 2001.**                                                                                                                                                                                                           
|               | 
|10.15          |  | Sublease and Consent**                                                                                                                                                                                                                                                     
|               | 
|10.16          |  | Revolving line of Credit Promissory Note between Breakthrough Engineered Nutrition, Inc. and First Community Bank of America dated March 29, 2002 in the amount of $100,000**                                                                                              



36



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##### Table of Contents

|               |  |                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                   
|10.17          |  | Revolving line of Credit Promissory Note between Innovative and First Community Bank of America dated March 2003 in the amount of $900,000.**                 
|               | 
|10.18          |  | Securities Purchase Agreement between the Company and Laurus Master Fund, Ltd. dated as of January 30, 2004 (1)**                                             
|               | 
|10.19          |  | Registration Rights Agreement between the Company and Laurus Master Fund, Ltd. dated as of January 30, 2004.(1)**                                             
|               | 
|10.20          |  | Form of 6% Secured Convertible Term Notes between the Company and Laurus Mater Fund, Ltd. dated as of January 30, 2004.(1)**                                  
|               | 
|10.21          |  | Form of Common Stock Purchase Warrant between the Company and Laurus Master Fund, Ltd. dated as of January 30, 2004(1)**                                      
|               | 
|10.22          |  | Stock Pledge Agreement between the Company and Laurus Master Fund, Ltd. dated January 30, 2004(1)**                                                           
|               | 
|10.23          |  | Subsidiary Guarantee between the Company and Laurus Master Fund, Ltd. dated January 30, 2004(1)**                                                             
|               | 
|10.24          |  | Series A Bank Escrow Agreement between the Company and Laurus Master Fund, Ltd.(1)**                                                                          
|               | 
|10.25          |  | Security Agreement between the Company and Laurus Master Fund, Ltd.(1)**                                                                                      
|               | 
|10.26          |  | Series A Securities Purchase Agreement between the Company and Laurus Master Fund, Ltd. dated as of February 10, 2004(1)**                                    
|               | 
|10.27          |  | Series A Registration Rights Agreement between the Company and Laurus Master Fund, Ltd. dated as of February 10, 2004(1)**                                    
|               | 
|10.28          |  | Form of Common Stock Purchase Warrant between the Company and Laurus Master Fund, Ltd. dated as of February 10, 2004(1)**                                     
|               | 
|10.29          |  | Securities Purchase Agreement between the Company, Midsummer Capital Ltd. and Omicron Master Trust dated as of March 5, 2004(2)**                             
|               | 
|10.30          |  | Registration Rights Agreement between the Company, Midsummer Capital Ltd. and Omicron Master Trust dated as of March 5, 2004(2)**                             
|               | 
|10.31          |  | Form of Common Stock Purchase Warrant between the Company, Midsummer Capital Ltd. and Omicron Master Trust dated as March 5, 2004(2)**                        
|               | 
|10.32          |  | Media Credit Agreement between the Company and Icon International, Inc.                                                                                       
|               | 
|21.1           |  | GeoPharma, Inc.List of Subsidiaries.                                                                                                                         
|               | 
|31.1           |  | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended
|               | 
|31.2           |  | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended
|               | 
|32.1           |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)              
|               | 
|32.2           |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)              

---

|** | Previously filed
|-- | ----------------

|1. | Filed as an Exhibit to the Companys Form 8-K dated as of January 30, 2004.
|-- | ---------------------------------------------------------------------------

|2. | Filed as an exhibit to the Companys Form 8-K dated as of March 5, 2004.
|-- | ------------------------------------------------------------------------



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##### Table of Contents

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Audit Fees. The aggregate fees billed by BBK, for professional services rendered for the audit of the Companys annual
financial statements included in the Companys Annual Report on Form 10-KSB for the years ended March 31, 2005 and 2004 and for the reviews of the financial statements included in the Companys Quarterly Reports on Form 10-QSB during such
fiscal years were approximately $49,000 and $40,000 respectively.



Audit Related Fees. The Company did not engage BBK to provide professional services to the Company regarding audit related matters during the fiscal years ended March 31, 2005 and 2004.



Tax Fees. The aggregate fees billed by BBK, for professional services
rendered for tax advice and related return preparation to the Company for both the years ended March 31, 2005 and 2004 were approximately $12,000 and $9,000, respectively.



All Other Fees. The aggregate fees billed by BBK for services rendered to the Company, other than the services covered above
for both fiscal years ended March 31, 2005 and 2004 were $0.



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##### Table of Contents

SIGNATURES



In accordance with the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.



Dated: June 29, 2005
GEOPHARMA, INC.



/s/ Mihir K. Taneja,Mihir K. Taneja,Chief Executive Officer,Secretary and Director/s/ Kotha S. Sekharam, Ph.DKotha S. Sekharam, Ph.DPresident and Director/s/ Carol Dore-FalconeCarol Dore-FalconeVice President, Chief Financial Officer (Chief Accounting Officer) and Director




In accordance
with Exchange Act this report has been signed below by the following persons on behalf of the registrant in the capacities as on June 29, 2005.



/s/ Jugal K. TanejaJugal K. TanejaChairman of the Board of Directors/s/ Barry H. Dash, PhDBarry H. Dash, PhDDirector/s/ George L. Stuart, Jr.George L. Stuart, Jr./s/ Shan ShikarpuriShan ShikarpuriDirector




39



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##### Table of Contents

GEOPHARMA, INC.

AND SUBSIDIARIES

FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



CONTENTS



|                                                |  |   
|----------------------------------------------- |  | --
|INDEPENDENT AUDITORS REPORT                    |  | 40
|                                                | 
|FINANCIAL STATEMENTS                            |  |   
|CONSOLIDATED BALANCE SHEETS                     |  | 41
|CONSOLIDATED STATEMENTS OF OPERATIONS           |  | 44
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY |  | 45
|CONSOLIDATED STATEMENTS OF CASH FLOWS           |  | 46
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      |  | 47



39



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##### Table of Contents

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors

GeoPharma, Inc. and Subsidiaries



We have audited the accompanying consolidated balance sheets of GeoPharma, Inc, and subsidiaries as of March 31, 2005 and 2004 and the related
consolidated statements of operations, stockholders equity, and cash flows for the years then ended. 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 audit.



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal-control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audit provides 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
GeoPharma, Inc. and subsidiaries as of March 31, 2005 and 2004 and the consolidated results of operations and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.



BRIMMER, BUREK & KEELAN LLPCertified Public Accountants




Tampa, Florida

June 09, 2005



40



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##### Table of Contents

GEOPHARMA, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



ASSETS



|                                               |  |                |            |                |   |           
|---------------------------------------------- |  | -------------- | ---------- | -------------- | - | ----------
|                                               |  | March 31, 2005 |            | March 31, 2004
|Current assets:                                |  |                |            |                |   |           
|Cash and cash equivalents                      |  | $              | 6,433,011  |                | $ | 8,361,940 
|Cash, restricted                               |  |                |           |                |   | 4,805,825 
|Certificate of deposit                         |  |                | 425,927    |                |   | 418,991   
|Accounts receivable, net                       |  |                | 2,256,189  |                |   | 1,674,312 
|Accounts receivable, other                     |  |                | 586,164    |                |   | 376,000   
|Inventories, net                               |  |                | 3,743,063  |                |   | 3,225,683 
|Prepaid expenses and other current assets      |  |                | 655,786    |                |   | 565,570   
|Due from affiliates                            |  |                | 867,007    |                |   | 1,188,663 
|Deferred tax asset                             |  |                | 38,000     |                |   |          
|                                               |  |                |            |                |   |           
|Total current assets                           |  | $              | 15,005,147 |                | $ | 20,616,984
|                                               |  |               
|Property, plant, leaseholds and equipment, net |  |                | 4,485,767  |                |   | 1,813,430 
|                                               |  |               
|Goodwill, net                                  |  |                | 728,896    |                |   | 728,896   
|Intangible assets, net                         |  |                | 521,499    |                |   | 510,974   
|Media Credits, net                             |  |                | 799,748    |                |   |          
|Other assets, net                              |  |                | 130,886    |                |   | 84,932    
|                                               |  |                |            |                |   |           
|Total assets                                   |  | $              | 21,671,943 |                | $ | 23,755,216
|                                               |  |                |            |                |   |           



See accompanying notes
to consolidated financial statements



41



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##### Table of Contents

LIABILITIES AND SHAREHOLDERS EQUITY



|                                                                                                                                                                                  |  |                |             |   |                |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | -------------- | - | ----------- | -
|                                                                                                                                                                                  |  | March 31, 2005 |             |   | March 31, 2004 |  
|Current liabilities:                                                                                                                                                              |  |                |             |   |                |   |             |  
|Accounts payable                                                                                                                                                                  |  | $              | 1,759,512   |   |                | $ | 2,063,254   |  
|Current portion of long-term obligations                                                                                                                                          |  |                | 1,972,792   |   |                |   | 1,527,335   |  
|Accrued expenses and related party obligations                                                                                                                                    |  |                | 701,384     |   |                |   | 544,425     |  
|Deferred tax liability                                                                                                                                                            |  |                |            |   |                |   | 163,900     |  
|                                                                                                                                                                                  |  |                |             |   |                |   |             |  
|Total current liabilities                                                                                                                                                         |  | $              | 4,433,688   |   |                | $ | 4,298,914   |  
|                                                                                                                                                                                  |  |               
|Long-term obligations, less current portion                                                                                                                                       |  |                | 1,562,569   |   |                |   | 2,764,896   |  
|                                                                                                                                                                                  |  |                |             |   |                |   |             |  
|Total liabilities                                                                                                                                                                 |  | $              | 5,996,257   |   |                | $ | 7,063,810   |  
|                                                                                                                                                                                  |  |               
|Commitments and contingencies                                                                                                                                                     |  |                |             |   |                |   |             |  
|                                                                                                                                                                                  |  |               
|Shareholders equity:                                                                                                                                                             |  |                |             |   |                |   |             |  
|6% Convertible preferred stock, Series A, $.01 par value (10,000,000 shares authorized,-0- and 5,000,000 shares issued and outstanding
(liquidation preference $0 and $5,000,000) |  | $              |            |   |                | $ | 50,000      |  
|6% convertible preferred stock, Series B, $.01 par value (5,000 shares authorized, 5,000 shares issued and outstanding (liquidation preference
$5,000,000)                        |  |                | 50          |   |                |   | 50          |  
|Common stock, $.01 par value; 24,000,000 shares authorized; 9,181,481 and 7,989,551 shares issued and outstanding                                                                 |  |                | 91,815      |   |                |   | 79,896      |  
|Treasury stock (483,020 and 960 common shares, $.01 par value)                                                                                                                    |  |                | (4,830      | ) |                |   | (10         | )
|Additional paid-in capital                                                                                                                                                        |  |                | 42,367,115  |   |                |   | 44,457,293  |  
|Retained earnings (deficit)                                                                                                                                                       |  |                | (26,778,464 | ) |                |   | (27,895,823 | )
|                                                                                                                                                                                  |  |                |             |   |                |   |             |  
|Total shareholders equity                                                                                                                                                        |  | $              | 15,675,686  |   |                | $ | 16,691,406  |  
|                                                                                                                                                                                  |  |                |             |   |                |   |             |  
|Total liabilities and shareholders equity                                                                                                                                        |  | $              | 21,671,943  |   |                | $ | 23,755,216  |  
|                                                                                                                                                                                  |  |                |             |   |                |   |             |  



See accompanying notes
to consolidated financial statements.



42



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##### Table of Contents

GEOPHARMA, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                       |  |                      |            |   |      |   |            |  
|---------------------------------------------------------------------- |  | -------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                       |  | Year Ended March 31, |           
|                                                                       |  | 2005                 |            |   | 2004 |  
|Revenue                                                                |  |                      |            |   |      |   |            |  
|PBM (a related party activity)                                         |  | $                    | 11,437,659 |   |      | $ | 5,936,176  |  
|Distribution                                                           |  |                      | 4,004,560  |   |      |   | 3,048,532  |  
|Manufacturing                                                          |  |                      | 11,685,484 |   |      |   | 13,884,052 |  
|Pharmaceutical                                                         |  |                      | 1,102,537  |   |      |   | 101,084    |  
|                                                                       |  |                      |            |   |      |   |            |  
|Total revenue                                                          |  | $                    | 28,230,240 |   |      | $ | 22,969,844 |  
|Cost of goods sold                                                     |  |                      |            |   |      |   |            |  
|PBM                                                                    |  |                      | 11,177,585 |   |      |   | 5,618,699  |  
|Distribution                                                           |  |                      | 2,794,712  |   |      |   | 1,853,225  |  
|Manufacturing (exclusive of depreciation and amortization shown below) |  |                      | 8,168,262  |   |      |   | 9,518,136  |  
|Pharmaceutical                                                         |  |                      | 311,188    |   |      |   | 22,292     |  
|                                                                       |  |                      |            |   |      |   |            |  
|Total cost of goods sold                                               |  | $                    | 22,451,747 |   |      | $ | 17,012,352 |  
|Gross profit                                                           |  |                      |            |   |      |   |            |  
|PBM                                                                    |  |                      | 260,074    |   |      |   | 317,477    |  
|Distribution                                                           |  |                      | 1,209,848  |   |      |   | 1,195,307  |  
|Manufacturing                                                          |  |                      | 3,517,222  |   |      |   | 4,365,916  |  
|Pharmaceutical                                                         |  |                      | 791,349    |   |      |   | 78,792     |  
|                                                                       |  |                      |            |   |      |   |            |  
|Total gross profit                                                     |  | $                    | 5,778,493  |   |      | $ | 5,957,492  |  
|Selling, general and administrative expenses:                          |  |                      |            |   |      |   |            |  
|Selling, general and administrative expenses                           |  |                      | 6,071,411  |   |      |   | 4,310,711  |  
|Depreciation and amortization                                          |  |                      | 605,697    |   |      |   | 447,582    |  
|                                                                       |  |                      |            |   |      |   |            |  
|Operating income (loss) before other income (expense)                  |  | $                    | (898,615   | ) |      | $ | 1,199,199  |  
|Other income (expense):                                                |  |                      |            |   |      |   |            |  
|Interest income (expense), net                                         |  |                      | (490,859   | ) |      |   | (159,894   | )
|Other income (expense), net                                            |  |                      | 305,884    |   |      |   | 391,504    |  
|                                                                       |  |                      |            |   |      |   |            |  
|Total other income (expense)                                           |  | $                    | (184,975   | ) |      | $ | 231,610    |  
|                                                                       |  |                      |            |   |      |   |            |  
|Income (loss) before income taxes                                      |  | $                    | (1,083,590 | ) |      | $ | 1,430,809  |  
|Income tax benefit (expense)                                           |  |                      | 201,898    |   |      |   | (311,800   | )
|                                                                       |  |                      |            |   |      |   |            |  
|Net income (loss)                                                      |  | $                    | (881,692   | ) |      | $ | 1,119,009  |  
|Preferred stock dividends                                              |  |                      | 521,762    |   |      |   | 111,890    |  
|                                                                       |  |                      |            |   |      |   |            |  
|Net income (loss) available to common shareholders                     |  | $                    | (1,403,454 | ) |      | $ | 1,007,119  |  
|                                                                       |  |                      |            |   |      |   |            |  
|Basic income (loss) per share                                          |  | $                    | (0.17      | ) |      | $ | 0.13       |  
|                                                                       |  |                      |            |   |      |   |            |  
|Basic weighted average number of common shares outstanding             |  |                      | 8,111,851  |   |      |   | 7,682,258  |  
|                                                                       |  |                      |            |   |      |   |            |  
|Diluted income (loss) per share                                        |  | $                    | (0.17      | ) |      | $ | 0.11       |  
|                                                                       |  |                      |            |   |      |   |            |  
|Diluted weighted average number of common shares outstanding           |  |                      | 8,111,851  |   |      |   | 9,251,294  |  
|                                                                       |  |                      |            |   |      |   |            |  



See accompanying notes
to consolidated financial statements.



43



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##### Table of Contents

GEOPHARMA, INC. AND SUBSIDIARIES



STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)



MARCH 31, 2005



|                                                      |  |                 |   |              |          |                |          |         |                            |          |   |                             |         |           |                                      |   |        |  |          |   |  |   |        |   |  |   |            |   |  |   |             |   |  |   |            |  
|----------------------------------------------------- |  | --------------- | - | ------------ | -------- | -------------- | -------- | ------- | -------------------------- | -------- | - | --------------------------- | ------- | --------- | ------------------------------------ | - | ------ |  | -------- | - |  | - | ------ | - |  | - | ---------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                      |  | Preferred Stock |   | Common Stock |          | Treasury Stock |          |         | Additional paid in capital |          |   | Retained earnings (deficit) |         |           | Total Shareholders equity (deficit) |  
|                                                      |  | Shares          |   | Dollars      |          | Shares         |          | Dollars |                            | Shares   |   |                             | Dollars |           |                                      |   |       
|                                                      |  | Series A        |   |              | Series B |                | Series A |         |                            | Series B |   |                             |         |           |                                      |   |       
|Balances at March 31, 2003                            |  |                |   |              |         |                | $        |        |                            |          | $ |                            |         | 7,727,634 |                                      | $ | 77,276 |  | (143,600 | ) |  | $ | (1,436 | ) |  | $ | 29,840,208 |   |  | $ | (25,321,979 | ) |  | $ | 4,594,066  |  
|Purchase of treasury shares                           |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  | (14,360  | ) |  |   | (144   | ) |  |   | (4,856     | ) |  |   |            |   |  |   | (5,000     | )
|Issuance of Series A Preferred Stock                  |  | 5,000,000       |   |              |         |                |          | 50,000  |                            |          |   |                            |         |           |                                      |   |        |  |          |   |  |   |        |   |  |   | 4,950,000  |   |  |   |             |   |  |   | 5,000,000  |  
|Issuance of Series B Preferred Stock                  |  |                |   |              | 5,000    |                |          |        |                            |          |   | 50                          |         |           |                                      |   |        |  |          |   |  |   |        |   |  |   | 4,999,950  |   |  |   |             |   |  |   | 5,000,000  |  
|Payment of preferred stock private placement expenses |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  |         |   |  |   |       |   |  |   | (381,594   | ) |  |   |            |   |  |   | (381,594   | )
|Grant of nonemployee stock options                    |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  |         |   |  |   |       |   |  |   | 155,149    |   |  |   |            |   |  |   | 155,149    |  
|Amortization of debt and preferred stock warrants     |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  |         |   |  |   |       |   |  |   | 4,506,325  |   |  |   | (3,580,960  | ) |  |   | 925,365    |  
|Issuance of stock awards                              |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  | 157,000  |   |  |   | 1,570  |   |  |   | 110,436    |   |  |   |            |   |  |   | 112,006    |  
|Exercise of stock options                             |  |                |   |              |         |                |          |        |                            |          |   |                            |         | 261,917   |                                      |   | 2,620  |  |         |   |  |   |       |   |  |   | 281,675    |   |  |   |            |   |  |   | 284,295    |  
|Preferred stock dividend                              |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  |         |   |  |   |       |   |  |   |           |   |  |   | (111,890    | ) |  |   | (111,890   | )
|Net income                                            |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  |         |   |  |   |       |   |  |   |           |   |  |   | 1,119,009   |   |  |   | 1,119,009  |  
|                                                      |  |                 |   |              |          |                |          |         |                            |          |   |                             |         |           |                                      |   |        |  |          |   |  |   |        |   |  |   |            |   |  |   |             |   |  |   |            |  
|Balances at March 31, 2004                            |  | 5,000,000       |   |              | 5,000    |                | $        | 50,000  |                            |          | $ | 50                          |         | 7,989,551 |                                      | $ | 79,896 |  | (960     | ) |  | $ | (10    | ) |  | $ | 44,457,293 |   |  | $ | (27,895,823 | ) |  | $ | 16,691,406 |  
|                                                      |  |                 |   |              |          |                |          |         |                            |          |   |                             |         |           |                                      |   |        |  |          |   |  |   |        |   |  |   |            |   |  |   |             |   |  |   |            |  
|Purchase of treasury shares                           |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  | (152,900 | ) |  |   | (1,529 | ) |  |   | (694,288   | ) |  |   |            |   |  |   | (695,817   | )
|Payment of preferred stock private placement expenses |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  |         |   |  |   |       |   |  |   | (6,000     | ) |  |   |            |   |  |   | (6,000     | )
|Exercise of stock options                             |  |                |   |              |         |                |          |        |                            |          |   |                            |         | 264,566   |                                      |   | 2,646  |  |         |   |  |   |       |   |  |   | 275,077    |   |  |   |            |   |  |   | 277,723    |  
|Amortization of debt and preferred stock warrants     |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  |         |   |  |   |       |   |  |   | 684,187    |   |  |   | (684,187    | ) |  |   |           |  
|Issuance of stock awards                              |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  | 160,000  |   |  |   | 1,600  |   |  |   | 112,686    |   |  |   |            |   |  |   | 114,286    |  
|Receipt of shares in a legal settlement               |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  | (500,000 | ) |  |   | (5,000 | ) |  |   | (3,200,000 | ) |  |   | 3,205,000   |   |  |   |            |  
|401(k) employee match                                 |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  | 10,840   |   |  |   | 109    |   |  |   | 41,204     |   |  |   |            |   |  |   | 41,313     |  
|Preferred stock dividends (in cash and common stock)  |  |                |   |              |         |                |          |        |                            |          |   |                            |         | 73,339    |                                      |   | 733    |  |         |   |  |   |       |   |  |   | 343,439    |   |  |   | (521,762    | ) |  |   | (177,590   | )
|Payment of convertible debt and interest              |  |                |   |              |         |                |          |        |                            |          |   |                            |         | 54,025    |                                      |   | 540    |  |         |   |  |   |       |   |  |   | 311,517    |   |  |   |            |   |  |   | 312,057    |  
|Conversion of Series A Preferred Stock                |  | (5,000,000      | ) |              |         |                | $        | (50,000 | )                          |          |   |                            |         | 800,000   |                                      |   | 8,000  |  |          |   |  |   |        |   |  |   | 42,000     |   |  |   |             |   |  |   |           |  
|Net loss                                              |  |                |   |              |         |                |          |        |                            |          |   |                            |         |          |                                      |   |       |  |         |   |  |   |       |   |  |   |           |   |  |   | (881,692    | ) |  |   | (881,692   | )
|                                                      |  |                 |   |              |          |                |          |         |                            |          |   |                             |         |           |                                      |   |        |  |          |   |  |   |        |   |  |   |            |   |  |   |             |   |  |   |            |  
|Balances at March 31, 2005                            |  |                |   |              | 5,000    |                | $        |        |                            |          | $ | 50                          |         | 9,181,481 |                                      | $ | 91,815 |  | (483,020 | ) |  | $ | (4,830 | ) |  | $ | 42,367,115 |   |  | $ | (26,778,464 | ) |  | $ | 15,675,686 |  
|                                                      |  |                 |   |              |          |                |          |         |                            |          |   |                             |         |           |                                      |   |        |  |          |   |  |   |        |   |  |   |            |   |  |   |             |   |  |   |            |  



See accompanying notes
to consolidated financial statements.



44



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##### Table of Contents

GEOPHARMA, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                |  |                |            |   |                |   |            |  
|----------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | -------------- | - | ---------- | -
|                                                                                                |  | March 31, 2005 |            |   | March 31, 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                           |  |                |            |   |                |   |            |  
|Net income (loss)                                                                               |  | $              | (867,250   | ) |                | $ | 1,119,009  |  
|Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: |  |                |            |   |                |   |            |  
|(Gain) loss on disposal of equipment                                                            |  |                |           |   |                |   | (2,857     | )
|Depreciation, leasehold and intangible amortization                                             |  |                | 605,697    |   |                |   | 447,582    |  
|Amortization of stock option deferred compensation                                              |  |                | 37,865     |   |                |   | 65,568     |  
|Accrued interest income                                                                         |  |                | (6,936     | ) |                |   | (9,932     | )
|Change in net deferred taxes                                                                    |  |                | (216,342   | ) |                |   | 311,800    |  
|Changes in operating assets and liabilities:                                                    |  |                |            |   |                |   |            |  
|Accounts receivable                                                                             |  |                | (631,878   | ) |                |   | (769,858   | )
|Accounts receivable, other                                                                      |  |                | (210,164   | ) |                |   | (21,707    | )
|Inventory                                                                                       |  |                | (517,380   | ) |                |   | (1,084,974 | )
|Prepaid expenses and other current assets                                                       |  |                | (181,271   | ) |                |   | (268,456   | )
|Other assets                                                                                    |  |                | (45,718    | ) |                |   | (5,860     | )
|Media credits, net                                                                              |  |                | (799,748   | ) |                |   |           |  
|Accounts payable                                                                                |  |                | (303,741   | ) |                |   | 1,143,544  |  
|Accrued expenses                                                                                |  |                | 263,568    |   |                |   | 149,008    |  
|Due from affiliates, net                                                                        |  |                | 264,525    |   |                |   | (658,396   | )
|                                                                                                |  |                |            |   |                |   |            |  
|Net cash provided (used) by operating activities                                                |  | $              | (2,608,773 | ) |                | $ | 414,471    |  
|                                                                                                |  |               
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                           |  |                |            |   |                |   |            |  
|Purchases of property, leaseholds and equipment                                                 |  | $              | (1,195,038 | ) |                | $ | (790,429   | )
|Purchase of land and building                                                                   |  |                | (1,925,000 | ) |                |   |           |  
|Proceeds from disposal of equipment                                                             |  |                |           |   |                |   | 20,000     |  
|                                                                                                |  |                |            |   |                |   |            |  
|Net cash used by investing activities                                                           |  | $              | (3,120,038 | ) |                | $ | (770,429   | )
|                                                                                                |  |               
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                           |  |                |            |   |                |   |            |  
|Purchase of treasury stock                                                                      |  | $              | (695,817   | ) |                | $ | (5,000     | )
|Redemption of preferred stock to related party                                                  |  |                |           |   |                |   | (720,000   | )
|Proceeds from stock option exercise                                                             |  |                | 277,723    |   |                |   | 325,887    |  
|Proceeds from the redemption of certificate of deposit                                          |  |                |           |   |                |   | 294,883    |  
|Net change in credit lines payable                                                              |  |                |           |   |                |   | (846,016   | )
|Proceeds from the convertible preferred stock                                                   |  |                |           |   |                |   | 10,000,000 |  
|Proceeds from issuance of long-term obligations                                                 |  |                | 60,301     |   |                |   | 5,214,257  |  
|Payments for private placement fees                                                             |  |                | (6,000     | ) |                |   | (400,492   | )
|Payments of long-term obligations                                                               |  |                | (798,105   | ) |                |   | (755,836   | )
|Amortization of debt discount to interest expense                                               |  |                | 308,455    |   |                |   | 53,897     |  
|Payment of preferred stock dividends                                                            |  |                | (152,500   | ) |                |   | (111,890   | )
|                                                                                                |  |                |            |   |                |   |            |  
|Net cash provided (used) by financing activities                                                |  | $              | (1,005,943 | ) |                | $ | 13,049,690 |  
|                                                                                                |  |                |            |   |                |   |            |  
|Net increase (decrease) in cash                                                                 |  | $              | (6,734,754 | ) |                | $ | 12,693,732 |  
|Cash at beginning of period                                                                     |  |                | 13,167,765 |   |                |   | 474,033    |  
|                                                                                                |  |                |            |   |                |   |            |  
|Cash at end of period                                                                           |  | $              | 6,433,011  |   |                | $ | 13,167,765 |  
|                                                                                                |  |                |            |   |                |   |            |  
|SUPPLEMENTAL INFORMATION:                                                                       |  |                |            |   |                |   |            |  
|Cash paid for interest                                                                          |  | $              | 87,899     |   |                | $ | 122,586    |  
|                                                                                                |  |                |            |   |                |   |            |  
|Cash paid for taxes                                                                             |  | $              |           |   |                | $ | 15,000     |  
|                                                                                                |  |                |            |   |                |   |            |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                                    |  |                |            |   |                |   |            |  
|Conversion value of preferred stock to common stock                                             |  | $              | 5,000,000  |   |                | $ |           |  
|                                                                                                |  |                |            |   |                |   |            |  
|Payment of preferred stock dividends with common stock                                          |  | $              | 344,172    |   |                | $ |           |  
|                                                                                                |  |                |            |   |                |   |            |  
|Payment of debt principal and interest with common stock                                        |  | $              | 312,057    |   |                | $ |           |  
|                                                                                                |  |                |            |   |                |   |            |  
|Equity reclassification related to warrants issued with the $10 million preferred stock         |  | $              | 684,187    |   |                | $ | 3,580,960  |  
|                                                                                                |  |                |            |   |                |   |            |  
|Debt discount related to warrants issued with the $5 million convertible debt                   |  | $              |           |   |                | $ | 925,365    |  
|                                                                                                |  |                |            |   |                |   |            |  
|Accrued redeemable preferred stock redemption                                                   |  | $              |           |   |                | $ | 450,000    |  
|                                                                                                |  |                |            |   |                |   |            |  
|Valuation of non-employee stock options granted                                                 |  | $              |           |   |                | $ | 155,149    |  
|                                                                                                |  |                |            |   |                |   |            |  



See accompanying notes
to consolidated financial statements.



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##### Table of Contents

GEOPHARMA, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



MARCH 31, 2005 and 2004



NOTE 1BACKGROUND INFORMATION



We were incorporated in 1985 as Energy Factors, Inc., a
Florida corporation. In August 1998 we changed our name to Innovative Health Products, Inc., and in February 2000 we changed our name to Go2Pharmacy, Inc., in anticipation of our merger with the Delaware corporation Go2Pharmacy.com, Inc. September
2002, we changed our name to Innovative Companies, Inc. (Innovative). On May 18, 2004, based on majority shareholder vote, the Company changed its name to GeoPharma, Inc. Currently, GeoPharma continues to do manufacturing business under
the name Innovative Health Products, Inc. as it represents our manufacturing arm of the Company. Prior to November 7, 2000 Go2Pharmacy, Inc., the Florida corporation was a wholly-owned subsidiary of Dynamic Health Products, Inc.
(Dynamic).



On November 7, 2000, the Securities and
Exchange Commission declared the Companys registration of 1,000,000 shares of the common stock to be effective. The registration was affected through the filing of Registration Statement No. 333-92849 on Form SB-2 with the Securities and
Exchange Commission. The Companys initial public offering, pursuant to this registration, was successfully completed on November 14, 2000. In conjunction with this offering, 1,000,000 shares of common stock, $.01 par value, were sold to the
public for net proceeds of $6,655,705. Simultaneously with and conditioned upon the offering, Go2 merged with Go2Pharmacy.com, Inc., a Delaware corporation, in exchange for 3,000,000 shares of its common stock. Other than the $250,000 gross cash
capital contribution, Go2Delaware had no assets with any assignable value thus creating no goodwill.



In April 2000, Breakthrough Engineered Nutrition, Inc. (Breakthrough), a Florida corporation, which also conducts distribution business as
Delmar Labs, was formed as a wholly-owned subsidiary to market and distribute its own functional foods and dietary supplement product lines to national and mass retailers, wholesalers and other retail outlets stores using a network of brokers and
distributors throughout the United States and Canada.



In
September 2000, we formed a wholly-owned subsidiary, Belcher Pharmaceuticals, Inc. (Belcher), a Florida corporation, in order to manufacture and distribute private label over the counter products.



In March 2001, we formed a wholly-owned subsidiary, Go2PBM Services, Inc.,
(PBM), a Florida corporation, for the purpose of providing pharmacy benefit management services. PBM administers drug benefits for health maintenance organizations, insurance company plans, preferred provider organizations, self-insured
corporate health plans and self-insured labor unions. As a pharmacy benefit manager, we manage all member benefits in low risk plans, while taking an exclusively administrative role in higher risk plans. Our administrative services include claim
processing, network management and customer service. We have entered into an agreement to provide our pharmacy benefit management services to a New York State Health Maintenance Organization. Through the development of our manufacturing and pharmacy
benefit management efforts, we intend to provide health plans and institutional customers with an efficient source for their pharmacy product needs.



In September 2002, we Florida-incorporated two wholly-owned distribution companies, IHP Marketing, Inc., which also does business as Archer Stevens
Pharmaceuticals, and Breakthrough Marketing, Inc., which also does business as Bentley Labs, for the purpose of marketing and distributing additional proprietary brands to the public.



In February 2004, we incorporated a wholly-owned company, Belcher Capital Corporation (Belcher Capital), a
Delaware corporation, as a result of a $10 million preferred stock and $5 million convertible debt private placement.



NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



a. Principles of Consolidation



The consolidated financial statements as of and for the year ended March 31, 2005 and 2004 include the corporate and manufacturing accounts of GeoPharma,
Inc. (the Company), (GeoPharma), which is continuing to



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GEOPHARMA, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



do manufacturing business as Innovative Health Products, Inc. (Innovative), and its wholly-owned subsidiaries IHP Marketing, Breakthrough, Breakthrough
Marketing, Belcher, Belcher Capital, and PBM. Significant intercompany balances and transactions have been eliminated in consolidation.



b. Industry Segment



In accordance with the provisions of Statement of Financial Accounting Standards No. 131, (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information, a company is required to disclose selected financial and other related information about its operating segments. Operating segments are components of an enterprise about which separate financial information is available and is
utilized by the chief operating decision maker (CODM) related to the allocation of resources and in the resulting assessment of the segments overall performance. The measure used by the Companys CODM is a business
segments gross profit. As of and for the year ended March 31, 2005 and 2004, the Company had four industry segments that accompany corporate: manufacturing, distribution, pharmacy benefit management and pharmaceutical. Each of the business
segments total revenues for the fiscal years ended March 31, 2005 and 2004 are presented on the face of the statements of operations. The $21,671,943 of total assets as of March 31, 2005 were comprised of $6,352,631 attributable to corporate,
$11,853,060 attributable to manufacturing, $2,573,787 attributable to distribution, $817,099 attributable to pharmacy benefit management and $75,366 attributable to pharmaceutical. The $23,755,216 of total assets as of March 31, 2004 were comprised
of $13,093,519 attributable to corporate, $7,632,992 attributable to manufacturing, $1,909,822 attributable to distribution and $1,118,883 attributable to pharmacy benefit management and $65,268 for phamaceutical.



c. Cash and Cash Equivalents



For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.



e. Inventories



Inventories are stated at lower of cost or market. Cost is determined using the first-in, first-out method.



f. Property, Plant, Leasehold Improvements and Equipment



Depreciation is provided for using the straight-line method, in amounts sufficient to relate the cost of depreciable assets to operations over their
estimated service lives (asset categories range from three to thirty-nine years). Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or the service lives of the improvements, whichever is
shorter. Leased equipment under capital leases is amortized using the straight-line method over the lives of the respective leases or over the service lives of the assets, whichever is shorter, for those leases that substantially transfer ownership.
Accelerated depreciation methods are used for tax purposes.



g. Intangible
Assets



Intangible assets consist primarily of goodwill
and intellectual property. Effective April 1, 2002 with the adoption of SFAS 142, Goodwill and Other Intangibles, intangible assets with an indefinite life, namely goodwill and the intellectual property, are not amortized. Intangible
assets with a definite life are amortized on a straight-line basis with estimate useful lives ranging from 1 to 3 years. Indefinite lived intangible assets will be tested for impairment yearly and will be tested for impairment between the annual
tests should an event occur or should circumstances change that would indicate that the carrying amount may be impaired. The Company has selected January 1, as the annual date to test these assets for impairment. The unamortized balance of goodwill
as of the date of the initial test and still as of March 31, 2005 was $728,896 with the unamortized balance of the intellectual property for the same periods was $228,305. Based on the required analyses performed as of that annual test date, no
impairment loss was required to be recorded for the fiscal year ended March 31, 2005 or 2004.



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GEOPHARMA, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



h. Impairment of Assets



In accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the Companys policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets, certain identifiable intangibles and goodwill when certain events have taken place that indicate
the remaining unamortized balance may not be recoverable. When factors indicate that the intangible assets should be evaluated for possible impairment, the Company uses an estimate of related undiscounted cash flows. Factors considered in the
valuation include current operating results, trends and anticipated undiscounted future cash flows. There have been no impairment losses recorded as of and for the fiscal years 2005 and 2004.



i. Income Taxes



The Company utilizes the guidance provided by Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for
Income Taxes. Under the liability method specified by SFAS 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates
which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.



j. Earning (Loss) Per Common Share



Earnings (loss) per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings (loss) per
share are calculated by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by
the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method. The effect of the preferred stock conversion, the convertible debt
warrants and stock options are antidilutive at March 31, 2005 and are therefore excluded from the fully diluted calculation. Convertible debt and preferred stock warrants, officer, employee and nonemployee stock options and warrants are considered
potentially dilutive and are included in the fully diluted share calculation at March 31, 2004. The reconciliation between basic and fully diluted shares are as follows:



|                                                                            |  |                              |            |   |      |   |          
|--------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------
|                                                                            |  | Fiscal Years Ended March 31,
|                                                                            |  | 2005                         |            |   | 2004
|Net income (loss) per share  basic                                         |  |                              |            |   |      |   |          
|Net income (loss)                                                           |  | $                            | (1,619,794 | ) |      | $ | 1,007,119
|                                                                            |  |                              |            |   |      |   |          
|Weighted average shares  basic                                             |  |                              | 8,111,851  |   |      |   | 7,682,258
|                                                                            |  |                              |            |   |      |   |          
|Net income (loss) per share  basic                                         |  | $                            | (0.20      | ) |      | $ | 0.13     
|                                                                            |  |                              |            |   |      |   |          
|Net income (loss) per share  diluted:                                      |  |                              |            |   |      |   |          
|Net income (loss)                                                           |  | $                            | (1,619,794 | ) |      | $ | 1,007,119
|                                                                            |  |                              |            |   |      |   |          
|Weighted average shares outstanding  basic                                 |  |                              | 8,111,851  |   |      |   | 7,682,258
|Effect of preferred stock prior to conversion                               |  |                              |           |   |      |   |         
|Effect of preferred stock and convertible debt warrants prior to conversion |  |                              |           |   |      |   |         
|Dilutive effect of stock options                                            |  |                              |           |   |      |   | 1,509,837
|Effect of convertible term note                                             |  |                              |           |   |      |   | 59,199   
|                                                                            |  |                              |            |   |      |   |          
|Weighted average shares  diluted                                           |  |                              | 8,111,851  |   |      |   | 9,251,294
|                                                                            |  |                              |            |   |      |   |          
|Net income (loss) per share  diluted                                       |  | $                            | (0.20      | ) |      | $ | 0.11     
|                                                                            |  |                              |            |   |      |   |          



k. Use of Estimates



The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at March 31, 2005 and 2004, as well as the reported
amounts of revenues and expenses for the fiscal years ended March 31, 2005 and 2004. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



l. Concentration of Credit Risk



Concentrations of credit risk with respect to trade accounts receivable are
limited due to the distribution of sales over a large customer base as of March 31, 2005 and 2004. For the year ended March 31, 2005, two customers, Spectrum Group and CarePlus Health accounted for 11.2% and 40.5% in relation to total consolidated
revenues. For the year ended March 31, 2004, two customers, CarePlus Health and Metabolife International accounted for 25.9% and 14.4% in relation to total consolidated revenues. The Company has no concentration of customers within specific
geographic areas outside the United States that would give rise to significant geographic credit risk.



As of March 31, 2005 and 2004 the Company maintained cash balances in excess of federally insured limits of approximately $6,500,000 and $13,000,000,
respectively.



m. Revenue Recognition



In accordance with SAB 101, Revenue Recognition, revenues are recognized by
the Company when the merchandise is shipped which is when title and risk of loss has passed to the customer.



n. Advertising Costs



The Company charges advertising costs to expense as incurred. Advertising expense was $391,141, and $107,810 for the years ended March 31, 2005 and 2004, respectively.



o. Research and Development Costs



Costs incurred to develop our generic pharmaceutical products for the Company are expensed as incurred and charged to research and development
(R&D). R&D expenses for the years ended March 31, 2005 and 2004 were $262,916 and approximately $544,000 respectively.



p. Fair Value of Financial Instruments



The Company, in estimating its fair value disclosures for financial instruments, uses the following methods and assumptions:



Cash, Accounts Receivable, Accounts Payable and Accrued Expenses: The
carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximate their fair value due to their relatively short maturity.



Long-term Obligations: The fair value of the Companys fixed-rate long-term obligations is estimated using discounted
cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At March 31, 2005 and 2004, the fair value of the Companys long-term obligations approximated its carrying value.



Credit Lines Payable: The carrying amount of the
Companys credit lines payable approximates fair market value since the interest rate on these instruments corresponds to market interest rates.



q. Reclassifications



Certain reclassifications have been made to the financial statements as of and for the fiscal year ended March 31, 2004 to conform to the presentation as
of and for the year ended March 31, 2005.



r. Stock-Based Compensation



The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 123 Accounting for Stock-Based Compensation (SFAS 123). SFAS 123 allows companies which have stock-based compensation arrangements with employees to adopt a new fair-value basis of accounting
for stock options and other equity instruments, or to continue to apply the existing accounting required by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The Company intends to
continue to account for stock-based compensation arrangements under APB Opinion No. 25. The Company has also adopted the disclosure



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



provisions of SFAS No. 148 Accounting for Stock-Based Compensation - Transition and Disclosure. This pronouncement requires 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 reporting results. The additional required disclosure is found in Note 14.



s. Accounting for Financial Instruments



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. (SFAS 150) SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as
liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that
can be settled with shares of stock. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.



The Company adopted SFAS 150 and its related adoption provisions as
reflected and as applicable to the January 30, 2004 $5 million 6% convertible term note transaction as discussed in Note 11, Long-Term Obligations.



NOTE 3ACCOUNTS RECEIVABLE, NET



Accounts receivable, net, consist of the following:



|                                          |  |           |           |   |      |   |           |  
|----------------------------------------- |  | --------- | --------- | - | ---- | - | --------- | -
|                                          |  | March 31, |          
|                                          |  | 2005      |           |   | 2004 |  
|Trade accounts receivable                 |  | $         | 2,364,117 |   |      | $ | 1,740,125 |  
|Less allowance for uncollectible accounts |  |           | (107,928  | ) |      |   | (65,813   | )
|                                          |  |           |           |   |      |   |           |  
|                                          |  | $         | 2,256,189 |   |      | $ | 1,674,312 |  
|                                          |  |           |           |   |      |   |           |  



As of March 31, 2005,
the total accounts receivable balance of $2,364,117 includes $1,892,666 related to the Companys manufacturing segment, $471,451 related to the Companys distribution segment. As of March 31, 2004, the total accounts receivable balance of
$1,740,125 includes $1,340,733 related to the Companys manufacturing segment and $399,392 related to the Companys distribution segment.



The Company recognizes revenues for product sales when title and risk of loss pass to its external customers and analyzes the status of the allowance for
uncollectible accounts based on historical experience, customer history and overall credit outstanding. For our distribution segment, any charge backs or other sales allowances immediately reduce the gross receivable with the corresponding reduction
effected through increases in sales allowances which directly reduce sales revenue.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 4ACCOUNTS RECEIVABLE, OTHER



On August 27, 2002, a commercial building where one of our manufacturing
facilities is located, was involved in a fire. Although this fire was not in our leased space, nor was the fire caused by the Company or any of its related parties, our facility was exposed to and incurred smoke and water damage. The company that
had the fire is not a related party. The Company has adequate insurance coverage that covers replacement cost of the facilities contents which includes inventory and leasehold improvements, in addition to business interruption insurance which
covers lost profits based on certain coverage formulas and policy limits. As of March 31, 2005, the final financial assessment has not been made by our insurance company. The Company has a $5,000 deductible for each policy, or $10,000 in total for
both policies, that the Company believes it will also be able to recoup these deductibles since the claim has been assessed by our insurance company as subrogatable against the other non-related company who is at fault.



As of March 31, 2005 and 2004, included within accounts receivable-other, the
Company has recorded the minimum net amounts due from the party who has caused the fire that are quantifiable, measurable and deemed collectible, in the amount of $500,000 and $325,000, respectively, that are comprised of additional amounts due and
approved for losses already incurred as caused by our business interruption. For the fiscal year ended March 31, 2005 and 2004, amounts recorded in other income/(expense), net, were approximately $175,000 and $325,000.



NOTE 5INVENTORIES, NET



Inventories, net, consist of the following:



|                                      |  |           |           |   |      |   |          
|------------------------------------- |  | --------- | --------- | - | ---- | - | ---------
|                                      |  | March 31,
|                                      |  | 2005      |           |   | 2004
|Processed raw materials and packaging |  | $         | 3,050,858 |   |      | $ | 1,955,559
|Work in process                       |  |           | 225,086   |   |      |   | 514,816  
|Finished goods                        |  |           | 502,067   |   |      |   | 755,308  
|                                      |  |           |           |   |      |   |          
|                                      |  | $         | 3,778,011 |   |      | $ | 3,225,683
|Less reserve for obsolescence         |  |           | (34,948   | ) |      |   |         
|                                      |  |           |           |   |      |   |          
|                                      |  | $         | 3,743,063 |   |      | $ | 3,225,683
|                                      |  |           |           |   |      |   |          



As of March 31, 2005,
the total inventory balance of $3,778,011 includes $2,939,459 related to the Companys manufacturing segment, $763,186 related to the Companys distribution segment and $75,366 as related to the pharmaceutical segment. As of March 31,
2004, the total inventory balance of $3,225,683 includes $2,110,605 as related to the Companys manufacturing segment, $1,049,810 related to the companys distribution segment and $65,268 related to the Companys pharmaceutical
segment. In addition, for the manufacturing segment, approximately $446,583 and $382,764 of factory overhead has been capitalized in inventory as of March 31, 2005 and 2004, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 6PROPERTY, PLANT, LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET



Property, plant, leasehold improvements and equipment, net, consists of the
following:



|                                               |  |           |            |   |      |   |            |  
|---------------------------------------------- |  | --------- | ---------- | - | ---- | - | ---------- | -
|                                               |  | March 31, |           
|                                               |  | 2005      |            |   | 2004 |  
|Land                                           |  | $         | 579,767    |   |      | $ |           |  
|Building and building improvements             |  |           | 1,387,974  |   |      |   |           |  
|Machinery and equipment                        |  |           | 3,222,845  |   |      |   | 2,236,612  |  
|Furniture, fixtures and equipment              |  |           | 488,536    |   |      |   | 404,924    |  
|Leasehold improvements                         |  |           | 838,983    |   |      |   | 665,476    |  
|                                               |  |           |            |   |      |   |            |  
|                                               |  | $         | 6,518,105  |   |      | $ | 3,307,012  |  
|Less accumulated depreciation and amortization |  |           | (2,032,338 | ) |      |   | (1,493,582 | )
|                                               |  |           |            |   |      |   |            |  
|                                               |  | $         | 4,485,767  |   |      | $ | 1,813,430  |  
|                                               |  |           |            |   |      |   |            |  



Depreciation and
leasehold amortization expense totaled $538,755 and $437,574 for the years ended March 31, 2005 and 2004, respectively primarily attributable to manufacturing and corporate depreciable assets.



The Company purchased one of our two manufacturing facilities from Dynamic,
a related party, (See note 12), for $1.925 million on October 28, 2004. For each of the years ended March 31, 2005 and 2004, total rent expense was $457,782 and $392,302. Included in the $457,782 and $392,302 of rent expense, amounts paid to Dynamic
were approximately $128,529 and $220,000, respectively.



NOTE
7GOODWILL, NET



Goodwill, net, consists of the
following:



|                              |  |           |          |   |      |   |          |  
|----------------------------- |  | --------- | -------- | - | ---- | - | -------- | -
|                              |  | March 31, |         
|                              |  | 2005      |          |   | 2004 |  
|Goodwill                      |  | $         | 901,727  |   |      | $ | 901,727  |  
|Less accumulated amortization |  |           | (172,831 | ) |      |   | (172,831 | )
|                              |  |           |          |   |      |   |          |  
|                              |  | $         | 728,896  |   |      | $ | 728,896  |  
|                              |  |           |          |   |      |   |          |  



As of March 31, 2005
and 2004, goodwill represented an intangible asset attributable to the manufacturing segment. Goodwill is analyzed each January 1 for impairment as it has an indeterminant life. Based on the Companys analyses performed, no impairment losses
were required to have been recorded during the fiscal years ended March 31, 2005 and 2004.



NOTE 8INTANGIBLE ASSETS, NET



Intangible assets, net, consist of the following:



|                              |  |           |          |   |      |   |          |  
|----------------------------- |  | --------- | -------- | - | ---- | - | -------- | -
|                              |  | March 31, |         
|                              |  | 2005      |          |   | 2004 |  
|Loan and lease costs          |  | $         | 200,525  |   |      | $ | 200,525  |  
|Intellectual property         |  |           | 295,696  |   |      |   | 295,696  |  
|Generic drug ANDAs            |  |           | 115,500  |   |      |   |         |  
|Deferred compensation expense |  |           | 155,150  |   |      |   | 155,150  |  
|Patents                       |  |           | 9,129    |   |      |   |         |  
|                              |  |           |          |   |      |   |          |  
|                              |  | $         | 776,000  |   |      | $ | 651,371  |  
|Less accumulated amortization |  |           | (254,501 | ) |      |   | (140,397 | )
|                              |  |           |          |   |      |   |          |  
|                              |  | $         | 521,499  |   |      | $ | 510,974  |  
|                              |  |           |          |   |      |   |          |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As of March 31, 2005 and 2004, loan and lease costs, and patents represented
identifiable intangible assets attributable to the manufacturing segment with the intellectual property balance, not identifiable related to service life, is an intangible attributable to the distribution segment. The deferred compensation expense,
and the lease and loan costs, and the patents are amortized based on their useful life as determined by the life of the option for deferred compensation expense; over the life of the directly-related loan or lease and over the lives of the patents.



As there is an indeterminant life as related to the
intellectual property and the Generic drug ANDAs, this asset is analyzed each January 1 for impairment. Based on that analysis, no impairment loss was required to be recorded as of or for the fiscal year ended March 31, 2005 or 2004.



NOTE 9  MEDIA CREDITS, NET



Media credits, net, consist of the following:



|                 |  |           |           |   |      |   |  
|---------------- |  | --------- | --------- | - | ---- | - | -
|                 |  | March 31,
|                 |  | 2005      |           |   | 2004
|Media credits    |  | $         | 1,269,350 |   |      | $ | 
|Deferred revenue |  |           | (469,602  | ) |      |   | 
|                 |  |           |           |   |      |   |  
|                 |  | $         | 799,748   |   |      | $ | 
|                 |  |           |           |   |      |   |  



During March 2005, the
Company negotiated with an international media company to exchange excess CarbSlim inventory for future credit for use on custom print, radio and television advertising. Based on the Companys distribution segment expansion into its own branded
consumer product lines coupled with the decline in customer demand for low-carb products, this excess inventory was able to be redeemed with the media credits having a three-year life. The media credits were recorded based on the net cost of
CarbSlim inventory that was exchanged.



NOTE 10OTHER ASSETS, NET



Other assets, net, consist of the following:



|                                          |  |           |         |   |      |   |         |  
|----------------------------------------- |  | --------- | ------- | - | ---- | - | ------- | -
|                                          |  | March 31, |        
|                                          |  | 2005      |         |   | 2004 |  
|Deposits                                  |  | $         | 74,233  |   |      | $ | 73,753  |  
|Other assets                              |  |           | 85,282  |   |      |   | 61,179  |  
|                                          |  |           |         |   |      |   |         |  
|                                          |  |           | 159,515 |   |      |   | 134,932 |  
|Less allowance for uncollectible accounts |  |           | (28,629 | ) |      |   | (50,000 | )
|                                          |  |           |         |   |      |   |         |  
|                                          |  | $         | 130,886 |   |      | $ | 84,932  |  
|                                          |  |           |         |   |      |   |         |  



As March 31, 2005 and
2004, other assets, net are attributable to the manufacturing segment. As of March 31, 2005, Other assets consisted of approximately $70,000 of two customers returned checks. Although the Company has begun legal action against the two
customers, an allowance of $28,629 has been established. The Company intends to continue to pursue collection efforts until such time that management has deemed collection efforts as futile based on ongoing cost versus benefit analyses. Other assets
at March 31, 2004 consisted of a note receivable that was a previous trade accounts receivable that had been converted to a note, from nonaffiliated third party. The $50,000 note, in addition to $11,179 in accrued interest, went into default and
thus had to be fully reserved although the court rendered a judgment in the Companys favor as negotiations have failed. The note, the interest and the related allowance was written off during the fiscal year ended March 31, 2005.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 11LONG-TERM OBLIGATIONS



Long-term obligations consist of the following:



|                                                                                                                                                                                                                                               |  |           |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                                                               |  | March 31, |           
|                                                                                                                                                                                                                                               |  | 2005      |            |   | 2004 |  
|6% Convertible Term Note, due in monthly principal payments of $151,515.15 July 1, 2004, interest due monthly beginning on March 1, 2004, net
of the debt discount for warrants issued of $563,014 and $871,468 as of March 31, 2005 and 2004. |  | $         | 3,376,381  |   |      | $ | 4,128,532  |  
|Other                                                                                                                                                                                                                                          |  |           |           |   |      |   | 163,699    |  
|                                                                                                                                                                                                                                               |  |           |            |   |      |   |            |  
|                                                                                                                                                                                                                                               |  | $         | 3,376,381  |   |      | $ | 4,292,231  |  
|Less current maturities                                                                                                                                                                                                                        |  |           | (1,813,812 | ) |      |   | (1,527,335 | )
|                                                                                                                                                                                                                                               |  |           |            |   |      |   |            |  
|                                                                                                                                                                                                                                               |  | $         | 1,562,569  |   |      | $ | 2,764,896  |  
|                                                                                                                                                                                                                                               |  |           |            |   |      |   |            |  



The $3,376,381 of
total debt outstanding as of March 31, 2005 relates to corporate. Of the $4,292,231 of total debt outstanding as of March 31, 2004, $4,174,672 relates to corporate with the balance of $117,559 attributable to the manufacturing segment. On January
30, 2004, the Company entered into a Securities Purchase Agreement with a Master Fund under which we borrowed $5,000,000 principal in accordance with a 6% Secured Convertible Term Note due January 29, 2007 together with warrants issued to purchase a
total of 150,000 shares of common stock; 75,000 warrants are at a price equal to $7.34, 50,000 warrants are at a price equal to $7.98 and 25,000 warrants at a price equal to $8.62. In accordance with the provisions of EITF 00-27, Black-Scholes
valuations were performed on the 150,000 warrants resulting in a gross debt discount of $932,365 which will be amortized over the term of the debt, or 36 months, to interest expense. All warrants are exercisable until January 29, 2011. $1,206,756 of
the proceeds were used to immediately payoff the Companys outstanding credit lines and a term note payable with another bank. The conversion price of the 6% Secured Convertible Term Note is $6.25 per share. The Company has granted a security
interest in all of its assets until such time that the Principal Term Note is satisfied. The principal and the interest can be paid in cash or in common stock at the Companys option. A 1% surcharge will be assessed to the Company if the
principal is paid in cash. If the interest of the principal is paid with the Companys common stock, the value of the common stock will be determined based on the volume weighted average price (VWAP) of the common stock for the ten trading days
immediately preceeding the due date.



At March 31, 2005,
aggregate maturities of long-term obligations are as follows:



|                      |  |   |           |  
|--------------------- |  | - | --------- | -
|Year ending March 31, |  |   |          
|2006                  |  | $ | 1,813,812 |  
|2007                  |  |   | 1,813,812 |  
|2008                  |  |   | 311,771   |  
|2009                  |  |   |          |  
|2010                  |  |   |          |  
|Thereafter            |  |   |          |  
|                      |  |   |           |  
|                      |  | $ | 3,939,395 |  
|Less debt discount    |  |   | (563,014  | )
|                      |  |   |           |  
|                      |  | $ | 3,376,381 |  
|                      |  |   |           |  



NOTE 12RELATED PARTY
TRANSACTIONS



The Company has entered into transactions
and business relationships with certain of our officers, directors and principal stockholders or their affiliates. We believe that all of the transactions were on terms equal to those that we could have obtained from or extended to independent third
parties.



Revenues: For the fiscal years ended March 31, 2005
and 2004, manufacturing revenues of approximately $414,073 and $704,769, respectively, were recorded from sales by the Company to subsidiaries or joint ventures of Dynamic Health Products, an affiliate of the Company, and of which Jugal K. Taneja,
the Chairman of the Board of the Company, is a principal shareholder. For the fiscal years ended March 31, 2005 and 2004, revenues of $0, and $41,392, respectively, were recorded from sales by the Company to DrugMax, Inc., an affiliate of the
Company, and



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder. For the fiscal years ended March 31, 2005 and 2004, revenues of
$348,156 and $852,018 respectively, were recorded from sales by the Company to Vertical Health Inc., an affiliate of the Company, and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder.



For the fiscal years ended March 31, 2005 and 2004, distribution revenues of
distribution revenues of approximately $22,176 and $0, respectively, were recorded from sales by the Company to subsidiaries or joint ventures of Dynamic Health Products and approximately $0 and $3,464, respectively, were recorded from sales by the
Company to Vertical Health, Inc.



For the fiscal years ended
March 31, 2005 and 2004, pharmacy benefit management revenues of approximately $11,437,659 and $5,937,473, respectively, were recorded from sales by the Company to CarePlus Health Plan, an affiliate of the Companys previous board member Mssr.
Zappala. Our wholly-owned subsidiary, Go2PBMServices, Inc., derives 100% of its revenues from this contract.



Trade Accounts Receivable/ Trade Accounts PayableAmounts due to affiliates and amounts due from affiliates represent balances owed by or amounts
owed to the Company for sales occurring in the normal course of business. Amounts due to and amounts due from these affiliates are in the nature of trade payables or receivables and fluctuate based on sales volume and payments received.



As of March 31, 2005 and 2004, for the manufacturing segment, $51,460 and
$245,535 was due from subsidiaries of Dynamic Health Products. $0 and $57,700, respectively, was due to DrugMax., $57,363 and $216,122 was due from Vertical Health, Inc.



As of March 31, 2005 and 2004, for the pharmacy benefit management segment, $743,801 and $725,514 was due from CarePlus
Health.



Lease / Debt ObligationsFor each of the years
ended March 31, 2005 and 2004, rent expense of $128,529 and $220,334 was paid to Dynamic Health Products, Inc. Monthly rents were approximately $18,333 per month. The Company and Dynamic were parties to a ten-year, triple-net operating lease that
would have expired in the year 2009; however, on October 28, 2004 the Company purchased this leased facility for the independent appraised value of $1,925,000.



In September 1999, the Company issued 150,000 shares of redeemable series A preferred stock to Dynamic Health Care Products, Inc. in satisfaction of
$1,500,000 of outstanding liabilities. The shares of preferred stock were subsequently transferred to JB Capital Corp., a company affiliated with our Chairman, Jugal K. Taneja. Holders of redeemable series A preferred stock vote together with the
holders of common stock with respect to all matters as to which such shareholders vote, with each share of redeemable series A preferred stock entitled to one vote. In the event of liquidation, dissolution or winding-up of our operations, holders of
redeemable series A preferred stock will be paid an amount equal to $10.00 per share of redeemable series A preferred stock before any payment is made with respect to our common stock. The redeemable series A preferred stock pays dividends at the
rate of 10% per annum, which is cumulative from the date of issuance and payable quarterly commencing March 31, 2001. For the years ended March 31, 2004, $69,960 of accrued preferred dividends were paid to JB Capital Corp. For the year ended March
31, 2004, the holders had redeemed 72,000 shares representing all of their remaining shares outstanding having no accrued dividends outstanding.



NOTE 13INCOME TAXES



Income taxes for the years ended March 31, 2005 and 2004 differ from the amounts computed by applying the effective income tax rates to income before
income taxes as a result of the following:



|                                                    |  |           |          |   |      |   |          |  
|--------------------------------------------------- |  | --------- | -------- | - | ---- | - | -------- | -
|                                                    |  | March 31, |         
|                                                    |  | 2005      |          |   | 2004 |  
|Computed tax expense at the statutory rate (37.63%) |  | $         | (407,800 | ) |      | $ | 538,414  |  
|Increase (decrease) in taxes resulting from:        |  |           |          |   |      |   |          |  
|Effect of permanent differences:                    |  |           |          |   |      |   |          |  
|Goodwill and other permanent differences            |  |           | 111,000  |   |      |   | (190,129 | )
|Effect of temporary differences:                    |  |           |          |   |      |   |          |  
|Accruals and allowances                             |  |           | (13,500  | ) |      |   | (15,865  | )
|Depreciation                                        |  |           | (1,600   | ) |      |   | (88,485  | )
|Net operating loss                                  |  |           | (154,442 | ) |      |   | (243,935 | )
|Valuation allowance                                 |  |           | 250,000  |   |      |   |         |  
|                                                    |  |           |          |   |      |   |          |  
|Change in deferred tax                              |  | $         | (216,342 | ) |      | $ | 311,800  |  
|                                                    |  |           |          |   |      |   |          |  
|Income tax (benefit) expense                        |  | $         | (216,342 | ) |      | $ | 311,800  |  
|                                                    |  |           |          |   |      |   |          |  



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GEOPHARMA, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Temporary differences that give rise to deferred tax assets and liabilities
are as follows:



|                                            |  |           |          |   |      |   |          |  
|------------------------------------------- |  | --------- | -------- | - | ---- | - | -------- | -
|                                            |  | March 31, |         
|                                            |  | 2005      |          |   | 2004 |  
|Deferred tax assets:                        |  |           |          |   |      |   |          |  
|Bad debts                                   |  | $         | 52,300   |   |      | $ | 43,600   |  
|Inventories                                 |  |           | 13,200   |   |      |   |         |  
|Accrued vacation                            |  |           | 23,100   |   |      |   | 16,800   |  
|Deposits                                    |  |           | 42,000   |   |      |   | 68,000   |  
|Amortization                                |  |           |         |   |      |   | 65,300   |  
|Research credit carryforward                |  |           | 85,000   |   |      |   | 49,100   |  
|Net operating loss carryforwards            |  |           | 518,500  |   |      |   | 7,800    |  
|                                            |  |           |          |   |      |   |          |  
|                                            |  | $         | 734,100  |   |      | $ | 250,600  |  
|Valuation Allowance                         |  |           | (250,000 | ) |      |   |         |  
|                                            |  |           |          |   |      |   |          |  
|Deferred tax asset                          |  | $         | 484,100  |   |      | $ | 250,600  |  
|                                            |  |           |          |   |      |   |          |  
|Deferred tax liabilities:                   |  |           |          |   |      |   |          |  
|Fixed asset basis differences               |  | $         | (403,200 | ) |      | $ | (398,900 | )
|Amortization                                |  |           | (42,900  | ) |      |   | (15,600  | )
|                                            |  |           |          |   |      |   |          |  
|                                            |  | $         | (446,100 | ) |      | $ | (414,500 | )
|                                            |  |           |          |   |      |   |          |  
|Net deferred tax asset (liability) recorded |  | $         | 38,000   |   |      |   | (163,900 | )
|                                            |  |           |          |   |      |   |          |  



A valuation allowance
has been established in the amount of $250,000 to reduce the gross deferred tax asset from $734,100 to $484,100 as it is more likely than not that this portion of the deferred asset can be recognized in the future.



At March 31, 2005 and 2004, the Company has a tax net operating loss
carryforward of approximately $1,200,000 and $20,697 to offset future taxable income. In addition, the Company has research and development credit carryforwards of approximately $85,000 and $43,000 to offset future tax liability. The tax net
operating loss and research and development credit carryforwards begin to expire in 2021.



NOTE 14SHAREHOLDERS EQUITY



Common Stock



As of March 31, 2005 and 2004,
the number of shares of $.01 par value Common Stock outstanding was 9,181,481 and 7,989,551 before treasury shares of 483,020 and 960 for the same periods. The increase in common shares outstanding is a direct result of stock option exercises,
preferred stock conversion, payment of preferred stock dividends, payment of convertible debt principle and interest, and employee stock awards as partially offset by the Companys purchase of treasury stock. During October 2004, the Company
purchased 152,900 shares and recorded such shares as treasury stock thus adjusting the total shares outstanding as of March 31, 2005. On September 1, 2004, the Companys management was awarded a total of 160,000 restricted shares from the
treasury shares held by the Company and as a direct result of such grant, recorded a non-cash compensation expense of approximately $114,286 included within selling, general and administrative expenses. During February 2004, the Companys
management was awarded a total of 157,000 restricted shares from the treasury shares held by the Company and as a direct result of such grant, recorded a non-cash compensation expense of $112,000 included within selling, general and administrative
expenses.



During the fiscal year ended March 31, 2005,
1,110,000 employee, officer and nonemployee stock options were granted with 264,566 employee, officer and nonemployee stock options exercised. During the fiscal year ended March 31, 2004, 550,000 employee and nonemployee stock options were granted
with 261,917 employee and nonemployee stock options exercised. See further consideration of the stock options below.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Subject to preferences that might be applicable to any Preferred Stock, the
holders of the Common Stock are entitled to receive dividends when, as, and if declared from time to time by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution, or winding up of the Company,
holders of the Common Stock are entitled to share ratably in all assets remaining after payment of liabilities subject to prior distribution rights of any Preferred Stock then outstanding. The Common Stock has no preemptive or conversion rights and
is not subject to call or assessment by the Company. There are no redemption or sinking fund provisions applicable to the Common Stock.



Preferred Stock



On February 10, 2004, we entered into a Securities Purchase Agreement with a Master Fund under which we issued 5,000,000 shares of, 6% Series A
Convertible Preferred Stock of one of our wholly owned subsidiaries, Belcher Capital Corporation together with warrants to purchase 150,000 shares of the companys common stock for $5,000,000; 75,000 warrants are at a price equal to $7.25,
50,000 warrants are at a price equal to $7.88 and 25,000 warrants at a price of $8.51. All of the warrants are exercisable until February 10, 2011. The 6% Series A Convertible Preferred Stock is convertible into the Companys common stock. The
conversion price of the preferred stock is $6.25 per share. The series A convertible preferred stock has a liquidation value of $1 per share. During December 2004, the holders of the series A convertible preferred stock converted all preferred
shares outstanding in exchange for 800,000 shares of the Companys common stock. No warrants were exercised during the fiscal year ended March 31, 2005 or 2004.



On March 5, 2004, we entered into a Securities Purchase Agreement with two Funds under which we issued a total of 5000
shares, 6% Series B Convertible Preferred Stock together with warrants to purchase 262,500 shares of the companys common stock for $5,000,000; 131,250 warrants are at a price equal to $6.29, 131,250 warrants are at a price equal to $6.57. All
of the warrants are exercisable until March 5, 2011. The 6% Series B Convertible Preferred Stock is convertible into the Companys common stock. The conversion price of the preferred stock is $6.00 per share. The series B convertible preferred
stock has a liquidation value of $1,000 per share.



As a direct
result of issuing warrants with the $5 million 6% convertible debt in January, the Company recorded $932,365 discount on the three-year term note based on applying a Black-Scholes valuation which lowered the gross amount of the note payable with the
$932,365 offset recorded within Additional Paid in Capital (APIC). The $932,365 discount will be straight-line amortized to interest expense over the three-year life of the note. As a direct result of issuing warrants with the $10
million 6% convertible preferred stock in February and March, the Company recorded a total of $3,580,960 discount on the $10 million 6% convertible preferred stock based on applying a Black-Scholes valuation which resulted in a net reclassification
of $684,187 and $3,580,960 as of March 31 2005 and 2004 which reduced retained earnings and increased APIC. All Black-Scholes valuations referenced and related entries are noncash transactions.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                       |                             |          |                                                     |             |                                 |   |                                       |          |                                  |             |   |     
|---------------------- | --------------------------- | -------- | --------------------------------------------------- | ----------- | ------------------------------- | - | ------------------------------------- | -------- | -------------------------------- | ----------- | - | ----
|Range ofExercisePrices |                             | Warrants |                                                     | Outstanding |                                 |   |                                       | Warrants |                                  | Exercisable
|                       | Number Outstanding 03/31/05 |          | Weighted Average Remaining Contractual Life (years) |             | Weighted Average Price 03/31/05 |   | Options exercisable at March 31, 2005 |          | Weighted Average Exercise Prices
|$6.29-$8.62            |                             | 562,500  |                                                     | 7           |                                 | $ | 7.19                                  |          | 562,500                          |             | $ | 7.19



Stock Option Plan



On September 30, 1999, the Company adopted a Stock Option Plan, which
provides for the grant to employees of incentive or non-qualified options to purchase up to 1,000,000 shares of Common Stock; on May 18, 2004, based on a majority shareholder vote, the plan was increased by 500,000, for a total of 1,500,000. The
exercise price represents the closing price of the Companys Common Stock at the time of the grant. All outstanding options vest equally over three years or sooner upon the change in control of the Company. Options granted under the Plan expire
not later than ten years after the date granted or sooner in the event of death, disability, retirement, or termination of employment.



The Non-Employee Plan



The Non-Employee Plan originally provided for the grant of nonqualified stock options to purchase up to 500,000 shares of Common Stock to members of the
Board of Directors who are not employees of the Company. On May 18, 2004, the shareholders approved the amendment to the Plan increasing the total shares to 1,000,000. On the date on which a new non-employee director is first elected or appointed,
he will automatically be granted options to purchase 25,000 shares of Common Stock for each year of his initial term. All options have an exercise price equal to the fair market value of the Common Stock on the date of grant. The options vest over a
three-year vesting schedule with the first years vesting period ending one year from date of grant. 300,000 of the 530,000 non employee options granted during the fiscal year ended March 31, 2004 qualified for valuation using Black-Scholes and
the Company recorded a gross deferred asset of $155,000 to which approximately $40,000 and $66,000 was amortized to compensation expense for the years ended March 31, 2005 and 2004. This valuation and related expense was required under SFAS 123
treatment for nonemployee consultants. The following summarizes the non-employee common stock options outstanding as of March 31, 2005 and 2004:



|                               |  |                  |   |  |                                 |       |   |                  |          |   |                                 |   |       |  
|------------------------------ |  | ---------------- | - |  | ------------------------------- | ----- | - | ---------------- | -------- | - | ------------------------------- | - | ----- | -
|                               |  | 2005             |   |  | 2004                            |      
|Non-Employee Stock Options     |  | Number of Shares |   |  | Weighted Average Exercise Price |       |   | Number of Shares |          |   | Weighted Average Exercise Price |  
|Outstanding, beginning of year |  | 729,531          |   |  | $                               | 3.06  |   |                  | 457,000  |   |                                 | $ | 1.38  |  
|Granted                        |  | 460,000          |   |  | $                               | 5.28  |   |                  | 530,000  |   |                                 | $ | 3.67  |  
|Exercised                      |  | (220,866         | ) |  | $                               | (2.97 | ) |                  | (207,469 | ) |                                 | $ | (1.08 | )
|Forfeited                      |  | (102,000         | ) |  | $                               | (2.64 | ) |                  | (50,000  | ) |                                 | $ | (1.00 | )
|                               |  |                  |   |  |                                 |       |   |                  |          |   |                                 |   |       |  
|Outstanding, end of year       |  | 866,665          |   |  | $                               | 4.31  |   |                  | 729,531  |   |                                 | $ | 3.06  |  
|                               |  |                  |   |  |                                 |       |   |                  |          |   |                                 |   |       |  
|Options vested, end of year    |  | 134,332          |   |  | $                               | 1.52  |   |                  | 120,198  |   |                                 | $ | 1.88  |  
|                               |  |                  |   |  |                                 |       |   |                  |          |   |                                 |   |       |  



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GEOPHARMA, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Employee Plan



The following table summarizes information about the employee stock option activity for the years ended March 31, 2005 and
2004:



|                               |  |                  |   |  |                                 |       |   |                  |         |   |                                 |   |       |  
|------------------------------ |  | ---------------- | - |  | ------------------------------- | ----- | - | ---------------- | ------- | - | ------------------------------- | - | ----- | -
|                               |  | 2005             |   |  | 2004                            |      
|Employee Stock Options         |  | Number of Shares |   |  | Weighted Average Exercise Price |       |   | Number of Shares |         |   | Weighted Average Exercise Price |  
|Outstanding, beginning of year |  | 507,219          |   |  | $                               | 1.71  |   |                  | 465,000 |   |                                 | $ | 1.38  |  
|Granted                        |  | 200,000          |   |  | $                               | 4.55  |   |                  | 20,000  |   |                                 | $ | 2.99  |  
|Exercised                      |  | (39,300          | ) |  | $                               | (0.85 | ) |                  | (27,781 | ) |                                 | $ | (0.85 | )
|(Forfeited)/ transferred in    |  | (34,719          | ) |  | $                               | (1.59 | ) |                  | 50,000  |   |                                 | $ | 0.85  |  
|                               |  |                  |   |  |                                 |       |   |                  |         |   |                                 |   |       |  
|Outstanding, end of year       |  | 633,200          |   |  | $                               | 2.46  |   |                  | 507,219 |   |                                 | $ | 1.71  |  
|                               |  |                  |   |  |                                 |       |   |                  |         |   |                                 |   |       |  
|Options vested, end of year    |  | 351,134          |   |  | $                               | 1.57  |   |                  | 287,219 |   |                                 | $ | 1.81  |  
|                               |  |                  |   |  |                                 |       |   |                  |         |   |                                 |   |       |  



During the fiscal year
ended March 31, 2005, September 1, 2004, the board of directors approved the granting of 200,000 options to be allocated amongst the Companys employees of record as of that date. The exercise price of the options is $4.55 based on the closing
price the day of the grant. Grants were allocated based on years if service and salary. Only 20,000 options were granted during fiscal year 2004 to an employee as a hiring incentive. The exercise price was $2.99 based on the closing price the date
of hire, August 29, 2003. The 50,000 options reflected as a transfer in was a grant originally included in the June 2002 officers grant but was reclassified as an employee grant.



|                               |  |                  |   |  |                                 |       |   |                  |         |   |                                 |   |       |  
|------------------------------ |  | ---------------- | - |  | ------------------------------- | ----- | - | ---------------- | ------- | - | ------------------------------- | - | ----- | -
|                               |  | 2005             |   |  | 2004                            |      
|Officer Stock Options          |  | Number of Shares |   |  | Weighted Average Exercise Price |       |   | Number of Shares |         |   | Weighted Average Exercise Price |  
|Outstanding, beginning of year |  | 323,333          |   |  | $                               | 1.62  |   |                  | 400,000 |   |                                 | $ | 1.28  |  
|Granted                        |  | 450,000          |   |  | $                               | 4.55  |   |                  | 0       |   |                                 | $ | 0     |  
|Exercised                      |  | (3,400           | ) |  | $                               | (0.85 | ) |                  | (26,667 | ) |                                 | $ | (0.85 | )
|Forfeited or transferred       |  |                 |   |  |                                 |      |   |                  | (50,000 | ) |                                 | $ | (0.85 | )
|                               |  |                  |   |  |                                 |       |   |                  |         |   |                                 |   |       |  
|Outstanding, end of year       |  | 769,933          |   |  | $                               | 1.71  |   |                  | 323,333 |   |                                 | $ | 1.62  |  
|                               |  |                  |   |  |                                 |       |   |                  |         |   |                                 |   |       |  
|Options vested, end of year    |  | 319,933          |   |  | $                               | 1.41  |   |                  | 190,000 |   |                                 | $ | 1.30  |  
|                               |  |                  |   |  |                                 |       |   |                  |         |   |                                 |   |       |  



On September 1, 2004,
the board of directors approved the granting a total of 450,000 to be allocated to each of the Companys officers of record as of that date. The exercise price was $4.55 per share based on the closing price on the date of grant.



Employee Stock Options



The weighted-average fair value of options granted for the years ending March 31, 2005 and 2004 was $4.36 and $1.59. The
estimated fair value for the above options was determined using the Black-Scholes method with the following weighted-average assumptions used for grants in 2005 and 2004 were as follows:



|                        |  |          |   |  |          |  
|----------------------- |  | -------- | - |  | -------- | -
|                        |  | 2005     |   |  | 2004     |  
|Dividend Yield          |  | 0.00     | % |  | 0.00     | %
|Option Term             |  | 10 years |   |  | 10 years |  
|Expected volatility     |  | 122.39   | % |  | 127.1    | %
|Risk-free interest rate |  | 4.13     | % |  | 3.54     | %



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Officers Stock Options



The weighted-average fair value of options granted for the years ending
March 31, 2005 and 2004 was $4.68, (no officer options were granted during fiscal year ended March 31, 2004). The estimated fair value for the above options was determined using the Black-Scholes method with the following weighted-average
assumptions used for grants in 2005 and 2004:



|                        |  |          |   |  |          |  
|----------------------- |  | -------- | - |  | -------- | -
|                        |  | 2005     |   |  | 2004     |  
|Dividend Yield          |  | 0.00     | % |  | 0.00     | %
|Option Term             |  | 10 years |   |  | 10 years |  
|Expected volatility     |  | 120.92   | % |  | 127.1    | %
|Risk-free interest rate |  | 4.62     | % |  | 3.54     | %



The Company has
adopted only the disclosure provision of SFAS No. 123, as it related to employee awards. APB No. 25 is applied in accounting for the plan. Accordingly, no compensation expense is recognized related to the employee and nonemployee director stock
based compensation plans although, $40,000 and $66,000 compensation expense has been included in the results from operations for the fiscal year ended March 31, 2005 and 2004 for nonemployee consultants granted stock options under the Companys
nonemployee stock option plan. The pro forma net earnings (loss) per common share, if the Company had elected to account for its employee and nonemployee director plan consistent with the methodology prescribed by SFAS No. 123, are shown in the
following:



|                                 |  |      |            |   |      |   |          
|-------------------------------- |  | ---- | ---------- | - | ---- | - | ---------
|                                 |  | 2005 |            |   | 2004
|Net income (loss):               |  |      |            |   |      |   |          
|As reported                      |  | $    | (1,403,454 | ) |      | $ | 1,007,119
|                                 |  |      |            |   |      |   |          
|Pro forma                        |  | $    | (2,721,616 | ) |      | $ | 745,175  
|                                 |  |      |            |   |      |   |          
|Net income per common share:     |  |      |            |   |      |   |          
|Basic income (loss) per share:   |  |      |            |   |      |   |          
|As reported                      |  | $    | (0.17      | ) |      | $ | 0.13     
|                                 |  |      |            |   |      |   |          
|Pro forma                        |  | $    | (0.34      | ) |      | $ | 0.10     
|                                 |  |      |            |   |      |   |          
|Diluted income (loss) per share: |  |      |            |   |      |   |          
|As reported                      |  | $    | (0.17      | ) |      | $ | 0.11     
|                                 |  |      |            |   |      |   |          
|Pro forma                        |  | $    | (0.34      | ) |      | $ | 0.08     
|                                 |  |      |            |   |      |   |          



|                         |  |                             |  |                                                     |  |                                 |      |                                       |         |                                  |   |     
|------------------------ |  | --------------------------- |  | --------------------------------------------------- |  | ------------------------------- | ---- | ------------------------------------- | ------- | -------------------------------- | - | ----
|                         |  | Options                     |  | Outstanding                                         |  |                                 |      | Options                               |         | Exercisable                     
|Range of Exercise Prices |  | Number Outstanding 03/31/05 |  | Weighted Average Remaining Contractual Life (years) |  | Weighted Average Price 03/31/05 |      | Options exercisable at March 31, 2005 |         | Weighted Average Exercise Prices
|$0.80 - $2.00            |  | 1,099,798                   |  | 6.28                                                |  | $                               | 1.36 |                                       | 805,399 |                                  | $ | 1.38
|$2.99 - $4.55            |  | 930,000                     |  | 9.00                                                |  | $                               | 4.54 |                                       |         |                                  |   |     
|$5.00 - $6.44            |  | 240,000                     |  | 9.00                                                |  | $                               | 6.19 |                                       |         |                                  |   |     
|                         |  |                             |  |                                                     |  |                                 |      |                                       |         |                                  |   |     
|$0.80 - $6.44            |  | 2,269,798                   |  | 9.09                                                |  | $                               | 3.17 |                                       | 805,399 |                                  | $ | 1.38
|                         |  | Options                     |  | Outstanding                                         |  |                                 |      | Options                               |         | Exercisable                     
|Range of Exercise Prices |  | Number Outstanding 03/31/04 |  | Weighted Average Remaining Contractual Life (years) |  | Weighted Average Price 03/31/04 |      | Options exercisable at March 31, 2004 |         | Weighted Average Exercise Prices
|$0.80 - $2.00            |  | 1,429,981                   |  | 7.28                                                |  | $                               | 1.36 |                                       | 597,417 |                                  | $ | 1.59
|$2.99 - $4.49            |  | 50,000                      |  | 10.00                                               |  | $                               | 4.03 |                                       |         |                                  |   |     
|$5.00 - $6.44            |  | 80,000                      |  | 10.00                                               |  | $                               | 5.63 |                                       |         |                                  |   |     
|                         |  |                             |  |                                                     |  |                                 |      |                                       |         |                                  |   |     
|$0.80 - $6.44            |  | 1,559,981                   |  | 9.09                                                |  | $                               | 3.67 |                                       | 597,417 |                                  | $ | 1.59



NOTE 15COMMITMENTS AND
CONTINGENCIES



Operating Leases



The Company has operating leases for facilities and certain machinery and
equipment that expire at various dates through 2009. Certain leases provide an option to extend the lease term. Certain leases provide for payment by the Company of any increases in property taxes, insurance, and common area maintenance over a base
amount and



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



others provide for payment of all property taxes and insurance by the Company. Future minimum
lease payments, by year and in aggregate under non-cancelable operating leases, consist of the following at March 31, 2005:



|                      |  |   |          
|--------------------- |  | - | ---------
|Year ending March 31, |  |  
|2006                  |  | $ | 386,481  
|2007                  |  |   | 386,481  
|2008                  |  |   | 386,481  
|2009                  |  |   | 386,481  
|2010                  |  |   | 386,481  
|Thereafter            |  |   | 772,962  
|                      |  |   |          
|                      |  | $ | 2,705,367
|                      |  |   |          



Litigation



In December 2004 and January 2005 five securities class action
lawsuits were filed in the Federal District Court, Southern District of New York against GeoPharma and certain of its officers, alleging violations of federal securities laws in connection with certain press releases issued by the Company relating
to Belcher Pharmaceuticals planned introduction of Mucotrol: Mat eVentures v. Kotha Sekharam and GeoPharma, Inc. (SDNY 04 Civ. 9463); Moshayedi v. GeoPharma, Inc., Jugal Taneja, Mihir Taneja, and Kotha Sekharam (SDNY 04 Civ. 9736); Sarno v.
Mihir Taneja, Kotha Sekharam, and GeoPharma, Inc. (SDNY 04 Civ. 9975); Farwell v. Kotha Sekharam and GeoPharma, Inc. (SDNY 05 Civ. 188); and Taylor v. Kotha Sekharam and GeoPharma, Inc. (SDNY 05 Civ. 258). Plaintiffs, on behalf of themselves and all
others similarly situated, seek unspecified damages allegedly suffered in connection with their respective purchases and sales of the Companys securities during the Class period. On March 9, 2005 the Court consolidated the actions and
appointed lead plaintiff and lead counsel. On April 18, 2005 plaintiffs filed a Consolidated Amended Class Action Complaint. On June 6, 2005 defendants filed a Motion to Dismiss the action. Plaintiffs Opposition papers are due to be filed by
July 8, 2005, and defendants Reply papers are due to be filed by July 25, 2005. It is not possible to predict with certainty the ultimate outcome of these lawsuits. Although the Company has certain insurance, if these matters are resolved
unfavorably, they could have a material adverse effect on the Companys operating results or cash flows.



The company received a letter dated April 11, 2005 addressed to its Board of Directors, constituting a shareholder demand pursuant to Florida Statute Sec.
607.07401 from a San Diego law firm representing an alleged shareholder of GeoPharma, Inc. Such letter demanded that the company commence legal proceedings against each Board member and each officer of the company for alleged breaches of fiduciary
duty arising out of and/or evidenced by the same actions and circumstances involved in the class action referred to above. At its Board meeting of June 7, 2005, the Board of Directors appointed a committee of independent directors to investigate the
allegations outlined in such letter.



From time to time we are
subject to litigation incidental to our business including possible product liability claims. Such claims, if successful, could exceed applicable insurance coverage.



The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary
course of business. The Company believes that none of the claims that were outstanding as of March 31, 2005 should have a material adverse impact on its financial condition or results of operations.



Employment Agreements



Effective April 1, 2004, the Company renegotiated and renewed executive managements three year employment agreements
with the Chief Executive Officer, the President and the Vice President/Chief Financial Officer at annual salaries of $175,000, $135,000 and $130,000 plus benefits respectively.



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GEOPHARMA, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Directors Compensation



The Company pays directors fees of $2,000 each per quarter. In addition,
each non-employee director receives options to purchase shares of common stock for each year completed of the directors term. See further consideration within Note 14 above.



Common Stock



On April 11, 2003 the Company filed a lawsuit against Joseph Zappala, a member of the Companys Board of Directors in the Sixth Judicial Circuit in
and for Pinellas County, Florida. The lawsuit seeks to rescind a purported agreement between the Company and Mr. Zappala, breach of a consulting agreement between the Company and Mr. Zappala and related claims involving those agreements. Mr. Zappala
has denied the material allegations against him and has filed a counterclaim against the Company for breach of the consulting agreement.



On April 20, 2004, the Company and Mr. Zappala entered into an agreement (Settlement Agreement) pursuant to which each party expressly
disclaimed any liability and each party released the other (and all related parties) from all claims, and liabilities arising from the Merger Agreement, the Consulting Agreement and/or the subject matter of the Companys lawsuit against Mr.
Zappala and Go2 (Lawsuit), and the parties agreed to dismiss the Lawsuit with prejudice. As provided by the Settlement Agreement: (i) Mr. Zappala transferred ownership of 500,000 shares of the Companys common stock to the Company;
(ii) the Consulting Agreement was terminated without further liability to either party; and (iii) Mr. Zappala agreed, that during his tenure as a Director of the Company, he would not sell his remaining shares of Company common stock, unless another
Director of the Company sells shares of Company common stock. The Company filed Form 8-K with the Securities and Exchange Commission on April 26, 2004. On December 3, 2004, Mr. Zappala resigned from the Companys board of directors.



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