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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For the quarter ended September 30, 2006

or



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

Commission File Number 001-16185



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GEOPHARMA, INC.

(Name of small
business issuer as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|STATE OF FLORIDA                                               |  | 59-2600232                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|6950 Bryan Dairy Road, Largo, Florida    |  | 33777     
|(Address of principal executive offices) |  | (Zip Code)

Issuers telephone number, including area code: (727) 544-8866



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Indicate by check mark whether the
issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    x  Yes ̈No

The number of shares outstanding of the Issuers common stock at $.01 par value as of
November 11, 2006 was 9,806,733 net of treasury.

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.):    Yes ̈No  x



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Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

GEOPHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS



|                                               |  |                    |            |                |   |           
|---------------------------------------------- |  | ------------------ | ---------- | -------------- | - | ----------
|                                               |  | September 30, 2006 |            | March 31, 2006
|                                               |  | (Unaudited)        |            | (Audited)     
|Current assets:                                |  |                    |            |                |   |           
|Cash and cash equivalents                      |  | $                  | 771,087    |                | $ | 1,206,017 
|Certificate of deposit                         |  |                    | 438,726    |                |   | 433,273   
|Accounts receivable, net                       |  |                    | 9,227,439  |                |   | 7,465,025 
|Accounts receivable, other                     |  |                    | 528,406    |                |   | 634,684   
|Inventories, net                               |  |                    | 4,862,698  |                |   | 5,767,056 
|Prepaid expenses and other current assets      |  |                    | 2,036,380  |                |   | 1,324,339 
|Due from affiliates                            |  |                    | 1,359,582  |                |   | 1,162,416 
|                                               |  |                    |            |                |   |           
|Total current assets                           |  | $                  | 19,296,318 |                | $ | 17,992,810
|                                               |  |                   
|Property, plant, leaseholds and equipment, net |  |                    | 8,994,539  |                |   | 8,024,651 
|                                               |  |                   
|Goodwill, net                                  |  |                    | 728,896    |                |   | 728,896   
|Intangible assets, net                         |  |                    | 4,277,418  |                |   | 4,384,842 
|Media credits, net                             |  |                    | 799,748    |                |   | 799,748   
|Deferred tax asset                             |  |                    | 219,200    |                |   |          
|Other assets, net                              |  |                    | 206,695    |                |   | 166,194   
|                                               |  |                    |            |                |   |           
|Total assets                                   |  | $                  | 34,522,814 |                | $ | 32,097,141
|                                               |  |                    |            |                |   |           

See accompanying notes to condensed consolidated financial statements



2



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LIABILITIES AND SHAREHOLDERS EQUITY



|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | - | -------------- | - | ----------- | -
|                                                                                                                                                           |  | September 30, 2006 |             |   | March 31, 2006 |  
|                                                                                                                                                           |  | (Unaudited)        |             |   | (Audited)      |  
|Current liabilities:                                                                                                                                       |  |                    |             |   |                |   |             |  
|Accounts payable                                                                                                                                           |  | $                  | 4,105,515   |   |                | $ | 4,882,107   |  
|Current portion of long-term obligations                                                                                                                   |  |                    | 1,591,812   |   |                |   | 1,016,789   |  
|Accrued expenses, other liabilities and related party obligations                                                                                          |  |                    | 5,032,967   |   |                |   | 3,711,153   |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total current liabilities                                                                                                                                  |  | $                  | 10,730,294  |   |                | $ | 9,610,049   |  
|Long-term obligations, less current portion                                                                                                                |  |                    | 1,666,667   |   |                |   | 1,666,667   |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total liabilities                                                                                                                                          |  | $                  | 12,396,961  |   |                | $ | 11,276,716  |  
|                                                                                                                                                           |  |                   
|Commitments and contingencies                                                                                                                              |  |                    |             |   |                |   |             |  
|                                                                                                                                                           |  |                   
|Minority interest                                                                                                                                          |  |                    | (664,328    | ) |                |   | (582,610    | )
|                                                                                                                                                           |  |                   
|Shareholders equity:                                                                                                                                      |  |                    |             |   |                |   |             |  
|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; 10,146,350 and 10,051,775 shares issued and outstanding                                        |  |                    | 101,464     |   |                |   | 100,518     |  
|Treasury stock (339,617 and 189,617 common shares, $.01 par value)                                                                                         |  |                    | (3,396      | ) |                |   | (1,896      | )
|Additional paid-in capital                                                                                                                                 |  |                    | 47,615259   |   |                |   | 46,593,630  |  
|Retained earnings (deficit)                                                                                                                                |  |                    | (24,923,196 | ) |                |   | (25,289,267 | )
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total shareholders equity                                                                                                                                 |  | $                  | 22,790,181  |   |                | $ | 21,403,035  |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total liabilities and shareholders equity                                                                                                                 |  | $                  | 34,522,814  |   |                | $ | 32,097,141  |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  

See accompanying notes to condensed consolidated financial statements.



3



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GEOPHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                        |  | Three Months Ended September 30, |            |   | Six Months Ended September 30, |  
|                                                                        |  | 2006                             |            |   | 2005                           |   |            | 2006 |  |   | 2005       |  
|Revenues:                                                               |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|PBM (a related party activity)                                          |  | $                                | 4,673,611  |   |                                | $ | 4,060,596  |      |  | $ | 9,551,393  |   |  | $ | 8,184,406  |  
|Distribution                                                            |  |                                  | 3,323,298  |   |                                |   | 3,280,712  |      |  |   | 6,495,174  |   |  |   | 6,938,670  |  
|Manufacturing                                                           |  |                                  | 8,643,527  |   |                                |   | 4,671,474  |      |  |   | 15,028,499 |   |  |   | 8,653,787  |  
|Pharmaceutical                                                          |  |                                  | 38,360     |   |                                |   | 208,926    |      |  |   | 251,846    |   |  |   | 218,902    |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                                                          |  | $                                | 16,678,796 |   |                                | $ | 12,221,708 |      |  | $ | 31,326,911 |   |  | $ | 23,995,765 |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Cost of goods sold:                                                     |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|PBM                                                                     |  |                                  | 4,637,583  |   |                                |   | 4,026,858  |      |  |   | 9,476,037  |   |  |   | 8,121,925  |  
|Distribution                                                            |  |                                  | 1,384,061  |   |                                |   | 2,457,026  |      |  |   | 2,762,226  |   |  |   | 4,554,642  |  
|Manufacturing (excluding depreciation and amortization presented below) |  |                                  | 5,759,086  |   |                                |   | 2,836,381  |      |  |   | 10,308,317 |   |  |   | 5,126,551  |  
|Pharmaceutical                                                          |  |                                  | 233,082    |   |                                |   | 122,103    |      |  |   | 608,700    |   |  |   | 124,697    |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total cost of goods sold                                                |  | $                                | 12,013,812 |   |                                | $ | 9,442,368  |      |  | $ | 23,155,280 |   |  | $ | 17,927,815 |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Gross profit:                                                           |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|PBM                                                                     |  |                                  | 36,028     |   |                                |   | 33,738     |      |  |   | 75,356     |   |  |   | 62,481     |  
|Distribution                                                            |  |                                  | 1,939,237  |   |                                |   | 823,686    |      |  |   | 3,732,948  |   |  |   | 2,384,028  |  
|Manufacturing                                                           |  |                                  | 2,884,441  |   |                                |   | 1,835,093  |      |  |   | 4,820,182  |   |  |   | 3,527,236  |  
|Pharmaceutical                                                          |  |                                  | (194,722   | ) |                                |   | 86,823     |      |  |   | (356,854   | ) |  |   | 94,205     |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total gross profit                                                      |  | $                                | 4,664,984  |   |                                | $ | 2,779,340  |      |  | $ | 8,171,631  |   |  | $ | 6,067,950  |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Selling, general and administrative expenses:                           |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Selling, general and administrative expenses                            |  |                                  | 3,307,757  |   |                                |   | 2,594,337  |      |  |   | 5,931,207  |   |  |   | 5,034,795  |  
|Stock option compensation expense                                       |  |                                  | 427,675    |   |                                |   |           |      |  |   | 855,350    |   |  |   |           |  
|Depreciation and amortization                                           |  |                                  | 245,565    |   |                                |   | 172,926    |      |  |   | 481,627    |   |  |   | 334,562    |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Selling, general and administrative expenses                            |  |                                  | 3,980,997  |   |                                |   | 2,767,263  |      |  |   | 7,268,184  |   |  |   | 5,369,357  |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Operating income (loss) before other income and expense                 |  | $                                | 683,987    |   |                                | $ | 12,077     |      |  | $ | 903,447    |   |  | $ | 698,593    |  
|Other income (expense), net:                                            |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Other income (expense), net                                             |  |                                  | 166,197    |   |                                |   | 824,123    |      |  |   | 164,301    |   |  |   | 877,365    |  
|Interest expense, net                                                   |  |                                  | (25,204    | ) |                                |   | (111,922   | )    |  |   | (28,617    | ) |  |   | (175,675   | )
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total other income (expense), net                                       |  | $                                | 140,993    |   |                                | $ | 712,201    |      |  | $ | 135,684    |   |  | $ | 701,690    |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Income (loss) before income taxes                                       |  | $                                | 824,980    |   |                                | $ | 724,278    |      |  | $ | 1,039,131  |   |  | $ | 1,400,283  |  
|Minority interest benefit (expense)                                     |  |                                  | 327,057    |   |                                |   | 76,326     |      |  |   | 664,328    |   |  |   | 84,861     |  
|Income tax expense                                                      |  |                                  | (284,000   | ) |                                |   | (212,000   | )    |  |   | (588,000   | ) |  |   | (284,000   | )
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss)                                                       |  | $                                | 868,037    |   |                                | $ | 588,604    |      |  | $ | 1,115,459  |   |  | $ | 1,201,144  |  
|Preferred stock dividends                                               |  |                                  | 75,000     |   |                                |   | 75,000     |      |  |   | 150,000    |   |  |   | 150,000    |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) available to common shareholders                      |  | $                                | 793,037    |   |                                | $ | 513,604    |      |  | $ | 965,459    |   |  | $ | 1,051,244  |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic income (loss) per share                                           |  | $                                | .08        |   |                                | $ | .06        |      |  | $ | .10        |   |  | $ | .12        |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic weighted average Number of common shares outstanding              |  |                                  | 9,927,195  |   |                                |   | 8,901,724  |      |  |   | 9,907,322  |   |  |   | 8,824,381  |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Diluted income (loss) per share                                         |  | $                                | .07        |   |                                | $ | .04        |      |  | $ | .08        |   |  | $ | .08        |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Diluted weighted average number of common shares outstanding            |  |                                  | 13,331,543 |   |                                |   | 12,747,697 |      |  |   | 13,311,670 |   |  |   | 12,685,900 |  
|                                                                        |  |                                  |            |   |                                |   |            |      |  |   |            |   |  |   |            |  

See accompanying notes to condensed consolidated financial statements.



4



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GEOPHARMA, INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS



|                                                                           |  |                                     |            |   |                                     |   |            |  
|-------------------------------------------------------------------------- |  | ----------------------------------- | ---------- | - | ----------------------------------- | - | ---------- | -
|                                                                           |  | Six Months Ended September 30,      |           
|                                                                           |  | 2006                                |            |   | 2005                                |  
|                                                                           |  | (Unaudited)                         |            |   | (Unaudited)                         |  
|Cash flows from operating activities:                                      |  |                                     |            |   |                                     |   |            |  
|Net income                                                                 |  | $                                   | 1,115,459  |   |                                     | $ | 1,201,144  |  
|Adjustments to reconcile net income to net cash from operating activities: |  |                                     |            |   |                                     |   |            |  
|Depreciation and amortization                                              |  |                                     | 481,627    |   |                                     |   | 334,562    |  
|Accrued interest income                                                    |  |                                     | (5,453     | ) |                                     |   | (6,574     | )
|Amortization of stock option deferred compensation                         |  |                                     | 970,495    |   |                                     |   | 22,395     |  
|Amortization of debt discount to interest expense                          |  |                                     |           |   |                                     |   | 110,745    |  
|Change in net deferred taxes                                               |  |                                     | 588,000    |   |                                     |   | 284,000    |  
|Changes in operating assets and liabilities:                               |  |                                     |            |   |                                     |   |            |  
|Accounts receivable, net                                                   |  |                                     | (1,762,414 | ) |                                     |   | (2,085,818 | )
|Accounts receivable, other                                                 |  |                                     | 106,278    |   |                                     |   | 391,994    |  
|Inventory, net                                                             |  |                                     | 904,358    |   |                                     |   | (1,275,301 | )
|Prepaid expenses and other current assets                                  |  |                                     | (712,041   | ) |                                     |   | (163,452   | )
|Other assets                                                               |  |                                     | (126,757   | ) |                                     |   | (1,775     | )
|Accounts payable                                                           |  |                                     | (776,592   | ) |                                     |   | 840,701    |  
|Accrued expenses                                                           |  |                                     | (115,691   | ) |                                     |   | 1,350,917  |  
|Due from affiliates, net                                                   |  |                                     | (195,299   | ) |                                     |   | (246,288   | )
|                                                                           |  |                                     |            |   |                                     |   |            |  
|Net cash provided by (used in) operating activities                        |  | $                                   | 399,970    |   |                                     | $ | 757,250    |  
|                                                                           |  |                                    
|Cash flows from investing activities:                                      |  |                                     |            |   |                                     |   |            |  
|Purchases of property, leaseholds and equipment                            |  | $                                   | (1,397,961 | ) |                                     | $ | (4,117,655 | )
|Proceeds (uses) due to minority interest investment, net                   |  |                                     | (81,718    | ) |                                     |   | 895,039    |  
|                                                                           |  |                                     |            |   |                                     |   |            |  
|Net cash used in investing activities                                      |  | $                                   | (1,479,679 | ) |                                     | $ | (3,222,616 | )
|                                                                           |  |                                    
|Cash flows from financing activities:                                      |  |                                     |            |   |                                     |   |            |  
|Proceeds from issuance of long-term obligations                            |  | $                                   | 750,000    |   |                                     | $ | 3,000,000  |  
|Payments of long-term obligations                                          |  |                                     | (174,977   | ) |                                     |   | (1,632,624 | )
|Proceeds from stock option exercise                                        |  |                                     | 69,756     |   |                                     |   | 80,138     |  
|                                                                           |  |                                     |            |   |                                     |   |            |  
|Net cash provided by (used in) financing activities                        |  | $                                   | 644,779    |   |                                     | $ | 1,447,514  |  
|                                                                           |  |                                     |            |   |                                     |   |            |  
|Net increase (decrease) in cash                                            |  |                                     | (434,930   | ) |                                     |   | (1,017,852 | )
|Cash at beginning of period                                                |  |                                     | 1,206,017  |   |                                     |   | 6,433,011  |  
|                                                                           |  |                                     |            |   |                                     |   |            |  
|Cash at end of period                                                      |  | $                                   | 771,087    |   |                                     | $ | 5,415,159  |  
|                                                                           |  |                                     |            |   |                                     |   |            |  
|SUPPLEMENTAL INFORMATION:                                                  |  |                                     |            |   |                                     |   |            |  
|Cash paid during the period for interest                                   |  | $                                   | 28,389     |   |                                     | $ | 56,662     |  
|                                                                           |  |                                     |            |   |                                     |   |            |  
|Cash paid during the period for income taxes                               |  | $                                   | 140,000    |   |                                     | $ |           |  
|                                                                           |  |                                     |            |   |                                     |   |            |  
|                                                                           |  |                                    
|                                                                           |  | Six months ended September 30, 2006 |            |   | Six months ended September 30, 2005 |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                               |  |                                     |            |   |                                     |   |            |  
|Value of common stock issued to pay preferred stock dividend               |  | $                                   | 150,000    |   |                                     | $ | 150,000    |  
|Value of common stock issued as 401(k) match                               |  | $                                   |           |   |                                     | $ | 47,815     |  



5



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GEOPHARMA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX
MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

(UNAUDITED)

NOTE 1-BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instruction to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and six month periods ended September 30, 2006 and 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2007. For further
information, refer to the consolidated financial statements and footnotes included in the Companys Form-10KSB as of and for the years ended March 31, 2006 and 2005 as filed with the Securities and Exchange Commission on June 29,
2006.

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Principles of Consolidation

The condensed consolidated financial statements as of September 30, and March 31,
2006 and for the three and six months ended September 30, 2006 and 2005 include the accounts of GeoPharma, Inc. (the Company), (GeoPharma), which is continuing to do manufacturing business as Innovative Health Products,
Inc. (Innovative), and its Florida wholly-owned subsidiaries Breakthrough Engineered Nutrition, Inc. (Breakthrough), Libi Labs, Inc. (Libi), Belcher Pharmaceuticals, Inc., (Belcher), Breakthrough
Marketing Inc., (B-Marketing), IHP Marketing, Inc., (IHP-Marketing), and Go2PBM Services, Inc. (PBM) and its Delaware wholly-owned subsidiary, Belcher Capital Corporation, (Belcher Capital). Effective
August 2005, the Company has a 51% controlling interest in our new Florida-incorporated subsidiary, American Antibiotics, LLC ( American), which is accounted for given the consideration of the 49% minority interest. All transactions
relating to 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 related to the allocation of resources and in the resulting assessment of the segments overall performance. As of September 30, 2006 and March 31, 2006, the Company had four industry segments in
addition to corporate: manufacturing, distribution, pharmacy benefit management and pharmaceutical. The $34,522,814 of total assets as of September 30, 2006 were comprised of $1,472,110 attributable to corporate, $11,939,095 attributable to
manufacturing, $6,257,279 attributable to distribution, $1,170,011 attributable to pharmacy benefit management and $13,684,319 attributable to pharmaceutical. The $32,097,141 of total assets as of March 31, 2006 were comprised of $1,367,236
attributable to corporate, $10,735,828 attributable to manufacturing, $6,540,047 attributable to distribution, $1,496,380 attributable to pharmacy benefit management and $11,957,650 attributable to pharmaceutical.

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.

d.
Inventories

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

e. Property, 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 seven 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.



6



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NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

f. Intangible Assets

Intangible assets consist primarily of goodwill
and intellectual property. FAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. The Company has selected January 1 as the annual date
to test these assets for impairment. FAS 142 also requires the intangible assets with definite useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

For the three and six months ended September 30, 2006 and
2005, amortization expense associated with goodwill was $0. The unamortized balance of goodwill at September 30, and March 31, 2006 was $728,896 with the unamortized balance of intellectual property for the same periods was $828,305. No
impairment loss was required to be recorded.

g. 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. There have been no impairment losses recorded.

h. 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.

i. Earnings (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. Convertible debt and preferred stock warrants, officer, employee and nonemployee stock options that are considered potentially dilutive are included in the fully diluted share calculation at
September 30, 2006 and 2005. The reconciliation between basic and fully diluted shares are as follows:



|                                              |  |                                               |            |                                               |   |                                             |  |                                             |            |  |   |           
|--------------------------------------------- |  | --------------------------------------------- | ---------- | --------------------------------------------- | - | ------------------------------------------- |  | ------------------------------------------- | ---------- |  | - | ----------
|                                              |  | For the Three Months Ended September 30, 2006 |            | For the Three Months Ended September 30, 2005 |   | For the Six Months Ended September 30, 2006 |  | For the Six Months Ended September 30, 2005
|Net income (loss) per share  basic:          |  |                                               |            |                                               |   |                                             |  |                                             |            |  |   |           
|Net income (loss)                             |  | $                                             | 793,037    |                                               | $ | 513,604                                     |  | $                                           | 965,459    |  | $ | 1,051,244 
|Weighted average shares  basic               |  |                                               | 9,927,195  |                                               |   | 8,901,724                                   |  |                                             | 9,909,219  |  |   | 8,824,381 
|Net income (loss) per share  basic           |  | $                                             | .08        |                                               | $ | .06                                         |  | $                                           | .10        |  | $ | .12       
|Net income (loss) per share  diluted:        |  |                                               |            |                                               |   |                                             |  |                                             |            |  |   |           
|Net income (loss)                             |  | $                                             | 793,037    |                                               | $ | 513,604                                     |  | $                                           | 965,459    |  | $ | 1,051,244 
|Preferred Stock                               |  |                                               | 75,000     |                                               |   | 75,000                                      |  |                                             | 150,000    |  |   | 150,000   
|                                              |  |                                               |            |                                               |   |                                             |  |                                             |            |  |   |           
|                                              |  |                                               | 868,037    |                                               |   | 588,604                                     |  |                                             | 1,115,459  |  |   | 1,201,244 
|Weighted average shares  basic               |  |                                               | 9,927,195  |                                               |   | 8,901,724                                   |  |                                             | 9,907,322  |  |   | 8,824,381 
|Effect of preferred stock prior to conversion |  |                                               | 833,333    |                                               |   | 833,333                                     |  |                                             | 833,333    |  |   | 833,333   
|Effect of warrants prior to conversion        |  |                                               | 562,500    |                                               |   | 562,500                                     |  |                                             | 562,500    |  |   | 562,500   
|Effect of stock options                       |  |                                               | 2,008,515  |                                               |   | 2,450,140                                   |  |                                             | 2,008,515  |  |   | 2,465,686 
|Weighted average shares-diluted               |  |                                               | 13,331,543 |                                               |   | 12,747,697                                  |  |                                             | 13,311,670 |  |   | 12,685,900
|Net income (loss) per share  diluted         |  | $                                             | .07        |                                               | $ | .04                                         |  | $                                           | .08        |  | $ | .08       
|Antidilutive items not included               |  |                                               | 1,170,000  |                                               |   | 1,170,000                                   |  |                                             | 1,170,000  |  |   | 1,170,000 



7



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j. Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, requires management to make estimates, assumptions and apply certain critical accounting policies that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at September 30, 2006 and March 31, 2006, as well as the reported amounts of revenues and expenses for the three and six months ended
September 30, 2006 and 2005. Estimates and assumptions used in our financial statements are based on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates and assumptions also require the application of certain accounting policies, many of which require estimates
and assumptions about future events and their effect on amounts reported in the financial statements and related notes. We periodically review our accounting policies and estimates and makes adjustments when facts and circumstances dictate. Actual
results may differ from these estimates under different assumptions or conditions. Any differences may have a material impact on our financial condition, results of operations and cash flows.

k. Concentration of Credit Risk

Concentrations of
credit risk with respect to trade accounts receivable are customers with balances that exceed 5% of total consolidated trade accounts receivable, net at September 30, 2006. Seven customers, Spectrum Group with 18.7%, General Nutrition
Distribution with 20.4%, NutraCea with 18.2%, Berkeley Premium Nutraceuticals with 8.7%, Walgreens with 7.9%, Rite Aid Corporation with 6.8% and CarePlus, a related party with 11.9% of the total of trade accounts receivable. As of March 31,
2006, four customers, General Nutrition Distribution with 31.4%, Spectrum Group with 21.4%, NutraCea with 10% and Rite Aid Corporation with 7.9% of the total of trade accounts receivable.

For the three months ended September 30, 2006, five customers individually exceeded 5% of our total consolidated revenues which included General
Nutrition Distribution for 16.3%, 14.9% for Spectrum Group, 10.6% for NutraCea, 10.1% for Berkeley Premium Nutraceuticals and 28.0% for CarePlus Health, a related party, in relation to total consolidated revenues and for the three months ended
September 30, 2005, four customers exceeded 5% of our total consolidated revenues, 13.5% for Spectrum Group, 7.2% for each of Direct Marketing Concepts and Berkeley Premium Nutraceuticals, and 33.2% for CarePlus, a related party.

For the six months ended September 30, 2006, five customers individually exceeded 5% of our total consolidated revenues which included General
Nutrition Distribution for 14.8%, 14.0% for Spectrum Group, 10.3% for NutraCea, 6.6% for Berkeley Premium Nutraceuticals and 30.5% for CarePlus Health, a related party, in relation to total consolidated revenues and for the six months ended
September 30, 2005, three customers exceeded 5% of our total consolidated revenues, 14.5% for Spectrum Group, 5.6% for Direct Marketing Concepts, and 34.1% for CarePlus, a related party.

The Company has no concentration of customers within specific geographic areas outside the United States that would give rise to significant geographic
credit risk.

l. Revenue and Cost of Sales 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 external customer. The Company 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. For our PBM segment, service revenues are recognized once the member service of completing and fulfilling delivery of the
members prescription.

Cost of Sales is recognized for the manufacturing and distribution business segments simultaneously with the
recognition of revenues with a direct charge to cost of goods sold and with an equal reduction to inventory at FIFO cost. For the PBM segment, cost of sales is recognized based on actual costs incurred and are recognized as the related revenue is
recognized.

m. Advertising Costs

The Company charges
advertising costs to expense as incurred. Advertising expense was $160,131 and $608,025 for the three months ended September 30, 2006 and 2005 and $345,079 and $1,257,853 for the six months ended September 30, 2006 and 2005, respectively.



8



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n. Research and Development Costs

Costs incurred to develop our generic pharmaceutical products are expensed as incurred and charged to research and development (R&D). R&D expensed for the three months ended September 30, 2006
and 2005 was $367,216 and $132,859, respectively. R&D expensed for the six months ended September 30, 2006 and 2005 was $633,747 and $229,851, respectively.



9



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o. 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 June 30 and March 31, 2006, 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.

p. Stock-Based Compensation

Effective April 1, 2006, the Company was required to adopt Statement of Financial Accounting Standards (SFAS) No. 123R
Share-Based Payment (SFAS 123R) which replaces SFAS 123 and SFAS 148, and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires
the cost relating to share-based payment transactions in which an entity exchanges its equity instruments for goods and services from either employees or non-employees be recognized in the financial statements as the goods are received or when the
services are rendered. That cost will be measured based on the fair value of the equity instrument issued. We will no longer be permitted to follow the previously-followed intrinsic value accounting method that APB No. 25 allowed which resulted
in no expense being recorded for stock option grants where the exercise price was equal to or greater than the fair market value of the underlying stock on the date of grant and further permitted disclosure-only proforma compensation expense effects
on net income.

SFAS 123R now applies to all of our existing outstanding unvested share-based payment stock option awards as well as any
and all future awards. We have elected to use the modified prospective transition as opposed to the modified retrospective transition method such that financial statements prior to adoption remain unchanged. The Black-Scholes model will continue to
be the Companys method of compensation expense valuation as was used by the Company previously in the proforma disclosures. See further consideration in Footnote 6.

q. 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 effected 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 29, 2004, $5,000,000 6% convertible debt, the February 10, 2004 $5,000,000 convertible preferred stock
Series A and the March 5, 2004 $5,000,000 convertible preferred stock Series B.

In June 2005, the Financial Accounting Standards
Board Emerging Issues Task Force issued EITF 05-04, The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock. Under EITF 05-04, liquidated damages clauses may qualify as freestanding financial instruments for treatment as a derivative liability. Furthermore, EITF 05-04 addresses the question of whether a
registration rights agreement should be combined as a unit with the underlying financial instruments and be evaluated as a single instrument. EITF 05-04 does not reach a consensus on this question and allows for treatment as a combined unit (Views A
and B) as well as separate freestanding financial instruments (View C). On September 15, 2005, the FASB staff postponed further discussion of EITF 05-04. As of March 31, 2006, the FASB has still not rescheduled EITF 05-04 for discussion.
In conjunction with our issuance of convertible debentures, preferred stock Series A and B, and the related warrants and registration rights, we adopted View C of EITF 05-04. Accordingly, the registration rights agreements, preferred stock Series A
and B, the warrants associated with the convertible debentures, convertible preferred stock the debentures themselves, as well as certain features of the debentures convertible preferred stock were evaluated as stand alone financial instruments.
This treatment resulted in classification of the warrants and certain features of the debentures and preferred stock as equity while the registration rights agreements were treated as derivative liabilities. Derivative liability treatment requires
adjusting the carrying value of the instrument to its fair value at



10



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each balance sheet date and recognizes any change since the prior balance sheet date as a component of other
income/(expense). The recorded value of such derivative liabilities can fluctuate significantly based on fluctuations of the market value of the underlying securities of the Company, as well as on the volatility of the Companys stock price
during the term used for observation and the term remaining for the underlying financial instruments. We believe that should the FASB staff reach a consensus on EITF 05-04 and select combined unit treatment (View A or B), the debt features of the
debentures convertible and associated warrants previously classified as equity will have to be evaluated as a combined unit with the registration rights agreements. This combination will result in these instruments being treated as derivative
liabilities requiring periodic reevaluation of fair value with potentially significant fluctuation in fair value from period to period. Accordingly, this consensus could have a significant effect on our financial statements. The Company entered into
registration rights agreements with regard to the January 29, 2004 convertible debt financing on January 29, 2004, and with regard to the February 10, 2004 convertible preferred stock Series A financing on February 10, 2004 and
with regard to the March 5, 2004 convertible stock Series B on March 5, 2004. Pursuant to all of the registration rights agreements, we agreed to file a resale registration statement covering the resale of the shares issuable to the
investors upon the exercise of their warrants and conversion of their debentures and preferred stock by February 29, 2004, March 10, 2004 and April 5, 2004 respectively. At inception, the registration rights agreements required
us to pay monthly liquidated damages if a registration statement was not declared effective on or prior to April 29, 2004, May 10, 2004 and September 5, 2004 respectively or after declared effective if the registration statements
cease for any reason to remain continuously effective as to all registrable securities for which it is required to be effective or the investors are not permitted to utilize the prospectus therein to resell such registrable securities for 20
consecutive calendar days but no more than an aggregate of 30 calendar days during any 12 month period. The amount of monthly liquidating damages equals 1%, 1% and 2% respectively of the aggregate purchase price paid by the investors for any
registrable securities held by the investors. Any late payment beyond seven days is subject to interest at an annual rate of 18%. We evaluated the liquidated damages feature of the registration rights agreements in accordance with Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133). The liquidated damages qualify as embedded derivative instruments at issuance and, because they
do not qualify for any scope exception within SFAS 133, they were required by SFAS 133 to be recorded as derivative financial instruments. Further, in accordance with EITF 05-04, The Effect of a Liquidated Damages Clause on a Freestanding
Financial Instrument Subject to EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, we also evaluated whether the registration rights agreements, the senior
and convertible debentures, and convertible preferred stock Series A and B and associated warrants should be combined into and accounted for as a single unit or accounted for as separate financial agreements. In considering the appropriate treatment
of these instruments, we observed that although entered into contemporaneously, the agreements are nevertheless separate legal agreements. Payment of the liquidated damages penalty under the registration rights agreements does not alter the
investors rights under either the warrant or debenture agreements. The debentures, preferred stock and warrants have values which are based on their interest rate and the relation between their conversion price or exercise price and the value
of our common stock. This value is independent of any payment for liquidated damages under the registration rights agreements, which is based on how long the shares are unregistered. The various agreements do not relate to the same risk. The risk
inherent in the debentures relates to our ability to repay these instruments as and when they come due or to the extent converted into common stock, to the price of our common stock. The warrants similarly bear risk related to the value of our
common stock. The liquidated damages penalty under the registration rights agreements relates to the risk of the Company filing a registration statement and whether it will be declared effective. In light of the above facts and circumstances and
accordance with guidance in EITF 05-4, View C, we evaluated and treated the registration rights agreements, convertible debentures, preferred stock and associated warrants as separate free standing agreements. Upon execution, the registration rights
agreements had no initial fair value. In subsequent periods, the carrying value of the derivative financial instrument related to the registration rights agreements will be adjusted to its fair value at each balance sheet date and any change since
the prior balance sheet date will be recognized as a component of other income/(expense). The estimated fair value of the registration rights agreements was determined using the discounted value of the expected future cash flows. The Company filed
its registration statement with regard to the Series A and B preferred stock, the convertible debt and debentures on April 2, 2004 and it was declared effective on April 23, 2004. Therefore, the Company has met the registration
requirements and will continue to do so in the future. Should an event occur to cause the registration to not be effective, we believe the holders of the debentures and preferred stock (Series A and B) will waive the liquidated damages required
under the registration rights agreements. As a result, at March 31, 2004 and at all subsequent periods we assigned no value to the potential liquidating damages. EITF 05-04 offers multiple views on the question of whether a registration rights
agreements should be combined as a unit with the underlying financial instruments and be evaluated as a single instrument. EITF 05-04 does not reach a consensus on this question and allows for treatment as a combined unit (Views A and B) as well as
separate freestanding financial instruments (View C). On September 15, 2005, the FASB staff postponed further discussion of EITF 05-04. In conjunction with our issuance of convertible debentures, preferred stock Series A and B, and the related
warrants and registration rights, we adopted View C of EITF 05-04. Accordingly, the registration rights agreements, the warrants associated with the convertible debentures, preferred stock Series A and B, the debentures themselves, as well as
certain features of the debentures and preferred stock were evaluated as stand alone



11



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financial instruments. This treatment resulted in classification of the warrants and certain features of the debentures
and preferred stock as equity while the registration rights agreements and other features of the debentures were treated as derivative liabilities. Derivative liability treatment requires adjusting the carrying value of the instrument to its fair
value at each balance sheet date and recognizes any change since the prior balance sheet date as a component of other income/(expense). The recorded value of such derivative liabilities can fluctuate significantly based on fluctuations of the market
value of our underlying securities, as well as on the volatility of our stock price during the term used for observation and the term remaining for the underlying financial instruments. We believe that should the FASB staff reach a consensus on EITF
05-04 and select combined unit treatment (View A or B), the debt features of the debentures and associated warrants previously classified as equity will have to be evaluated as a combined unit with the registration rights agreements. This
combination will result in these instruments being treated as derivative liabilities requiring periodic reevaluation of fair value with potentially significant fluctuation in fair value from period to period. Accordingly, this consensus could have a
significant effect on our financial statements.

The instruments each have detachable warrants that have a cashless exercise
feature. The feature permits the warrant holders to net settle the warrant in the event the price of the stock exceeds the strike price of the warrant which meets the criteria of paragraph 6 of FAS 133. DIG A 17 states that the right to net settle
an obligation is equivalent to a cashless exercise feature. However, paragraph 11a of FAS 133 states that not withstanding paragraphs 6-10 of FAS 133 an item will not be considered a derivative if it is a contract issued by that entity that is both
(1) indexed to its own stock and (2) classified in stockholders equity.

The warrants meet test 1 since they are settleable
in stock of the Company. They also meet test 2 under EITF 00-19 since they are not combined with the registration rights agreements as the Company has elected to treat the registration rights agreement as a standalone derivative under EITF 05-04
View C. Therefore, the warrants are classified as equity and are scoped out under paragraph 11a of FAS 133.

On December 1, 2004, the
Company entered into an agreement and converted 800,000 common shares in full satisfaction of the $5,000,000 Series A 6%, convertible preferred stock outstanding.

On February 1, 2006, the Company entered into an agreement and converted 530,469 common shares in full satisfaction of the principle and interest outstanding as related to the $2,424,000 6% convertible debt.

r. Reclassifications

Certain reclassifications have
been made to the financial statements for the three months ended June 30, 2005 to conform to the presentation for the three months ended June 30, 2006.

NOTE 3ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consist of the following:



|                                          |  |                    |           |   |                |   |           |  
|----------------------------------------- |  | ------------------ | --------- | - | -------------- | - | --------- | -
|                                          |  | September 30, 2006 |           |   | March 31, 2006 |  
|Trade accounts receivable                 |  | $                  | 9,591,989 |   |                | $ | 7,557,309 |  
|Less allowance for uncollectible accounts |  |                    | (364,550  | ) |                |   | (92,284   | )
|                                          |  |                    |           |   |                |   |           |  
|                                          |  | $                  | 9,227,439 |   |                | $ | 7,465,025 |  
|                                          |  |                    |           |   |                |   |           |  

As of September 30, 2006, the total accounts receivable balance of $9,591,989 includes
$5,891,054 related to the Companys manufacturing segment, $3,815,917 as related to the Companys distribution segment and $114,982 a related to the Companys pharmaceutical segment. As of March 31, 2006, the total accounts
receivable balance of $7,557,309 includes $3,545,079 related to the Companys manufacturing segment and $4,012,230 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.



12



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NOTE 4INVENTORIES, NET

Inventories, net, consist of the following:



|                                      |  |                    |           |   |                |   |           |  
|------------------------------------- |  | ------------------ | --------- | - | -------------- | - | --------- | -
|                                      |  | September 30, 2006 |           |   | March 31, 2006 |  
|Processed raw materials and packaging |  | $                  | 3,409,408 |   |                | $ | 4,517,472 |  
|Work in process                       |  |                    | 432,224   |   |                |   | 318,462   |  
|Finished goods                        |  |                    | 1,152,927 |   |                |   | 1,094,862 |  
|                                      |  |                    |           |   |                |   |           |  
|                                      |  | $                  | 4,994,559 |   |                | $ | 5,930,796 |  
|Less reserve for obsolescence         |  |                    | (131,862  | ) |                |   | (163,740  | )
|                                      |  |                    |           |   |                |   |           |  
|                                      |  | $                  | 4,862,698 |   |                | $ | 5,767,056 |  
|                                      |  |                    |           |   |                |   |           |  

As of September 30, 2006, the total inventory balance of $4,994,559 includes $4,016,552
related to the Companys manufacturing segment, $648,997 related to the Companys distribution segment and $329,010 related to the Companys pharmaceutical segment. As of March 31, 2006, the total inventory balance of $5,930,796
includes $4,840,536 related to the Companys manufacturing segment, $697,073 related to the Companys distribution segment and $393,187 as related to the pharmaceutical segment.

NOTE 5INCOME TAXES

Income taxes for the six
months ended September 30, 2006 and 2005 differ from the amounts computed by applying the effective income tax rates to income before income taxes as a result of the following:



|                                                    |  |      |         |   |      |   |          |  
|--------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | -
|                                                    |  | 2006 |         |   | 2005 |  
|Computed tax expense at the statutory rate (37.63%) |  | $    | 641,000 |   |      | $ | 558,000  |  
|Increase (decrease) in taxes resulting from:        |  |      |         |   |      |   |          |  
|Effect of permanent differences:                    |  |      |         |   |      |   |          |  
|Non deductible                                      |  |      | 7,000   |   |      |   | 36,000   |  
|Other, net                                          |  |      | (95,800 | ) |      |   | (210,000 | )
|Change in valuation allowance                       |  |      | 35,800  |   |      |   | (100,000 | )
|                                                    |  |      |         |   |      |   |          |  
|Income tax (benefit) expense                        |  | $    | 588,000 |   |      | $ | 284,000  |  
|                                                    |  |      |         |   |      |   |          |  

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



|                                            |  |      |          |   |      |   |          |  
|------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                            |  | 2006 |          |   | 2005 |  
|Deferred tax assets:                        |  |      |          |   |      |   |          |  
|Bad debts                                   |  | $    | 137,000  |   |      | $ | 47,000   |  
|Inventories                                 |  |      | 50,000   |   |      |   | 13,200   |  
|Accrued vacation                            |  |      | 38,600   |   |      |   | 26,000   |  
|Deposits                                    |  |      | 94,000   |   |      |   | 170,000  |  
|Deferred rent                               |  |      | 113,300  |   |      |   |         |  
|Stock options                               |  |      | 324,300  |   |      |   |         |  
|Net operating loss carryforwards            |  |      |         |   |      |   | 26,000   |  
|                                            |  |      |          |   |      |   |          |  
|Deferred tax asset                          |  | $    | 757,200  |   |      | $ | 282,200  |  
|                                            |  |      |          |   |      |   |          |  
|Deferred tax asset valuation                |  |      | (163,000 | ) |      |   |         |  
|Deferred tax asset                          |  | $    | 497,200  |   |      | $ | 282,200  |  
|                                            |  |     
|Deferred tax liabilities:                   |  |      |          |   |      |   |          |  
|Fixed asset basis differences               |  | $    | (224,300 | ) |      | $ | (362,000 | )
|Amortization                                |  |      | (78,700  | ) |      |   | (51,200  | )
|                                            |  |      |          |   |      |   |          |  
|                                            |  | $    | (303,000 | ) |      | $ | (413,200 | )
|                                            |  |      |          |   |      |   |          |  
|Net deferred tax asset (liability) recorded |  | $    | 291,200  |   |      | $ | (131,000 | )
|                                            |  |      |          |   |      |   |          |  



13



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NOTE 6  STOCK OPTION PLANS

Effective April 1, 2006, the Company adopted SFAS 123R, Share-based Payments, which requires the cost relating to share-based payment transactions in which an entity exchanges its equity instruments for goods and
services from either employees or non-employees be recognized in the financial statements as the goods are received or when the services are rendered. That cost will be measured based on the fair value of the equity instrument issued.

SFAS 123R now applies to all of our existing outstanding unvested share-based payment stock option awards as well as any and all future awards. We have elected to use
the modified prospective transition as opposed to the modified retrospective transition method such that financial statements prior to adoption remain unchanged. The Black-Scholes model will continue to be the Companys method of compensation
expense valuation as was used by the Company previously in the proforma disclosures. For the three and six months ended September 30, 2006, the Company recorded $427,675 and $855,350, respectively, as compensation expense representing unvested
employee and nonemployee stock options and is classified as a selling, general and administrative (SGA) expense based on the implementing SFAS 123R effective April 1, 2006 as compared to the proforma-only requirement for the
corresponding three and six month periods ended September 30, 2006. The pro forma net earnings per common share, as if the Company had elected to account for its employee and nonemployee stock options consistent with the methodology prescribed
by SFAS No. 123R, are shown as follows:



|                                    |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|----------------------------------- |  | ------------------ | ------- | ------------------ | - | ------------------ |  | ------------------ | ------- |  | - | ---------
|                                    |  | Three months ended |         | Six months ended  
|                                    |  | September 30, 2006 |         | September 30, 2005 |   | September 30, 2006 |  | September 30, 2005
|Net income (loss)                   |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|As reported                         |  | $                  | 793,037 |                    | $ | 513,604            |  | $                  | 965,459 |  | $ | 1,051,244
|                                    |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|Pro forma                           |  | $                  |        |                    | $ | 47,897             |  | $                  |        |  | $ | 585,537  
|                                    |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|Net income (loss) per common share: |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|Basic income (loss) per share:      |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|As reported                         |  | $                  | .08     |                    | $ | .06                |  | $                  | .10     |  | $ | .12      
|                                    |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|Pro forma                           |  | $                  |        |                    | $ | .01                |  | $                  |        |  | $ | .07      
|                                    |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|Diluted income (loss) per share:    |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|As reported                         |  | $                  | .07     |                    | $ | .04                |  | $                  | .08     |  | $ | .08      
|                                    |  |                    |         |                    |   |                    |  |                    |         |  |   |          
|Pro forma                           |  | $                  |        |                    | $ | .00                |  | $                  |        |  | $ | .05      
|                                    |  |                    |         |                    |   |                    |  |                    |         |  |   |          



14



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NOTE 7-RELATED PARTY TRANSACTIONS

Revenues: For the three months ended September 30, 2006 and 2005, manufacturing revenues of approximately $30,051 and $18,806 respectively, were recorded from sales by the Company to subsidiaries 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 three months ended September 30, 2006 and 2005, manufacturing revenues of $233,627 and
$119,931, respectively, were recorded from sales by the Company to VerticalHealth Inc., an affiliate of the Company, and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a shareholder.

For the three months ended September 30, 2006 and 2005, pharmacy benefit management revenues of $4,673,611 and $4,060,596 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.

Revenues: For the six months ended September 30, 2006 and 2005, manufacturing revenues of approximately $60,123 and $102,275 respectively, were recorded from sales
by the Company to subsidiaries 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 six months ended September 30, 2006 and 2005,
manufacturing revenues of $412,244 and $303,984, respectively, were recorded from sales by the Company to VerticalHealth Inc., an affiliate of the Company, and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a shareholder.

For the six months ended September 30, 2006 and 2005, pharmacy benefit management revenues of $9,551,393 and $8,184,406 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.

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

As of September 30, and March 31, 2006, for the manufacturing segment, $38,395 and $25,888 was due from subsidiaries of Dynamic Health Products
and $220,148 and $140,038 was due from Vertical Health, Inc.

As of September 30, and March 31, 2006, for the pharmacy benefit
management segment, $1,101,039 and $995,452 was due from CarePlus.

NOTE 8  LEGAL

On September 29, 2006, Schering Corporation (Schering) filed an action in the United States District Court for the District of New
Jersey, against Belcher Pharmaceuticals, Inc. and GeoPharma, Inc. (along with nineteen other defendants) alleging that the filing of Belcher Pharmaceuticals Abbreviated new Drug Application (ANDA) for 5 mg Desloratadine Tablets,
AB-rated to Clarinex®, infringed U.S. Patent No. 6,100,274 (the 274 patent) Case No. 3:06-cv-04715-MLC-TJB. On November 8, 2006, Belcher filed a motion to dismiss in the New Jersey case for lack of jurisdiction.
On October 5, 2006 Schering filed an action in the United States District Court for the Middle District of Florida, Tampa Division, Case No. 8:06-cv-01843-SCB-EAJ, against Belcher Pharmaceuticals, Inc. and Geopharma, Inc. alleging that the
filing of Belcher Pharmaceuticals ANDA for 5 mg Desloratadine Tablets, AB-rated to Clarinex®, infringed the 274 patent. As of November 14, 2006, neither Belcher nor GeoPharma has been served the Florida complaint. Company
management and Belcher disputes Scherings claims in the two actions and believes its proposed desloratadine product does not infringe the 274 patent. The possible outcome cannot be determined at this time.

From time to time the Company is subject to litigation incidental to its business. Such claims, if successful, could exceed applicable insurance coverage. The Company is
not currently a party to any material legal proceedings other than what is currently disclosed herein.



15



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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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).

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

Results of Operations

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



|                                                                                       |  |                                 |    |  |                               |    |  |       |    |  |       |   
|-------------------------------------------------------------------------------------- |  | ------------------------------- | -- |  | ----------------------------- | -- |  | ----- | -- |  | ----- | --
|                                                                                       |  | Three months endedSeptember 30, |    |  | Six months endedSeptember 30, |   
|                                                                                       |  | 2006                            |    |  | 2005                          |    |  | 2006  |    |  | 2005  |   
|Revenues                                                                               |  | 100.0                           | %  |  | 100.0                         | %  |  | 100.0 | %  |  | 100.0 | % 
|Cost of goods sold (excluding depreciation and amortization)                           |  | 72.0                            | %  |  | 77.3                          | %  |  | 73.9  | %  |  | 74.7  | % 
|                                                                                       |  |                                 |    |  |                               |    |  |       |    |  |       |   
|Gross profit                                                                           |  | 28.0                            | %  |  | 22.7                          | %  |  | 26.1  | %  |  | 25.3  | % 
|Selling, general and administrative expenses (including depreciation and amortization) |  | 20.9                            | %  |  | 22.6                          | %  |  | 20.1  | %  |  | 22.4  | % 
|Stock option compensation expense                                                      |  | 2.9                             | %  |  |                              |    |  | 3.1   | %  |  |      |   
|Other income (expense), net                                                            |  | 0.9                             | %  |  | 5.8                           | %  |  | 0.4   | %  |  | 2.9   | % 
|                                                                                       |  |                                 |    |  |                               |    |  |       |    |  |       |   
|Income before minority interest, income taxes and preferred dividends                  |  | 4.9                             | %  |  | 5.9                           | %  |  | 3.3   | %  |  | 5.8   | % 
|Minority interest benefit                                                              |  | 1.9                             | %  |  |                              |    |  | 2.1   | %  |  |      |   
|Income tax (expense) / benefit                                                         |  | (1.7                            | )% |  | (1.7                          | )% |  | (1.9  | )% |  | (1.2  | )%
|Preferred dividends                                                                    |  | 0.5                             | %  |  | 0.6                           | %  |  | 0.5   | %  |  | 0.6   | % 
|                                                                                       |  |                                 |    |  |                               |    |  |       |    |  |       |   
|Net income (loss)                                                                      |  | 4.8                             | %  |  | 4.2                           | %  |  | 3.1   | %  |  | 4.4   | % 
|                                                                                       |  |                                 |    |  |                               |    |  |       |    |  |       |   

Three Months Ended September 30, 2006, Compared to the Three Months Ended September 30, 2005

Revenues. Total consolidated revenues increased approximately $4.5 million, or 36.5%, to approximately $16.7
million for the three months ended September 30, 2006, as compared to approximately $12.2 million for the three months ended September 30, 2005.

Manufacturing revenues increased approximately $4.0 million, or 85.0%, to approximately $8.6 million for the three months ended September 30, 2006, as compared to approximately $4.7 million for the corresponding
period. Overall, manufacturing capacities and capabilities continue to be increased as we have added additional more advanced, higher speed production equipment. Our customer base and their relate order volumes are increasing also.

Distribution revenues increased approximately $43,000 or 1.3% to approximately $3.3 million for the three months ended September 30, 2006, as
compared to $3.3 million for the three months ended September 30, 2005. 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 three months ended September 30, 2006, 5,177 cases of Hoodia Dex-L10 were sold versus 1,782 cases sold for the three months ended September 30, 2005 based on the product
introduction and the transfer of the brand from an unrelated third party during February 2006. Dex-L10 is comprised of four SKUs; Dex L10, Dex L10 complete, Dex-L10 chocolate chews and Dex-L10 lemon-lime chews. For the three months ended
September 30, 2006, 41 cases of CarbSlim were sold versus 1,782 cases sold for the three months ended September 30, 2005, a 97.7% case-sale decrease. CarbSlim is comprised of ten SKUs, two sizes of: peanut butter crunch, chocolate caramel
crunch, mint, peanut butter cookie dough, chocolate chip cookie dough. The Lean Protein Bites



16



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product line is comprised of four SKUs, milk chocolate, white chocolate, peanut butter and lemon. For the three months
ended September 30, 2006, 72 total cases were sold as compared to the three months ended September 30, 2005, where 812 total cases were sold, a case-sale decline of approximately 91.1%. The decrease in both food product case sales are due
to the decrease in the number of national and regional distribution points in addition to the Company has shifted its focus more towards their branded Dex-L10 dietary supplements rather than its food product lines based on more favorable margins.
The total distribution revenues for the three months ended September 30, 2006 were derived from 99.9% dietary supplement sales with only .1% of total distribution revenues being derived from consumer foods as compared to the corresponding
period in 2005 whereas 94.5% of distribution revenues were derived from dietary supplement case sales with 5.5% of distribution revenues being derived from our consumer food products.

Pharmacy benefit management revenues increased 15.1% or approximately $613,000 to $4.7 million for the three months ended September 30, 2006, as
compared to $4.1 million for the three months ended September 30, 2005. The increase results from the increase in overall membership and prescriptions filled in the two health plans as compared to the corresponding 2005 period. Revenue per
member remained constant for both of the fiscal years.

Pharmaceutical revenues decreased $171,000 to approximately $38,000 for the three
months ended september 30, 2006 as compared to $209,000 in sales for this business segment for the corresponding 2005 period. The pharmaceutical business segment generated its revenues for both periods presented based solely on manufacturing
sales of Belchers branded Levothyroxine.

Gross Profit. Total gross profit increased approximately $1.9 million
or 67.9%, to $4.7 million for the three months ended September 30, 2006, as compared to $2.8 million for the three months ended September 30, 2005. Total gross margins increased to 28.0% for the three months ended September 30, 2006
from 22.7% for the three months ended September 30, 2005.

Manufacturing gross profit increased approximately $1 million, or 57.2%, to
approximately $2.9 million for the three months ended September 30, 2006, as compared to approximately $1.8 million in the corresponding period in 2005. For the three months ended September 30, 2006 manufacturing gross margin decreased to
33.4%, from 39.3% in the corresponding period in 2005. Sales and gross profits have increased proportionately, although gross margins have decreased due to higher costs due to increases in freight charges due to increased fuel costs, increases in
resin and plastic-based packaging component costs as well as increased labor costs. Current increases in this type of labor-based direct overhead costs are in line with the Companys planned improvements surrounding enhanced standard operating
and manufacturing procedures in all 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 135.4% or approximately $1.1 million to approximately $1.9 million for the
three months ended September 30, 2006, as compared to approximately $824,000 for the three months ended September 30, 2005, with distribution gross margins increasing to 58.4% for the three months ended September 30, 2006 as compared
to 25.1% for the three months ended September 30, 2005. Gross profits and gross margins improved based on a change in the sales mix from food products to branded dietary supplements which have a higher per unit sales prices and higher gross
margins.



17



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Pharmacy Benefit Management gross profit increased approximately $2,000 or 6.8% to approximately $36,000
for the three months ended September 30, 2006, as compared to approximately $34,000 for the three months ended September 30, 2005. Pharmacy benefit management gross margin was 0.8% for both of the three month periods ended
September 30, 2006 and 2005. Gross profit and margins remain constant 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 decreased $282,000 to a deficit of $(195,000) for the three months
ended September 30, 2006 as compared to approximately $87,000 in gross profits for this business segment for the three months ended September 30, 2005. Pharmaceutical gross margins were at a deficit of (507.6)% for the three months ended
September 30, 2006 as compared to 41.6% for the three months ended September 30, 2005. This was based primarily on the Beta-Lactam facility located in Baltimore, Maryland that has no revenue stream but has costs associated with product
development and production and laboratory direct labor costs. The Baltimore facility incurred $212,000 of costs with no revenue offset. The facility estimate has been revised and expects to derive revenues from their Beta-Lactams during the fourth
quarter ended March 31, 2006. The Belcher facility gross profit, excluding the Baltimore facility, derived $18,000 in gross profits and gross margins of 54%.

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;
stock option compensation expense and depreciation and amortization expenses. Selling, general and administrative expenses, inclusive of stock option compensation expense, depreciation and amortization, increased approximately $1.2 million, or
23.9%, to approximately $4.0 million for the three months ended September 30, 2006, as compared to approximately $2.8 million in the corresponding 2005 period. Approximately $430,000 of the $1.2 million increase was directly attributable to the
implementation of SFAS 123R, Share-Based Payments, which required the valuation of and expense recognition for all unvested stock options outstanding. The remaining increase is primarily attributable to additional expenses associated with increased
insurance costs, 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; 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, increased rents due to facility expansion, officer and employee salaries have increased in total based on increases in the
number of personnel in addition to merit increases all of which were partially offset by approximately $400,000 decreased spending on dietary supplement product and chain store 2005 national advertising and promotions that were not offered or
required to be spent during the September 2006 three month period. As a percentage of sales, selling, general and administrative expenses increased to 23.8% for the three months ended September 30, 2006 from 22.6% in the corresponding period in
2005.

Other Income (Expense), Net. For the three months ended September 30, 2006, the balance in other
income/(expense), net, decreased approximately $571,000 to $141,000 as compared to $712,000 for the corresponding 2005 period. For the three months ended 2006, the balance was primarily incidental income derived from recycling and construction scrap
recovery. Interest expense, net of interest income, decreased approximately $87,000 to approximately $25,000 for the three months ended September 30, 2006, from approximately $112,000 for the three months ended September 30, 2005. The
decrease in interest expense was due the Company paying off the remaining balance of the 6% interest convertible debt due to Laurus in the amount of $2.4 million during February 2006.

Income Tax (Expense) Benefit. At September 30, 2006, the Company had recorded $(284,000) of income tax expense as compared to
$(212,000) expense for the three months ended September 30, 2005. The increase in tax expense is based on the prior period receiving a reduction in tax expense from loss carryforwards in addition to higher taxable income for the current 2006
period. The expense is based on effective rate calculations as applied to our net income earned based on temporary and permanent differences using the effective tax rates applied to our net income amounts this fiscal year, changes in information
gained related to underlying assumptions about the future operations of the Company.

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 three months ended September 30, 2006. 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.

Six Months Ended September 30, 2006, Compared to the Six Months Ended
September 30, 2005

Revenues. Total consolidated revenues increased approximately $7.3 million, or 30.6%, to
approximately $31.3 million for the six months ended September 30, 2006, as compared to approximately $24.0 million for the six months ended September 30, 2005.



18



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Manufacturing revenues increased approximately $6.4 million, or 73.7%, to approximately $15.0 million for
the six months ended September 30, 2006, as compared to approximately $8.7 million for the corresponding period. Overall, manufacturing capacities and capabilities continue to be increased as we have added additional more advanced, higher speed
production equipment. Our customer base and their relate order volumes are increasing also.

Distribution revenues decreased approximately
$443,000 or 6.4% to approximately $6.5 million for the six months ended September 30, 2006, as compared to $6.9 million for the six months ended September 30, 2005. 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 six months ended September 30, 2006, 10,747 cases of Hoodia Dex-L10
were sold versus 1,836 cases sold for the six months ended September 30, 2005 based on the product introduction and the transfer of the brand from an unrelated third party during February 2006. Dex-L10 is comprised of four SKUs; Dex L10,
Dex L10 complete, Dex-L10 chocolate chews and Dex-L10 lemon-lime chews. For the six months ended September 30, 2006, 167 cases of CarbSlim were sold versus 7,330 cases sold for the six months ended September 30, 2005, a 97.7%
case-sale decrease. CarbSlim is comprised of ten SKUs, two sizes of: peanut butter crunch, chocolate caramel crunch, mint, peanut butter cookie dough, chocolate chip cookie dough. The Lean Protein Bites product line is comprised of four SKUs, milk
chocolate, white chocolate, peanut butter and lemon. For the six months ended September 30, 2006, 109 total cases were sold as compared to the six months ended September 30, 2005, where 2,412 total cases were sold, a case-sale decline of
approximately 95.5%. The decrease in both food product case sales are due to the decrease in the number of national and regional distribution points in addition to the Company has shifted its focus more towards their branded Dex-L10 dietary
supplements rather than its food product lines based on more favorable margins. The total distribution revenues for the six months ended September 30, 2006 were derived from 99.9% dietary supplement sales with only .1% of total distribution
revenues being derived from consumer foods as compared to the corresponding period in 2005 whereas 92.2% of distribution revenues were derived from dietary supplement case sales with 7.8% of distribution revenues being derived from our consumer food
products.

Pharmacy benefit management revenues increased 16.7% or approximately $1.4 million to $9.6 million for the six months ended
September 30, 2006, as compared to $8.2 million for the six months ended September 30, 2005. The increase results from the increase in overall membership and prescriptions filled in the two health plans as compared to the corresponding
2005 period. Revenue per member remained constant for both of the fiscal years.

Pharmaceutical revenues increased $33,000 to approximately
$252,000 for the six months ended September 30, 2006 as compared to $219,000 in sales for this business segment for the corresponding 2005 period. The pharmaceutical business segment generated its revenues for both periods presented based
solely on manufacturing sales of Belchers branded Levothyroxine.

Gross Profit. Total gross profit increased
approximately $2.1 million or 34.7%, to $8.2 million for the six months ended September 30, 2006, as compared to $6.1 million for the six months ended September 30, 2005. Total gross margins increased to 26.1% for the six months ended
September 30, 2006 from 25.3% for the six months ended September 30, 2005.

Manufacturing gross profit increased approximately
$1.2 million, or 33.8%, to approximately $4.7 million for the six months ended September 30, 2006, as compared to approximately $3.5 million in the corresponding period in 2005. For the six months ended September 30, 2006 manufacturing
gross margin decreased to 31.4%, from 40.8% in the corresponding period in 2005. Sales and gross profits have increased proportionately, although gross margins have decreased due to higher costs due to increases in freight charges due to increased
fuel costs, increases in resin and plastic-based packaging component costs as well as increased labor costs. Current increases in this type of labor-based direct overhead costs are in line with the Companys planned improvements surrounding
enhanced standard operating and manufacturing procedures in all 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 52.4% or approximately $1.2 million to
approximately $3.6 million for the six months ended September 30, 2006, as compared to approximately $2.4 million for the six months ended September 30, 2005, with distribution gross margins increasing to 55.9% for the six months ended
September 30, 2006 as compared to 34.4% for the six months ended September 30, 2005. Gross profits and gross margins improved based on a change in the sales mix from food products to branded dietary supplements which have a higher per unit
sales prices and higher gross margins.



19



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Pharmacy Benefit Management gross profit increased approximately $13,000 or 20.6% to approximately
$75,000 for the six months ended September 30, 2006, as compared to approximately $62,000 for the six months ended September 30, 2005. Pharmacy benefit management gross margin was 0.8% for both of the six month periods ended
September 30, 2006 and 2005. Gross profit and margins remain constant 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 decreased $451,000 to a deficit of $(357,000) for the six months
ended September 30, 2006 as compared to approximately $94,000 in gross profits for this business segment for the six months ended September 30, 2005. Pharmaceutical gross margins were at a deficit of (141.7)% for the six months ended
September 30, 2006 as compared to 43% for the six months ended September 30, 2005. This was based primarily on the Beta-Lactam facility located in Baltimore, Maryland that has no revenue stream but has costs associated with product
development and production and laboratory direct labor costs. The Baltimore facility incurred $481,000 of costs with no revenue offset. The facility estimate has been revised and expects to derive revenues from their Beta-Lactams during the fourth
quarter ended March 31, 2007. The Belcher facility gross profit, excluding the Baltimore facility, derived $124,000 in gross profits and gross margins of 49.2%.

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;
stock option compensation expense and depreciation and amortization expenses. Selling, general and administrative expenses, inclusive of stock option compensation expense, depreciation and amortization, increased approximately $1.9 million, or
35.4%, to approximately $7.3 million for the six months ended September 30, 2006, as compared to approximately $5.4 million in the corresponding 2005 period. Approximately $970,000 of the $1.9 million increase was directly attributable to the
implementation of SFAS 123R, Share-Based Payments, which required the valuation of and expense recognition for all unvested stock options outstanding. The remaining increase is primarily attributable to additional expenses associated with increased
insurance costs, 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; 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, increased rents due to facility expansion, officer and employee salaries have increased in total based on increases in the
number of personnel in addition to merit increases all of which were partially offset by approximately $800,000 decreased spending on dietary supplement product and chain store 2005 national advertising and promotions that were not offered or
required to be spent during the September 2006 six month period. As a percentage of sales, selling, general and administrative expenses increased to 23.2% for the six months ended September 30, 2006 from 22.3% in the corresponding period in
2005.

Other Income (Expense), Net. For the six months ended September 30, 2006, the balance in other income/(expense),
net, decreased approximately $566,000 to $136,000 as compared to $702,000 for the corresponding 2005 period. For the six months ended 2006, the balance was primarily incidental income derived from recycling and construction scrap recovery. Interest
expense, net of interest income, decreased approximately $147,000 to approximately $29,000 for the six months ended September 30, 2006, from approximately $176,000 for the six months ended September 30, 2005. The decrease in interest
expense was due the Company paying off the remaining balance of the 6% interest convertible debt due to Laurus in the amount of $2.4 million during February 2006.

Income Tax (Expense) Benefit. At September 30, 2006, the Company had recorded $(588,000) of income tax expense as compared to $(284,000) expense for the six months ended September 30, 2005. The
increase in tax expense is based on the prior period receiving a reduction in tax expense from loss carryforwards in addition to higher taxable income for the current 2006 period. The expense is based on effective rate calculations as applied to our
net income earned based on temporary and permanent differences using the effective tax rates applied to our net income amounts this fiscal year, changes in information gained related to underlying assumptions about the future operations of the
Company.

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 three months ended September 30, 2006. 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 funded its operational needs from its cash provided from operations and its January through March 2004 receipt of $15 million of gross private placement proceeds based on a $10 million 6% convertible
preferred stock



20



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private placement and a $5 million convertible 6%, three-year term debt. 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. During February 2006, the Company paid off the remaining $2.4 million 6%
interest convertible debt balance along with all fees and penalties by issuing approximately 530,000 shares and simultaneously wrote-off approximate $300,000 to interest expense representing the debt discount remaining balance.

The Company had working capital of approximately $8.6 million at September 30, 2006, inclusive of current portion of long-term obligations, as
compared to a working capital of approximately $8.4 at March 31, 2006. The increase in working capital in primarily due to increases in accounts receivable and prepaid expenses and decreases in accounts payable as partially offset by decreases
in inventory and cash. All such fluctuations are supported by the increases in credit sales by selling inventory and the continuance of the operational cycle that includes paying outstanding accounts payable representing inventory purchases.

Net cash provided by operating activities was $400,000 for the six months ended September 30, 2006, as compared to net cash provided
by operating activities of $757,000 for the six months ended September 30, 2005. Cash provided was primarily attributable to a net income before preferred dividends of approximately $1.1 million based on consolidated gross profits increases of
approximately $2.1 million, noncash charges of $970,000 for stock option compensation expense, a $588,000 charge to income tax expense and $482,000 related to depreciation and amortization, decreases in inventory of $904,000 based on increases in
sales and net usage of inventories on hand, $106,000 decrease in other accounts receivable, other based on the elimination of a prepaid federal income tax balance all of which is partially offset by increases in trade accounts receivable of $1.8
million as related to increased credit sales, increases in prepaid expenses based on future advertising and insurance premiums, decreases in accounts payable and accrued expenses of approximately $892,000 based on net payments and amortization of
amounts due for inventory and insurances and $195,000 increase in amounts due from affiliates based on increased credit sales.

Net cash
used in investing activities was $(1.5) million for the six months ended September 30, 2006 as compared to the net cash used of $(3.2) million for the six months ended September 30, 2005. Investing activities represented the R&D
related purchases and upgrades of plant and laboratory equipment for generic drug manufacturing and distribution plants, Belcher Pharmaceuticals and American Antibiotics, of $(1.4) million in addition to the net useage of $(82,000) related to the
minority interest associated with American Antibiotics.

Net provided by financing activities was $645,000 for the six months ended
September 30, 2006 as compared to cash provided by financing activities of $1.5 million for the six months ended September 30, 2005. The 2006 financing activity cash provided was primarily attributable to $750,000 of short-term borrowings
for drug manufacturing equipment purchases, $70,000 of proceeds received from vested stock option exercises as partially offset by payments of $175,000 on long-term obligations.

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 the its short-term operational plans as presently conducted. In consideration of the Companys long-term strategic plans, the Company is currently evaluating long-term
debt financing and other funding options in order to expedite our generic drug, Beta-Lactum and Cephalosporin facilities and research and development expansion plans. The Companys future liquidity and cash requirements will depend on a wide
range of factors, including the level of business in our existing operations, the timing and related outcomes in our drug research and development efforts including when we will receive FDA approvals of any pending ANDAs filed, any continued
expansion of manufacturing equipment lines and related facilities 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. There can be
no assurance that any such financing would be available in amounts and on terms acceptable to the Company.



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Item 3. 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 or CEO, and the chief financial officer, or CFO, of the effectiveness of the design and operation of our disclosure procedures. Based on managements evaluation as the end of the period covered by this
report, our principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures (an defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act), were effective to ensure that the information required to the disclosed by us in the reports that we filed under the Exchange Act gathered, analyzed and disclosed with adequate timelines, accuracy and completeness and to
ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

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 II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

On September 29, 2006, Schering Corporation
(Schering) filed an action in the United States District Court for the District of New Jersey, against Belcher Pharmaceuticals, Inc. and GeoPharma, Inc. (along with nineteen other defendants) alleging that the filing of Belcher
Pharmaceuticals Abbreviated new Drug Application (ANDA) for 5 mg Desloratadine Tablets, AB-rated to Clarinex®, infringed U.S. Patent No. 6,100,274 (the 274 patent) Case No. 3:06-cv-04715-MLC-TJB. On
November 8, 2006, Belcher filed a motion to dismiss in the New Jersey case for lack of jurisdiction. On October 5, 2006 Schering filed an action in the United States District Court for the Middle District of Florida, Tampa Division, Case
No. 8:06-cv-01843-SCB-EAJ, against Belcher Pharmaceuticals, Inc. and Geopharma, Inc. alleging that the filing of Belcher Pharmaceuticals ANDA for 5 mg Desloratadine Tablets, AB-rated to Clarinex®, infringed the 274 patent. As of
November 14, 2006, neither Belcher nor GeoPharma has been served the Florida complaint. Company management and Belcher disputes Scherings claims in the two actions and believes its proposed desloratadine product does not infringe the
274 patent. The possible outcome cannot be determined at this time.

From time to time the Company is subject to litigation incidental to its
business. Such claims, if successful, could exceed applicable insurance coverage. The Company is not currently a party to any material legal proceedings other than what is currently disclosed herein.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

Not applicable.

Item 5. OTHER INFORMATION.

Not applicable.



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Item 6. EXHIBITS



|             |  |                                                 
|------------ |  | ------------------------------------------------
|Exhibits.    |  |                                                 
|Exhibit 31.1 |  | Certification of Principal Financial Officer    
|             | 
|Exhibit 31.2 |  | Certification of Principal Executive Officer    
|             | 
|Exhibit 32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350
|             | 
|Exhibit 32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350



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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        |  |                 |  |                                                
|----------------------- |  | --------------- |  | -----------------------------------------------
|                        |  | GeoPharma, Inc.
|                        |  |                
|Date: November 14, 2006 |  | By:             |  | /s/ Mihir K. Taneja                            
|                        |  |                 |  | Mihir K. Taneja                                
|                        |  |                 |  | Chief Executive Officer, Secretary and Director
|                        |  |                
|Date: November 14, 2006 |  | By:             |  | /s/ Carol Dore-Falcone                         
|                        |  |                 |  | Carol Dore-Falcone                             
|                        |  |                 |  | Vice President and Chief Financial Officer     



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