UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended September 30, 2008

or



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

Commission File Number: 001-16185





GEOPHARMA, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|State of Florida                                               |  | 59-2600232                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



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

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





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

Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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

The number of shares outstanding of the Issuers common stock at $.01 par value as of November 7, 2008 was 17,066,459.









---

PART I  FINANCIAL INFORMATION



|Item 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
|------- | --------------------------------------------

GEOPHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | - | -------------- | - | ----------- | -
|                                                                                                                                                           |  | September 30, 2008 |             |   | March 31, 2008 |  
|                                                                                                                                                           |  | (Unaudited)        |             |   |                |  
|ASSETS                                                                                                                                                     |  |                    |             |   |                |   |             |  
|Current assets:                                                                                                                                            |  |                    |             |   |                |   |             |  
|Cash and cash equivalents                                                                                                                                  |  | $                  | 1,361,170   |   |                | $ | 523,802     |  
|Certificate of deposit                                                                                                                                     |  |                    | 6,040,761   |   |                |   | 6,001,946   |  
|Accounts receivable, net                                                                                                                                   |  |                    | 4,663,961   |   |                |   | 7,708,349   |  
|Accounts receivable, other                                                                                                                                 |  |                    | 303,166     |   |                |   | 324,234     |  
|Inventories, net                                                                                                                                           |  |                    | 13,143,404  |   |                |   | 13,614,824  |  
|Prepaid expenses and other current assets                                                                                                                  |  |                    | 461,196     |   |                |   | 1,186,289   |  
|Due from affiliates                                                                                                                                        |  |                    |            |   |                |   | 37,471      |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total current assets                                                                                                                                       |  | $                  | 25,973,658  |   |                | $ | 29,396,915  |  
|Property, plant, leasehold improvements and equipment, net                                                                                                 |  |                    | 12,780,501  |   |                |   | 13,374,250  |  
|Goodwill, net                                                                                                                                              |  |                    | 13,435,493  |   |                |   | 13,425,493  |  
|Deferred compensation                                                                                                                                      |  |                    | 3,705,645   |   |                |   | 2,158,291   |  
|Intangible assets, net                                                                                                                                     |  |                    | 7,934,912   |   |                |   | 6,432,954   |  
|Deferred tax asset, net                                                                                                                                    |  |                    | 4,806,900   |   |                |   | 3,188,200   |  
|Other assets, net                                                                                                                                          |  |                    | 1,383,880   |   |                |   | 1,038,891   |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total assets                                                                                                                                               |  | $                  | 70,020,989  |   |                | $ | 69,014,994  |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|                                                                                                                                                           |  |                   
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                       |  |                    |             |   |                |   |             |  
|Current liabilities:                                                                                                                                       |  |                    |             |   |                |   |             |  
|Accounts payable                                                                                                                                           |  | $                  | 10,391,334  |   |                | $ | 12,728,936  |  
|Credit line payable                                                                                                                                        |  |                    | 2,451,000   |   |                |   | 1,856,000   |  
|Notes payable                                                                                                                                              |  |                    | 5,559,292   |   |                |   | 5,849,490   |  
|Current portion of long-term obligations                                                                                                                   |  |                    | 2,750,946   |   |                |   | 2,700,110   |  
|Accrued expenses and other liabilities                                                                                                                     |  |                    | 5,502,939   |   |                |   | 5,108,913   |  
|Related party obligation                                                                                                                                   |  |                    | 150,000     |   |                |   |            |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total current liabilities                                                                                                                                  |  | $                  | 26,805,511  |   |                | $ | 28,243,449  |  
|Long-term obligations, less current portion, and deferred revenue                                                                                          |  |                    | 1,453,418   |   |                |   | 786,889     |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total liabilities                                                                                                                                          |  | $                  | 28,258,929  |   |                | $ | 29,030,338  |  
|Convertible debt                                                                                                                                           |  |                    | 15,000,000  |   |                |   | 10,000,000  |  
|Commitments and contingencies                                                                                                                              |  |                    |             |   |                |   |             |  
|Minority interest                                                                                                                                          |  |                    | (2,182,885  | ) |                |   | (1,812,461  | )
|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; 16,643,487 and 14,380,387 shares issued and outstanding                                        |  |                    | 166,435     |   |                |   | 143,804     |  
|Treasury stock (65,428 common shares, $.01 par value)                                                                                                      |  |                    | (654        | ) |                |   | (654        | )
|Additional paid-in capital                                                                                                                                 |  |                    | 65,941,365  |   |                |   | 62,161,427  |  
|Retained earnings (deficit)                                                                                                                                |  |                    | (37,162,251 | ) |                |   | (30,507,510 | )
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total shareholders equity                                                                                                                                 |  | $                  | 28,944,945  |   |                | $ | 31,797,117  |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  
|Total liabilities and shareholders equity                                                                                                                 |  | $                  | 70,020,989  |   |                | $ | 69,014,994  |  
|                                                                                                                                                           |  |                    |             |   |                |   |             |  

See accompanying notes to condensed consolidated financial statements.



---

GEOPHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ----------------------------- | - | ---------- | ----------- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                                                     |  | Three Months EndedSeptember 30, |            |   | Six Months EndedSeptember 30, |  
|                                                                                                                     |  | 2008                            |            |   | 2007                          |   |            | 2008        |  |   | 2007        |  
|                                                                                                                     |  | (Unaudited)                     |            |   | (Unaudited)                   |   |            | (Unaudited) |  |   | (Unaudited) |  
|Revenues:                                                                                                            |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Distribution                                                                                                         |  | $                               | 10,960,724 |   |                               | $ | 1,360,751  |             |  | $ | 24,589,641  |   |  | $ | 3,217,271  |  
|Manufacturing                                                                                                        |  |                                 | 4,545,021  |   |                               |   | 4,660,406  |             |  |   | 10,816,974  |   |  |   | 9,582,511  |  
|Pharmaceutical                                                                                                       |  |                                 | 534,006    |   |                               |   |           |             |  |   | 658,443     |   |  |   | 41,199     |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Total revenues                                                                                                       |  | $                               | 16,039,751 |   |                               | $ | 6,021,157  |             |  | $ | 36,065,058  |   |  | $ | 12,840,981 |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Cost of goods sold:                                                                                                  |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Distribution                                                                                                         |  |                                 | 9,213,081  |   |                               |   | 721,542    |             |  |   | 19,857,629  |   |  |   | 1,737,435  |  
|Manufacturing (excluding depreciation and amortization presented below)                                              |  |                                 | 2,960,216  |   |                               |   | 3,327,391  |             |  |   | 7,670,091   |   |  |   | 6,788,026  |  
|Pharmaceutical                                                                                                       |  |                                 | 1,177,049  |   |                               |   | 740,755    |             |  |   | 2,113,484   |   |  |   | 1,573,380  |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Total cost of goods sold                                                                                             |  | $                               | 13,350,346 |   |                               | $ | 4,789,688  |             |  | $ | 29,641,204  |   |  | $ | 10,098,841 |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Gross profit:                                                                                                        |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Distribution                                                                                                         |  |                                 | 1,747,643  |   |                               |   | 639,209    |             |  |   | 4,732,012   |   |  |   | 1,479,836  |  
|Manufacturing                                                                                                        |  |                                 | 1,584,805  |   |                               |   | 1,333,015  |             |  |   | 3,146,883   |   |  |   | 2,794,485  |  
|Pharmaceutical                                                                                                       |  |                                 | (643,043   | ) |                               |   | (740,755   | )           |  |   | (1,455,041  | ) |  |   | (1,532,181 | )
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Total gross profit                                                                                                   |  | $                               | 2,689,405  |   |                               | $ | 1,231,469  |             |  | $ | 6,423,854   |   |  | $ | 2,742,140  |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Selling, general and administrative expenses:                                                                        |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Selling, general and administrative expenses                                                                         |  |                                 | 5,965,118  |   |                               |   | 3,430,179  |             |  |   | 11,746,787  |   |  |   | 6,307,385  |  
|Stock compensation expense                                                                                           |  |                                 | 368,067    |   |                               |   | 264,247    |             |  |   | 674,417     |   |  |   | 420,837    |  
|Depreciation and amortization                                                                                        |  |                                 | 724,907    |   |                               |   | 372,231    |             |  |   | 1,393,009   |   |  |   | 819,358    |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Total selling, general and administrative expenses                                                                   |  | $                               | 7,058,092  |   |                               | $ | 4,066,657  |             |  | $ | 13,814,213  |   |  | $ | 7,547,580  |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Operating income (loss) before other income and expense, minority interest, income taxes and discontinued operations |  | $                               | (4,368,687 | ) |                               | $ | (2,835,188 | )           |  | $ | (7,390,359  | ) |  | $ | (4,805,440 | )
|Other income (expense), net:                                                                                         |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Interest income (expense), net                                                                                       |  |                                 | (519,937   | ) |                               |   | (33,178    | )           |  |   | (979,237    | ) |  |   | (72,969    | )
|Other income (expense), net                                                                                          |  |                                 | 9,356      |   |                               |   | 126        |             |  |   | 13,830      |   |  |   | 2,249      |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Total other income (expense), net                                                                                    |  | $                               | (510,581   | ) |                               | $ | (33,052    | )           |  | $ | (965,407    | ) |  | $ | (70,720    | )
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Income (loss) before minority interest, income taxes and discontinued operations                                     |  | $                               | (4,879,268 | ) |                               | $ | (2,868,240 | )           |  | $ | (8,355,766  | ) |  | $ | (4,876,160 | )
|Minority interest benefit (expense)                                                                                  |  |                                 | 172,688    |   |                               |   | 216,793    |             |  |   | 370,424     |   |  |   | 442,456    |  
|Income tax benefit (expense)                                                                                         |  |                                 | 955,500    |   |                               |   | 877,802    |             |  |   | 1,617,900   |   |  |   | 1,685,402  |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Net income (loss) from continuing operations                                                                         |  | $                               | (3,751,080 | ) |                               | $ | (1,773,645 | )           |  | $ | (6,367,442  | ) |  | $ | (2,748,302 | )
|Discontinued operations:                                                                                             |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Revenues: PBM                                                                                                        |  | $                               |           |   |                               | $ |           |             |  | $ |            |   |  | $ | 2,925,139  |  
|Cost of goods sold: PBM                                                                                              |  |                                 |           |   |                               |   |           |             |  |   |            |   |  |   | 2,904,274  |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Gross profit: PBM                                                                                                    |  | $                               |           |   |                               | $ |           |             |  | $ |            |   |  | $ | 20,865     |  
|Selling, general and administrative expenses: PBM                                                                    |  |                                 |           |   |                               |   |           |             |  |   |            |   |  |   | 20,785     |  
|PBM segment exit income (expense)                                                                                    |  |                                 |           |   |                               |   |           |             |  |   |            |   |  |   | 8,300      |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Discontinued operations net income (net of income tax)                                                               |  | $                               |           |   |                               | $ |           |             |  | $ |            |   |  | $ | 8,380      |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Net income (loss)                                                                                                    |  | $                               | (3,751,080 | ) |                               | $ | (1,773,645 | )           |  | $ | (6,367,442  | ) |  | $ | (2,739,922 | )
|Preferred stock dividends                                                                                            |  |                                 | 137,500    |   |                               |   | 100,002    |             |  |   | 287,300     |   |  |   | 208,335    |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Net income (loss) available to common shareholders                                                                   |  | $                               | (3,888,580 | ) |                               | $ | (1,873,647 | )           |  | $ | (6,654,742  | ) |  | $ | (2,948,257 | )
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Basic income (loss) per share                                                                                        |  | $                               | (0.24      | ) |                               | $ | (0.16      | )           |  | $ | (0.43       | ) |  |   | (0.27      | )
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Basic weighted average number of common shares outstanding                                                           |  |                                 | 16,396,092 |   |                               |   | 11,436,721 |             |  |   | 15,544,306  |   |  |   | 11,042,688 |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Diluted income (loss) per share                                                                                      |  | $                               | (0.24      | ) |                               | $ | (0.16      | )           |  | $ | (0.43       | ) |  | $ | (0.27      | )
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Diluted weighted average number of common shares outstanding                                                         |  |                                 | 16,396,092 |   |                               |   | 11,436,721 |             |  |   | 15,544,306  |   |  |   | 11,042,688 |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  
|Basic and diluted discontinued operations earnings per share                                                         |  | $                               |           |   |                               | $ |           |             |  | $ |            |   |  | $ |           |  
|                                                                                                                     |  |                                 |            |   |                               |   |            |             |  |   |             |   |  |   |            |  

See accompanying notes to condensed consolidated financial statements.



---

GEOPHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                   |  |                    |            |   |                    |   |            |  
|-------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | - | ---------- | -
|                                                                                                   |  | September 30, 2008 |            |   | September 30, 2007 |  
|                                                                                                   |  | (Unaudited)        |            |   | (Unaudited)        |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                              |  |                    |            |   |                    |   |            |  
|Net income (loss)                                                                                  |  | $                  | (6,367,442 | ) |                    | $ | (2,739,922 | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                    |            |   |                    |   |            |  
|Depreciation, leasehold and intangible amortization                                                |  |                    | 1,393,009  |   |                    |   | 819,358    |  
|Income tax expense (benefit)                                                                       |  |                    | (1,617,900 | ) |                    |   | (1,685,402 | )
|Amortization of stock deferred compensation                                                        |  |                    | 674,417    |   |                    |   | 420,837    |  
|Accrued interest income                                                                            |  |                    | (38,815    | ) |                    |   | (163,105   | )
|Common stock issued for interest payment                                                           |  |                    | 337,546    |   |                    |   |           |  
|Common stock issued for payment of consulting fees                                                 |  |                    | 24,000     |   |                    |   |           |  
|Changes in operating assets and liabilities:                                                       |  |                    |            |   |                    |   |            |  
|Accounts receivable, net                                                                           |  |                    | 3,044,388  |   |                    |   | 4,783,139  |  
|Accounts receivable, other                                                                         |  |                    | 21,068     |   |                    |   | 8,077      |  
|Inventories, net                                                                                   |  |                    | 471,420    |   |                    |   | (1,132,048 | )
|Prepaid expenses and other current assets                                                          |  |                    | 725,093    |   |                    |   | 255,901    |  
|Deferred tax asset, net                                                                            |  |                    | (800       | ) |                    |   |           |  
|Other assets, net                                                                                  |  |                    | (134,464   | ) |                    |   | 1,799      |  
|Accounts payable                                                                                   |  |                    | (2,337,602 | ) |                    |   | (2,252,182 | )
|Accrued expenses and other payables                                                                |  |                    | 1,342,082  |   |                    |   | (45,808    | )
|Due from affiliates, net                                                                           |  |                    | 37,471     |   |                    |   | 321,664    |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Net cash provided by (used in) operating activities                                                |  | $                  | (2,426,529 | ) |                    | $ | (1,407,692 | )
|                                                                                                   |  |                    |            |   |                    |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                              |  |                    |            |   |                    |   |            |  
|Purchases of property, leasehold improvements and equipment                                        |  | $                  | (436,412   | ) |                    | $ | (2,025,062 | )
|Purchase of certificate of deposit                                                                 |  |                    |           |   |                    |   | (7,007,608 | )
|Purchase of intangible assets                                                                      |  |                    | (1,599,915 | ) |                    |   | (1,223,844 | )
|Proceeds from certificate of deposit maturity                                                      |  |                    |           |   |                    |   | 1,007,608  |  
|Proceeds (uses) due to minority interest investment, net                                           |  |                    | (370,424   | ) |                    |   | (442,455   | )
|Repayments of notes receivable                                                                     |  |                    | 12,955     |   |                    |   |           |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Net cash provided by (used in) investing activities                                                |  | $                  | (2,393,796 | ) |                    | $ | (9,691,361 | )
|                                                                                                   |  |                    |            |   |                    |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                              |  |                    |            |   |                    |   |            |  
|Proceeds from private placement  Convertible debt                                                 |  | $                  | 5,000,000  |   |                    | $ | 10,000,000 |  
|Proceeds from private placement  Common stock issuance                                            |  |                    |           |   |                    |   | 2,500,000  |  
|Proceeds (repayments) from credit line, net                                                        |  |                    | 595,000    |   |                    |   | 1,262,626  |  
|Proceeds from vested stock options exercised                                                       |  |                    | 8,500      |   |                    |   | 4,250      |  
|Proceeds from issuance of long-term obligation                                                     |  |                    | 334,130    |   |                    |   |           |  
|Proceeds from issuance of related party obligation                                                 |  |                    | 150,000    |   |                    |   |           |  
|Payments for private placement fees                                                                |  |                    | (24,603    | ) |                    |   | (989,078   | )
|Payments of acquisition costs                                                                      |  |                    | (10,000    | ) |                    |   | (197,886   | )
|Payments of short-term obligations                                                                 |  |                    | (290,230   | ) |                    |   |           |  
|Payments of long-term obligations                                                                  |  |                    | (105,104   | ) |                    |   | (518,846   | )
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Net cash provided by (used in) financing activities                                                |  | $                  | 5,657,693  |   |                    | $ | 12,061,066 |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Net increase (decrease) in cash                                                                    |  | $                  | 837,368    |   |                    | $ | 962,013    |  
|Cash at beginning of period                                                                        |  |                    | 523,802    |   |                    |   | 735,000    |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Cash at end of period                                                                              |  | $                  | 1,361,170  |   |                    | $ | 1,697,013  |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|SUPPLEMENTAL INFORMATION:                                                                          |  |                    |            |   |                    |   |            |  
|Cash paid for interest                                                                             |  | $                  | 261,356    |   |                    | $ | 103,389    |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Cash paid for income taxes                                                                         |  | $                  |           |   |                    | $ | 850,000    |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                                       |  |                    |            |   |                    |   |            |  
|Value of common stock issued to pay preferred stock dividends                                      |  | $                  | 287,300    |   |                    | $ | 208,335    |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Value of restricted common stock issued for deferred compensation                                  |  | $                  | 2,221,771  |   |                    | $ |           |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Value of common stock issued for payment of accrued interest expense                               |  | $                  | 865,059    |   |                    | $ |           |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Value of common stock issued for payment of consulting fees                                        |  | $                  | 24,691     |   |                    | $ |           |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Value of common stock issued for employee benefit plan                                             |  | $                  | 70,605     |   |                    | $ |           |  
|                                                                                                   |  |                    |            |   |                    |   |            |  
|Increase in other assets and deferred revenue                                                      |  | $                  | 488,370    |   |                    | $ |           |  
|                                                                                                   |  |                    |            |   |                    |   |            |  

See accompanying notes to condensed consolidated financial statements.



---

GEOPHARMA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX
MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(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, 2008 and 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2009. For
further information, refer to the consolidated financial statements and footnotes included in the Companys Form 10-K as of and for the years ended March 31, 2008 and 2007 as filed with the Securities and Exchange Commission on
June 30, 2008.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Principles of Consolidation

The condensed consolidated financial statements as of and for the
three and six months ended September 30, 2008 include the accounts of GeoPharma, Inc. (the Company), (GeoPharma), which is continuing to do manufacturing business as Innovative Health Products, Inc.
(Innovative), and its wholly-owned subsidiaries IHP Marketing, Inc. (IHP Marketing), Breakthrough Engineered Nutrition, Inc. (Breakthrough), Breakthrough Marketing, Inc. (Breakthrough Marketing),
Belcher Pharmaceuticals, Inc. (Belcher), Belcher Capital Corporation (Belcher Capital), Go2PBM Services, Inc. (PBM), Libi Labs, Inc. (Libi Labs) and its 51% owned LLC, American Antibiotics, which is
accounted for given the consideration of the 49% minority interest, EZ-Med Company (EZ-Med) and Dynamic Health Products, Inc. (BOSS). All transactions relating to significant intercompany balances and transactions have been
eliminated in consolidation.

The consolidated financial statements as of and for the three and six months ended September 30, 2007
include the accounts of GeoPharma, which is continuing to do manufacturing business as Innovative and its wholly-owned subsidiaries IHP Marketing, Breakthrough, Breakthrough Marketing, Belcher, Belcher Capital, PBM, Libi Labs and its 51% owned LLC,
American Antibiotics, which is accounted for given the consideration of the 49% minority interest. Effective June 14, 2007, the Company acquired EZ-Med, a Florida corporation. All transactions relating to significant intercompany balances and
transactions have been eliminated in consolidation.

b. Industry Segments

In accordance with the provisions of Statement of Financial Accounting Standards No. 131, (SFAS 131), Disclosures about Segments of an
Enterprise and Related Information, a company is required to disclose selected financial and other related information about its operating segments. Operating segments are components of an enterprise about which separate financial information
is available and is utilized by the chief operating decision maker (CODM) related to the allocation of resources and in the resulting assessment of the segments overall performance. The measure used by the Companys CODM is a
business segments gross profit. As of and for the three and six months ended September 30, 2008, and as of March 31, 2008, the Company had three industry segments that accompany corporate: manufacturing, distribution and
pharmaceutical. For the three and six months ended September 30, 2007, the Company had four industry segments that accompany corporate: manufacturing, distribution, pharmaceutical and pharmacy benefit management. Effective May 15, 2007,
the Company mutually terminated its Pharmacy Benefit Management contract with AmeriGroup, formerly known as CarePlus, and as a result, the pharmacy benefit management segment was therefore ended. See further consideration in Note 14.

Each of the business segments total revenues for the three and six months ended September 30, 2008 and 2007 are presented on the face of the
statements of operations. The $70,020,989, of total assets as of September 30, 2008 were comprised of $20,730,145 attributable to corporate, $12,259,084 attributable to manufacturing, $20,820,762 attributable to distribution, and $16,210,998
attributable to pharmaceutical. The $69,014,994, of total assets as of March 31, 2008 were comprised of $16,079,021 attributable to corporate, $14,280,086 attributable to manufacturing, $22,803,336 attributable to distribution, and $15,852,551
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. Certificate of Deposit

The certificate of deposit
earns interest at a rate of 3.15% per annum, matures on October 6, 2008, and has been assigned as collateral for the $5 million note payable to First Community Bank of America, due on October 6, 2008. See Note 9.

e. Accounts Receivable

Accounts receivable are
stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated and specific customer
issues are reviewed to arrive at appropriate allowances.

f. Inventories

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

g. Property, Plant, Leasehold Improvements and Equipment

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

h. Intangible Assets

Intangible assets consist
primarily of goodwill, loan costs, customer lists, a distributor agreement and intellectual property. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangibles (SFAS 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. SFAS 142 also requires



---

that 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. The unamortized balance of the intellectual property as of September 30, 2008 and March 31, 2008 was $2,271,270
and $1,822,313, respectively. Based on the required analyses performed as of that annual test date, no impairment loss was required to be recorded for the fiscal year ended March 31, 2008.

For the three and six months ended September 30, 2008 and 2007, amortization expense associated with goodwill was $0. The unamortized balance of
goodwill at September 30, 2008 and March 31, 2008 was $13,435,493 and $13,425,493, respectively. No impairment loss was required to be recorded.

i. 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 (SFAS 144), 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.

j. Income Taxes

The Company utilizes the guidance provided by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109). 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 or benefit is the result of changes in deferred tax assets and liabilities.

k.
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. The reconciliation
between basic and fully diluted shares for the three and six months ended September 30, 2008 and 2007 are as follows:



|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|----------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------ | - | ---------- | ----------------- |  | - | ----------------- | - |  | - | ---------- | -
|                                                      |  | For the Three Months Ended |            |   | For the Six Months Ended |  
|                                                      |  | September 30,2008          |            |   | September 30,2007        |   |            | September 30,2008 |  |   | September 30,2007 |  
|                                                      |  | (Unaudited)                |            |   | (Unaudited)              |   |            | (Unaudited)       |  |   | (Unaudited)       |  
|Net income (loss) per share  basic:                  |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|Net income (loss)                                     |  | $                          | (3,888,580 | ) |                          | $ | (1,873,647 | )                 |  | $ | (6,654,742        | ) |  | $ | (2,948,257 | )
|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|Weighted average shares  basic                       |  |                            | 16,396,092 |   |                          |   | 11,436,721 |                   |  |   | 15,544,306        |   |  |   | 11,042,688 |  
|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|Net income (loss) per share  basic                   |  | $                          | (0.24      | ) |                          | $ | (0.16      | )                 |  | $ | (0.43             | ) |  | $ | (0.27      | )
|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|Net income (loss) per share  diluted:                |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|Net income (loss)                                     |  | $                          | (3,888,580 | ) |                          | $ | (1,873,647 | )                 |  | $ | (6,654,742        | ) |  | $ | (2,948,257 | )
|Preferred stock dividends                             |  |                            |           |   |                          |   |           |                   |  |   |                  |   |  |   |           |  
|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|                                                      |  | $                          | (3,888,580 | ) |                          |   | (1,873,647 | )                 |  | $ | (6,654,742        | ) |  | $ | (2,948,257 | )
|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|Weighted average shares  basic                       |  |                            | 16,396,092 |   |                          |   | 11,436,721 |                   |  |   | 15,544,306        |   |  |   | 11,042,688 |  
|Effect of convertible instruments prior to conversion |  |                            |           |   |                          |   |           |                   |  |   |                  |   |  |   |           |  
|Effect of warrants prior to conversion                |  |                            |           |   |                          |   |           |                   |  |   |                  |   |  |   |           |  
|Effect of stock options                               |  |                            |           |   |                          |   |           |                   |  |   |                  |   |  |   |           |  
|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|Weighted average shares  diluted                     |  |                            | 16,396,092 |   |                          |   | 11,436,721 |                   |  |   | 15,544,306        |   |  |   | 11,042,688 |  
|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  
|Net income (loss) per share  diluted                 |  | $                          | (0.24      | ) |                          | $ | (0.16      | )                 |  | $ | (0.43             | ) |  | $ | (0.27      | )
|                                                      |  |                            |            |   |                          |   |            |                   |  |   |                   |   |  |   |            |  

For the three months ended September 30, 2008, 4,587,156 shares issuable upon conversion of
convertible instruments, warrants on 1,105,923 shares of common stock and 1,866,518 shares issuable upon exercise of stock options were not included in the computation of diluted earnings (loss) per share because their effects were anti-dilutive.
For the three months ended September 30, 2007, 3,327,568 shares issuable upon conversion of convertible instruments, warrants on 1,105,923 shares of common stock and 1,871,518 shares issuable upon exercise of stock options were not included in
the computation of diluted earnings (loss) per share because their effects were anti-dilutive.



For the six months ended September 30, 2008, 4,587,156 shares issuable upon conversion of convertible instruments, warrants on 1,105,923 shares of common stock and 1,866,518 shares issuable upon exercise of stock
options were not included in the computation of diluted earnings (loss) per share because their effects were anti-dilutive. For the six months ended September 30, 2007, 3,327,568 shares issuable upon conversion of convertible instruments,
warrants on 1,105,923 shares of common stock and 1,871,518 shares issuable upon exercise of stock options were not included in the computation of diluted earnings (loss) per share because their effects were anti-dilutive.

l. Use of Estimates

The preparation of financial
statements in conformity with 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, 2008 and March 31, 2008, as well as the reported amounts of revenues and expenses for the three and six months ended September 30, 2008 and 2007. 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 make 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.

m. 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, 2008, five customers, Spectrum Group with 9.9%, Berkeley Premium Nutraceuticals with 7.7%, Walgreens with 7%, Performance Labs, Inc. with 6.4% and ProSource with 6.3% of the total of
consolidated trade accounts receivable, net. At March 31, 2008, five customers, Walgreens with 10.2%, General Nutrition Distribution with 8.9%, Spectrum Group with 8.5%, ITV Global, Inc. with 7.1% and Berkeley Premium Nutraceuticals with 5.5%
of the total of consolidated trade accounts receivable, net.



---

For the three months ended September 30, 2008, two customers individually exceeded 5% of our total
consolidated revenues which included DPS Nutrition Inc. for 6.9% and Central Coast Nutraceuticals for 5%, in relation to total consolidated revenues, and for the three months ended September 30, 2007, three customers individually exceeded 5% of
our total consolidated revenues which included Jacks Distribution for 21.9%, Berkeley Premium Nutraceuticals for 11.9% and CVS for 7.3%, in relation to total consolidated revenues.

For the six months ended September 30, 2008, one customer individually exceeded 5% of our total consolidated revenues, DPS Nutrition Inc. for 7.2%,
in relation to total consolidated revenues, and for the six months ended September 30, 2007, four customers individually exceeded 5% of our total consolidated revenues which included Spectrum Group for 11.8%, General Nutrition Distribution for
9.2%, Jacks Distribution for 7% and CarePlus Health for 30%, in relation to total consolidated revenues.

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

As of
September 30, 2008 and March 31, 2008, the Company maintained cash balances in excess of federally insured limits of $6,658,212 and $6,006,411, respectively, including the Companys certificate of deposit.

n. Revenue and Cost of Sales Recognition

In
accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), 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.

Provisions for discounts and sales incentives to customers, and returns and other
adjustments are provided for in the period the related sales are recorded. Sales incentives to customers and returns have thus far been immaterial to the Company. All shipping and handling costs invoiced to customers are included in revenues.

Costs incurred by BOSS for shipping, handling and warehousing are included in selling, general and administrative expenses in the
statements of operations and were $428,798 and $891,405 for the three and six months ended September 30, 2008, respectively.

o. Advertising Costs

In accordance with Statement of Position No. 93-7, Reporting on Advertising Costs (SOP 93-7), the Company charges
advertising costs, including those for catalog sales and direct mail, to expense as incurred. Advertising expenses are included in selling, general and administrative expenses in the statements of operations and were $729,022 and $136,800 for the
three months ended September 30, 2008 and 2007, respectively, with $1,151,302 and $302,326 of advertising expenses for the six months ended September 30, 2008 and 2007, respectively.

For cooperative advertising allowances received from third party manufacturers and vendors, the Company applies EITF Issue No. 02-16
Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. These allowances are included as a reduction in cost of goods sold and were $76,400 and zero for the three months ended September 30,
2008 and 2007, respectively, and $222,300 and zero for the six months ended September 30, 2008 and 2007, respectively.

p. 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 expenses for the three months ended September 30, 2008 and 2007 were $500,950 and $365,666, respectively, and were $1,151,901 and $791,820 for the six months ended September 30, 2008 and 2007.

q. 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.

Short-term and Long-term Obligations: The fair value of the Companys fixed-rate short-term and long-term obligations is estimated using the
discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At September 30, 2008 and March 31, 2008, the fair value of the Companys short-term and
long-term obligations approximated their carrying value.

Credit Line Payable: The carrying amount of the Companys credit line
payable approximates fair market value since the interest rate on this instrument corresponds to market interest rates.

r. Reclassifications

Certain reclassifications have been made to the financial statements as of March 31, 2008 and as of and for the three and six
months ended September 30, 2007 to conform to the presentation as of and for the three and six months ended September 30, 2008.

s.
Stock-Based Compensation

Effective April 1, 2006, the Company was required to adopt Statement of Financial Accounting Standards
No. 123R, Share-Based Payment (SFAS 123R) which replaces SFAS 123 and SFAS 148, and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). 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 pro forma compensation
expense effects on net income. See further consideration in Note 13.



---

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 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 option
pricing model was applied to value the Companys stock option compensation expense as was used by the Company previously in the pro forma disclosures.

NOTE 3  ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consist of the following:



|                                          |  |               |           |   |             |   |           |  
|----------------------------------------- |  | ------------- | --------- | - | ----------- | - | --------- | -
|                                          |  | September 30, |           |   | March 31,   |  
|                                          |  | (Unaudited)   |           |   | (Unaudited) |  
|Trade accounts receivable                 |  | $             | 5,107,386 |   |             | $ | 8,265,656 |  
|Less allowance for uncollectible accounts |  |               | (443,425  | ) |             |   | (557,307  | )
|                                          |  |               |           |   |             |   |           |  
|                                          |  | $             | 4,663,961 |   |             | $ | 7,708,349 |  
|                                          |  |               |           |   |             |   |           |  

As of September 30, 2008, the total accounts receivable balance of $5,107,386 includes
$2,254,333 related to the Companys manufacturing segment, $2,395,343 related to the Companys distribution segment and $457,710 related to the Companys pharmaceutical segment. As of March 31, 2008, the total accounts receivable
balance of $8,265,656 includes $4,366,462 related to the Companys manufacturing segment, $3,606,559 related to the Companys distribution segment and $292,635 related to the Companys pharmaceutical 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.

NOTE 4  INVENTORIES, NET

Inventories, net, consist of the following:



|                                      |  |                   |            |   |               |   |            |  
|------------------------------------- |  | ----------------- | ---------- | - | ------------- | - | ---------- | -
|                                      |  | September 30,2008 |            |   | March 31,2008 |  
|                                      |  | (Unaudited)       |            |   | (Unaudited)   |  
|Processed raw materials and packaging |  | $                 | 4,268,290  |   |               | $ | 5,461,487  |  
|Work in process                       |  |                   | 1,384,227  |   |               |   | 602,258    |  
|Finished goods                        |  |                   | 7,596,967  |   |               |   | 7,649,696  |  
|                                      |  |                   |            |   |               |   |            |  
|                                      |  | $                 | 13,249,484 |   |               | $ | 13,713,441 |  
|Less reserve for obsolescence         |  |                   | (106,080   | ) |               |   | (98,617    | )
|                                      |  |                   |            |   |               |   |            |  
|                                      |  | $                 | 13,143,404 |   |               | $ | 13,614,824 |  
|                                      |  |                   |            |   |               |   |            |  

As of September 30, 2008, the total inventory balance of $13,249,484 includes $5,574,524
related to the Companys manufacturing segment, $5,843,596 related to the Companys distribution segment and $1,831,364 related to the Companys pharmaceutical segment. As of March 31, 2008, the total inventory balance of
$13,713,441 includes $5,568,602 related to the Companys manufacturing segment, $6,415,783 related to the Companys distribution segment and $1,729,056 related to the Companys pharmaceutical segment.

NOTE 5  DEFERRED COMPENSATION

The deferred
compensation of $3,705,645 and $2,158,291 as of September 30, 2008 and March 31, 2008, respectively, relates to corporate and is amortized over its three-year life, the length of the common stock restriction. The deferred compensation
asset relates to shares of 3-year restricted common stock issued pursuant to the 2005-2007 Compensation Incentive Plan effective beginning with the fiscal year ended March 31, 2006. The Plan documents the incentive plan and related awards for
Plan achievements for the Chairman of the Board of Directors and the Companys executive officers, which include the Chief Executive Officer, the President, the Senior Vice President/Chief Financial Officer and the Vice President/General
Counsel. The asset was recorded based on the number of shares awarded and the discounted fair market value of the restricted stock the date of the award as based on an independent valuation and is amortized over its three-year life, the length of
the restriction. See further consideration in Note 13.

NOTE 6  INTANGIBLE ASSETS, NET

Intangible assets, net consist of the following:



|                                                              |  |                   |           |   |               |   |           |  
|------------------------------------------------------------- |  | ----------------- | --------- | - | ------------- | - | --------- | -
|                                                              |  | September 30,2008 |           |   | March 31,2008 |  
|                                                              |  | (Unaudited)       |           |   | (Unaudited)   |  
|Loan and lease costs                                          |  | $                 | 2,384,291 |   |               | $ | 984,291   |  
|Intellectual property                                         |  |                   | 2,271,270 |   |               |   | 1,822,313 |  
|Generic drug ANDAs                                            |  |                   | 3,402,666 |   |               |   | 3,402,666 |  
|Patents, trademarks, customer lists and distributor agreement |  |                   | 329,248   |   |               |   | 315,427   |  
|                                                              |  |                   |           |   |               |   |           |  
|                                                              |  | $                 | 8,387,475 |   |               | $ | 6,524,697 |  
|Less accumulated amortization                                 |  |                   | (452,563  | ) |               |   | (91,743   | )
|                                                              |  |                   |           |   |               |   |           |  
|                                                              |  | $                 | 7,934,912 |   |               | $ | 6,432,954 |  
|                                                              |  |                   |           |   |               |   |           |  

As of September 30, 2008, the loan and lease costs of $2,384,291 are related to corporate and
all of which have an identifiable life and are amortized over that life. Of the $2,271,270 of intellectual property, $200,000 was attributable to the Companys manufacturing segment, $1,410,396 was attributable to the Companys
distribution segment with the balance of $660,874 being attributable to the Companys pharmaceutical segment, all of which have no identifiable life and are therefore evaluated annually for impairment. The generic drug ANDAs relate to the
pharmaceutical segment and do not have an identifiable life and are therefore evaluated annually for impairment. Of the $329,248 of patents, trademarks, customer lists and distribution agreement, $42,896 related to the Companys manufacturing
segment, $279,137 related to the Companys distribution segment and $7,215 related to the Companys pharmaceutical segment.

As
of March 31, 2008, the loan and lease costs of $984,291 are related to corporate and all of which have an identifiable life and are amortized over that life. Of



---

the $1,822,313 of intellectual property, $200,000 was attributable to the manufacturing segment, $1,200,396 was attributable to the distribution segment with
the balance of $421,917 being attributable to the pharmaceutical segment, all of which have no identifiable life and are therefore evaluated annually for impairment. The generic drug ANDAs relate to the pharmaceutical segment and do not have an
identifiable life and are therefore evaluated annually for impairment. Of the $315,427 of patents, trademarks, customer lists and distribution agreement, $31,121 relates to the manufacturing segment, $279,136 relates to the distribution segment and
$5,170 relates to the pharmaceutical segment.

As there is an indeterminant life as related to the intellectual property and the generic
drug ANDAs, these assets are analyzed each January 1 for impairment.

NOTE 7  INCOME TAXES

Income taxes for the six months ended September 30, 2008 and 2007 differ from the amounts computed by applying the effective income tax rates to
income before income taxes as a result of the following:



|                                                                                            |  |                   |            |   |                   |   |            |  
|------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                                                            |  | September 30,2008 |            |   | September 30,2007 |  
|                                                                                            |  | (Unaudited)       |            |   | (Unaudited)       |  
|Computed tax expense (benefit) at the statutory rate (37.63%)                               |  | $                 | (3,005,000 | ) |                   | $ | (1,605,000 | )
|Increase (decrease) in taxes resulting from:                                                |  |                   |            |   |                   |   |            |  
|Effect of permanent differences:                                                            |  |                   |            |   |                   |   |            |  
|Non deductible                                                                              |  |                   | 9,500      |   |                   |   | 6,100      |  
|Other, net                                                                                  |  |                   | (63,400    | ) |                   |   | (233,100   | )
|Change in valuation allowance                                                               |  |                   | 1,441,000  |   |                   |   | 146,600    |  
|                                                                                            |  |                   |            |   |                   |   |            |  
|Income tax (benefit) expense                                                                |  | $                 | (1,617,900 | ) |                   | $ | (1,685,400 | )
|                                                                                            |  |                   |            |   |                   |   |            |  
|Temporary differences that give rise to deferred tax assets and liabilities are as follows: |  |                   |            |   |                   |   |            |  
|Deferred tax assets:                                                                        |  |                   |            |   |                   |   |            |  
|Bad debts                                                                                   |  | $                 | 252,800    |   |                   | $ | 127,700    |  
|Inventories                                                                                 |  |                   | 39,900     |   |                   |   | 15,400     |  
|Accrued vacation                                                                            |  |                   | 81,900     |   |                   |   | 45,300     |  
|Deposits                                                                                    |  |                   | 183,800    |   |                   |   | 85,000     |  
|Deferred rent                                                                               |  |                   | 163,400    |   |                   |   | 163,400    |  
|Net operating loss carryforwards                                                            |  |                   | 6,806,100  |   |                   |   | 1,782,800  |  
|Stock option cancellation and restricted stock                                              |  |                   | 1,065,300  |   |                   |   | 622,800    |  
|                                                                                            |  |                   |            |   |                   |   |            |  
|                                                                                            |  | $                 | 8,593,200  |   |                   | $ | 2,842,400  |  
|Valuation allowance                                                                         |  |                   | (3,499,000 | ) |                   |   | (355,300   | )
|                                                                                            |  |                   |            |   |                   |   |            |  
|Deferred tax asset                                                                          |  | $                 | 5,094,200  |   |                   | $ | 2,487,100  |  
|                                                                                            |  |                   |            |   |                   |   |            |  
|Deferred tax liabilities:                                                                   |  |                   |            |   |                   |   |            |  
|Fixed and intangible asset basis differences                                                |  | $                 | (196,400   | ) |                   | $ | (164,400   | )
|Inventory capitalization                                                                    |  |                   | (90,900    | ) |                   |   | (60,700    | )
|                                                                                            |  |                   |            |   |                   |   |            |  
|                                                                                            |  |                   | (287,300   | ) |                   | $ | (225,100   | )
|                                                                                            |  |                   |            |   |                   |   |            |  
|Net deferred tax asset (liability) recorded                                                 |  | $                 | 4,806,900  |   |                   | $ | 2,262,000  |  
|                                                                                            |  |                   |            |   |                   |   |            |  

At September 30, 2008 and 2007, the Company has a net operating loss carryforward of
approximately $18,087,000 and $4,650,000, respectively, to offset future taxable income. The tax net operating loss carryforwards begin to expire in 2021.

The Company adopted Financial Standards Board Interpretation No. 48, Accounting for Income Taxes (FIN 48). As a result of the adoption of FIN 48, the Company has not recognized a material adjustment
in the liability for unrecognized tax benefits and has not recorded any provision for penalties or interest related to uncertain tax positions.

NOTE 8
 CREDIT LINE PAYABLE

On October 12, 2007, BOSS issued a revolving Promissory Note (Note) to Wachovia Bank, National
Association (Wachovia), in the amount of $4 million or such sum as may be advanced and outstanding from time to time, pursuant to the Loan Agreement. Interest shall accrue on the unpaid principal balance and varies based on the LIBOR
Market Index Rate plus 1.75%, for any day. The note is due and payable in consecutive monthly payments of accrued interest only, commencing on November 20, 2007, and continuing on the same day of each month thereafter until fully paid. In any event,
all principal and accrued interest shall be due and payable on August 31, 2008. On March 28, 2008, the Company entered into loan modification agreements with Wachovia, whereby the amount of the October 12, 2007 revolving Note to Wachovia was reduced
from $4 million to $2.5 million, or such sum as may be advanced and outstanding from time to time, and $750,000 of the principal balance of the revolving Note was converted to a term Promissory Note (Term Note), both maturing on August
31, 2008. In addition, the rate of interest was modified whereby interest shall accrue on the unpaid principal balance and varies based on the LIBOR Market Index Rate plus 3.15%, for any day. Certain terms of the loan were modified including the
financial covenant in regards to the liquidity ratio. On April 25, 2008, we entered into a Modification Number 001 To Loan Agreement and a Modification Number 001 To Promissory Note with Wachovia, whereby certain terms of the loan were modified,
including the financial covenant in regards to liquidity ratio. See further consideration in Note 9.

On August 28, 2008, we entered into
an Allonge to Promissory Note with Wachovia, with respect to the $2.5 million revolving Note, whereby the rate of interest was modified so that interest shall accrue on the unpaid principal balance and varies based on the Prime Rate plus 2%.
Prime Rate shall mean the floating annual rate of interest that is designated from time to time by Wachovia as the Prime Rate and is used by Wachovia as a reference based with respect to interest rates charged to borrowers.
In addition, the maturity date was extended to December 31, 2008. The principal balance was $2,451,000 and $1,856,000, at September 30, 2008 and March 31, 2008, respectively.

NOTE 9  NOTES PAYABLE (SHORT-TERM)

On April 6, 2008, the Company entered into a Change In
Terms Agreement with First Community Bank of America (FCB), whereby the $3,500,000 promissory note issued to FCB on October 1, 2007 was modified and consolidated with the $500,000 promissory note issued to FCB on December 20,
2007 and the $1,000,000 promissory note issued to FCB on January 18, 2008. In accordance with the modified terms, interest on the note is payable monthly in arrears, commencing May 6, 2008, at the rate of 5.15% per annum, with the
entire principal payment of $5,000,000 plus interest being due on October 6, 2008. In connection with the promissory note, the Company assigned, as collateral security for the note, a certificate of deposit account with FCB in the approximate
balance of $6,246,771 as of January 18, 2008, including interest thereon. On October 6, 2008, the Company entered into a Change In Terms Agreement with FCB, whereby the terms of the promissory note were modified so that interest on the
note is payable monthly in arrears, commencing November 6, 2008, at the rate of 5.21% per annum, with the entire principal payment of $5,000,000 plus interest being due on October 6, 2009.

On March 28, 2008, the Company entered into modification agreements with Wachovia, whereby $750,000 of the principal balance of the October 12, 2007
revolving Promissory Note issued by BOSS to Wachovia was converted to a Term Note, maturing on August 31, 2008. Interest shall accrue on the unpaid principal balance and varies based on the LIBOR Market Index Rate plus 3.15%, for any day. The Term
Note is due and payable in consecutive monthly payments of principal equal to $50,000 plus accrued interest, commencing on May 1, 2008 and continuing on the same day of each month thereafter until fully paid. In any event, all principal and accrued
interest shall be due and payable on August 31, 2008. On April 25, 2008, we entered into a Modification Number 001 to Loan Agreement and a Modification Number 001 To Promissory Note with Wachovia, whereby certain terms of the loan were modified,
including the financial covenant in regards to liquidity ratio. See further consideration in Note 8.

On August 28, 2008, we entered into
an Allonge to Promissory Note with Wachovia, with respect to the $750,000 Term Note, whereby the rate of interest was modified so that interest shall accrue on the unpaid principal balance and varies based on the Prime Rate plus 2%. Prime
Rate shall mean the floating annual rate of interest that is designated from time to time by Wachovia as the Prime Rate and is used by Wachovia as a reference based with respect to interest rates charged to borrowers. In addition,
the maturity date was extended to December 31, 2008. The principal balance was $550,000 and $750,000, at September 30, 2008 and March 31, 2008, respectively.



---

Of the $5,559,292 of short-term obligations outstanding as of September 30, 2008, $5,550,000 related
to corporate and $9,292 related to the Companys manufacturing segment. Of the $5,849,490 of short-term obligations outstanding as of March 31, 2008, $5,776,159 related to corporate, $36,239 related to the Companys manufacturing
segment and $37,092 related to the Companys distribution segment.

NOTE 10  RELATED PARTY OBLIGATION

In September 2008, Jugal Taneja, the Companys Chairman of the Board of Directors, loaned the Company $150,000. Interest on the loan is at the rate
of 7% per annum. The loan, together with accrued interest, is due and payable on or before March 31, 2009. Proceeds of the loan were used for working capital.

NOTE 11  LONG-TERM OBLIGATIONS

On September 30, 2008, the Company issued an $800,000
promissory note to First Community Bank of America. The note is payable in six consecutive monthly payments of accrued interest only, commencing on October 30, 2008, and 54 monthly consecutive principal and interest payments of approximately
$17,166, commencing April 30, 2009, at the rate of 6.5% per annum. In any event, all principal and accrued interest shall be due and payable on September 30, 2013. The note is secured by equipment as described in a Commercial Security
Agreement issued to FCB on September 30, 2008. In addition, Jugal Taneja, the Companys Chairman of the Board of Directors, assigned, as collateral security for the note, his certificate of deposit account with FCB in the amount of
$400,000. Proceeds of the note were used for the purchase of equipment. Future advances under the note are to be used for equipment purchases. The principal balance of the note was $334,130 at September 30, 2008.

Of the $4,204,364 of long-term obligations outstanding as of September 30, 2008, $1,162,975 related to corporate, $43,560 related to the
Companys manufacturing segment, $9,459 related to the Companys distribution segment and $2,988,370 related to the Companys pharmaceutical segment. Of the $3,486,999 of long-term obligations outstanding as of March 31, 2008,
$907,843 related to corporate, $67,320 related to the Companys manufacturing segment, $11,836 related to the Companys distribution segment and $2,500,000 related to the Companys pharmaceutical segment.

NOTE 12  CONVERTIBLE DEBT

On April 5,
2007, GeoPharma, Inc. entered into a Note Purchase Agreement, Securities (Common Stock) Purchase Agreement, Convertible Promissory Note, Warrant, and two related Registration Rights Agreements with Whitebox Pharmaceutical Growth Fund, Ltd.
(Whitebox). In connection with the Whitebox financing, the Company paid a fee to Rodman & Renshaw, LLC equal to $750,000 in cash and a warrant to purchase up to 143,403 shares of the Companys common stock at an exercise
price of $5.23. The transactions contemplated by such agreements were consummated on April 5, 2007, at which time the Company issued the following securities to Whitebox for the following consideration:



| |  |  | 573,395 shares of common stock, $.01 par value (the Common Stock), at a sales price of $4.36 per share (the Common Stock Purchase Price),
for a total of $2,500,000;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A Convertible Promissory Note (the Note), with maturity date of April 5, 2013, in the original principal amount of $10,000,000, which amount is
convertible into up to 2,293,578 shares of Common Stock at a price of $4.36 per share, subject to certain adjustments as set forth in the Note (the Conversion Price); and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A Warrant to purchase up to 400,000 shares of Common Stock at an exercise of $5.23 per share, subject to certain adjustments as set forth in the Warrant, with a
termination date of April 5, 2014.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Note accrues interest at the rate of 8% per annum, payable on a
quarterly basis on January 1, April 1, July 1 and October 1 of each year, beginning on July 1, 2007. Until April 5, 2009, interest is payable by adding the accrued interest to the principal amount of the Note.
Following April 5, 2009, interest is payable on each quarterly interest payment date as follows: (i) if funds are legally available for the payment of interest and the Equity Conditions (as defined in the Note and summarized below) have
not been met, in cash; (ii) if funds are legally available for the payment of interest and the Equity Conditions have been met, at the sole election of the Company, in cash or shares of Common Stock, which shall be valued solely for such
purpose at 95% of the average of the VWAP (as defined below) for the 5 trading days immediately prior to such interest payment date; (iii) if funds are not legally available for the payment of interest and the Equity Conditions have been met,
in shares of Common Stock which shall be valued at 95% of the average of the VWAP for the 5 trading days immediately prior to such interest payment date; (iv) if funds are not legally available for the payment of interest and the Equity
Conditions have been waived by Whitebox, in shares of Common Stock which shall be valued at 95% of the average of the VWAP for the 5 trading days immediately prior to the interest payment date; and (v) if funds are not legally available for the
payment of interest and the Equity Conditions have not been met, then, at the election of Whitebox, such interest payment shall accrue to the next interest payment date or shall be accreted to the outstanding accreted principal amount.



Notwithstanding anything else to the contrary, in the event that
(i) the Companys earnings before interest, income taxes, depreciation, amortization and stock expense, as reported on the Companys most recent Form 10-Q or Form 10-K (as applicable) is less than $1,250,000 for such quarter, or
(ii) the Companys earnings before interest, income taxes, depreciation, amortization and stock expense for the trailing four quarters is less than $4,000,000 in the aggregate, or (iii) an event or condition that would constitute a
Material Adverse Effect (as such term is defined in the Note Purchase Agreement) for the Company shall have occurred, or (iv) the Company shall not have filed its latest Form 10-Q or Form 10-K within the timeframe required by the SEC and the
rules and regulations set forth in the Exchange Act, Whitebox shall have the option, in its sole discretion, to require that any interest, for the next subsequent quarterly payment period, be paid in cash. The Company filed Form 8-K on
April 10, 2007.

On April 24, 2008, the Company and Whitebox entered into an Amended and Restated Note Purchase Agreement (the
Restated Note Purchase Agreement), Amended and Restated Convertible Promissory Note (the Restated Note), and Amended and Restated Registration Rights Agreement (the Restated Registration Rights Agreement and
collectively with the Restated Note Purchase Agreement and Restated Note, the Restated Agreements), all of which collectively serve to amend and restate the Original Note, Original Note Purchase Agreement and the
Original Registration Rights Agreements. The material amendments contained in the Restated Agreements include the following:



| |  |  | The Additional Notes contemplated by the Original Note Purchase Agreement have been eliminated and replaced by adding the principal amount of the Additional Notes
($5,000,000) to the Restated Note, thus increasing the total principal amount of the Restated Note to $15,000,000.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The terms and conditions necessary to satisfy the issuance of the Subsequent Notes contemplated by the Original Note Purchase Agreement have been modified so that
Whitebox is now required to make such loan upon the Companys acquisition of the real estate related to its Beta-Lactam facility (which it currently leases) in Baltimore, Maryland and the satisfaction or waiver of certain other closing
conditions related thereto.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All interest that had accrued on the Original Note from its original issue date (April 5, 2007) through April 24, 2008, in the amount of $865,058, has been
converted by Whitebox into a total of 389,666 shares of the Companys Common Stock in full satisfaction of such accrued interest.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

| |  |  | The interest rate on the Restated Note from and after April 24, 2008 has been increased to 12%, but all of such interest may now be paid, at the option of the
Company in shares of common stock of the Company valued at 95% of the volume weighted average market price of the shares during the 5 trading days immediately preceding the payment of interest, provided that certain Equity Conditions (as
defined in the Restated Note) have been satisfied. If the Company does not meet the Equity Conditions, and if funds are legally available for the payment of interest, then the Company must pay such interest in cash.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All requirements that the Company meet certain minimum EBITDA targets have been deleted and replaced by a requirement
that the Companys Current Assets (defined as the sum of (w) 100% of the Companys cash, plus (x) 100% of the Companys net accounts receivables plus (y) 50% of the Companys net inventory plus (z) 30% of the
Companys net property, plant and equipment) exceeds the Companys Total Debt (defined as indebtedness of the Company and its subsidiaries (x) to Whitebox, (y) under the $4,000,000 revolving promissory note with Wachovia Bank,
National Association and (z) under the $5,000,000 promissory note with First Community Bank of America.) If the Company fails to satisfy the foregoing Current Assets Test as of the required date for filing any Form 10-K or Form 10-Q, as
applicable (the Current Assets Test Measurement Date), Whitebox may require the Company to redeem up to $2,000,000 of the principal amount of the Restated Note as of such Current Assets Test Measurement Date. In addition, if the
Companys Total Debt exceeds the Companys Current Assets by more than $2,000,000 as of the Current Assets Test Measurement Date, such shortfall will constitute an Event of Default under the Restated Note, in which case the entire
outstanding principal amount (including any Accreted Principal or Make-Whole Amounts (as defined by the Restated Note)) under the Restated Note will be due and payable on the 30thday after the occurrence of such default if the Company is unable to cure such default within such thirty (30) day period.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The provision of the Original Note Purchase Agreement that allowed Whitebox to put 1/10th of the outstanding principal amount of the Original Note
(including any accreted interest) to the Company at par if (A) the sum of the Companys (i) net accounts receivable, plus (ii) cash and cash equivalents, plus (iii) marketable securities at the end of any quarterly
period were less than $7,000,000, or (B) the Companys revenues were less than $5,000,000 for the most recently reported quarterly period, has been deleted.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company agreed to register all of the shares issuable pursuant to the Restated Note (whether as a result of a conversion or otherwise) to the extent permitted
by the SEC in accordance with its rules and regulations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In connection with the foregoing Restated Agreements,
(a) Jugal K. Taneja (the Companys Chairman of the Board) and certain other purchasers agreed to purchase from Whitebox 373,000 shares of the Companys common stock, and 260,384 accompanying warrants, issued to Whitebox in connection
with the Original Note Purchase Agreement, at a price of $2.22 per share, on or prior to May 7, 2008, and (b) the Company paid to Whitebox a $1,400,000 financing fee in cash.

The offering and sale of the Restated Note (as well as the Original Note and the shares issuable to Whitebox pursuant thereto) were deemed to be exempt
under Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offering and sale were made only to one accredited investor, and
transfer of the securities has been restricted in accordance with the requirements of the Securities Act of 1933. The Company received written representations from Whitebox regarding, among other things, its accredited-investor status and investment
intent.

NOTE 13  SHAREHOLDERS EQUITY

During June 2008, the Compensation Committee of the Companys Board of Directors, with the approval of the Companys Board of Directors, awarded the Companys management a total of 1,532,256 shares of
3-year restricted Company common stock pursuant to the 2005-2007 Compensation Incentive Plan. As a result, the Company recorded a deferred compensation asset of approximately $2,221,771, which is being amortized over 36 months to stock compensation
expense within selling, general and administrative expenses on the Companys statements of operations. See further consideration in Note 5.

On September 29, 2008, the Company issued 51,208 shares of common stock to GeoPharma, Inc. 401(k) Plan, for the Companys $70,605 contribution to the employees 401(k) benefit plan for the fiscal year 2008.

NOTE 14  DISCONTINUED OPERATIONS

As presented
on the face of the statement of operations under Discontinued operations, effective May 15, 2007, the Company mutually terminated its Pharmacy Benefit Management and Services Agreement (the Agreement). Under the
Agreement, the Company previously managed AmeriGroups (formerly known as CarePlus) health care plan members and administrated the members related pharmacy claims. No amounts were due from or due to AmeriGroup and therefore, the business
segment will not continue.

NOTE 15  LITIGATION

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. On February 14, 2008 Belcher and Schering entered into a stipulation to withdraw the motion to dismiss the New Jersey action and to consolidate the New Jersey and Florida
actions.

On February 20, 2008, Sepracor Inc. and University of Massachusetts
(Sepracor) filed an action in the United States District Court for the District of New Jersey, 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 U.S. Patent No. 7,214,683 (the 683 patent) and U.S. Patent No. 7,214,684 (the 684
patent) Case No. 3:08-cv-00945-MLC-TJB.

Company management and Belcher disputes Scherings claims in the two actions and
believes its proposed desloratadine product does not infringe any valid claim of the 274 patent. Company management and Belcher also disputes Sepracors claims and believes its proposed desloratadine product does not infringe any valid
claim of the 683 patent or the 684 patent. The possible outcome cannot be determined at this time.

During September 2006, the
Company, through its 51% owned subsidiary, American Antibiotics, LLC, filed in the Circuit Court for Anne Arundel County, Maryland, Case No. C-06-117230, naming defendents Consolidated Pharmaceutical Group (CPG), the directors of CPG and
two other individuals acting on behalf of CPG (collectively the Defendents). The litigation arises from and relates to agreements entered into between American Antibiotics and CPG for the purchase by American Antibiotics all of
CPGs rights, title and interest in various pharmaceutical Abbreviated New Drug Applications (ANDAs) and for the Baltimore Maryland facility lease (the Lease). The Suit brought by the Company alleges that the Defendents
breached the ANDA agreement with certain misrepresentations and by failing to perform all the required improvements and modifications to the Baltimore, Maryland facility. Consolidated with American Antibiotics lawsuit is a separate action file
against it by CPG, alleging that American Antibiotics has failed to pay rent that is due and owing under the Lease. Both cases have been stayed pending the outcome of settlement discussions, which are ongoing between the parties.



---

On May 1, 2006 Esther Krausz and Sharei Yeshua (Note Holders) filed an action against
Dynamic Health Products, Inc. in the Circuit Court of Broward County, Florida (Index No. 06-6187) alleging Dynamic Health Products, Inc. defaulted on note payment obligations. The face amount of the note alleged to be held by Ester Krausz
totals $280,000, the face amount of the note alleged to be held by Sharei Yeshua totals $220,000. The notes contain an interest rate of 8% per annum. Preliminary discovery has been conducted. Dynamic Health Products, Inc. filed a third party
action against the agent for the Note Holders seeking indemnity and that action was settled in May 2008. The Note Holders have filed a request for trial with the court but no date has been set. Dynamic Health Products, Inc. is investigating whether
the purported agent made any payments to the Note Holders on behalf of Dynamic Health Products, Inc. without disclosing those payments. To date, Plaintiffs have not provided copies of the notes to Dynamic Health Products, Inc. or made a specific
monetary demand. Dynamic Health Products, Inc. intends to vigorously defend itself in this action.

From time to time the Company is
subject to litigation incidental to its business including possible product liability claims. Such claims, if successful, could exceed applicable insurance coverage.

The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary course of business. The Company believes that none of the claims that were outstanding as of
September 30, 2008 and March 31, 2008 should have a material adverse impact on its financial condition or results of operations.

NOTE 16
 SUBSEQUENT EVENT

On April 6, 2008, we entered into a Change In Terms Agreement with First Community Bank of America,
whereby the $3,500,000 promissory note issued to FCB on October 1, 2007 was modified and consolidated with the $500,000 promissory note issued to FCB on December 20, 2007 and the $1,000,000 promissory note issued to FCB on January 18,
2008. In accordance with the modified terms, interest on the note is payable monthly in arrears, commencing May 6, 2008, at the rate of 5.15% per annum, with the entire principal payment of $5,000,000 plus interest being due on
October 6, 2008. In connection with the promissory note, we assigned, as collateral security for the note, a certificate of deposit account with FCB in the approximate balance of $6 million as of March 31, 2008, including interest thereon.
On October 6, 2008, the Company entered into a Change In Terms Agreement with FCB, whereby the terms of the promissory note were modified so that interest on the note is payable monthly in arrears, commencing November 6, 2008, at the rate
of 5.21% per annum, with the entire principal payment of $5,000,000 plus interest being due on October 6, 2009.



|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

We derive our revenues from developing, manufacturing and distributing a wide variety of nutraceuticals and cosmeticeuticals, sports nutrition products,
pharmaceutical and generic drugs, and prescription and non-prescription products. We also derive revenues from the distribution of our branded product lines that include DEX-C20 and Hoodia DEX-L10 as well as from distributing others product
lines.

Cost of goods sold is comprised of direct manufacturing and manufacturing and distribution material product costs, direct personnel
compensation and other statutory benefits and indirect costs relating to labor to support product manufacture, distribution and the warehousing of production and other manufacturing overhead. In addition, for the distribution segment, the cost of
all free goods for the purpose of product introduction or other incentive-based product costs are also recorded.

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

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

Interest expense, net, consists of interest expense associated with credit lines, convertible debt, borrowings to finance capital equipment expenditures and other working capital needs and is partially offset by
interest income earned on our funds held at banks. For the three and six months ended September 30, 2008 and 2007, interest expense, net, was further reduced by interest expense incurred that was capitalizable based on pharmaceutical leasehold
construction projects in process.

Effective May 15, 2007, we discontinued our pharmacy benefit management operations, due to our
mutual termination of our PBM contract with Amerigroup, formerly known as CarePlus Health. Therefore, after the contract termination date, we have not received or recorded PBM segment revenues or incurred or recorded related PBM contract expenses.
We did not incur contract termination or any related exit costs associated with this contract termination.

For the three and six months
ended September 30, 2007, the following amounts, which are included in our consolidated statement of operations for the three and six months ended September 30, 2007, as discontinued operations, were attributable to our PBM segment:



| |  |  | PBM segment revenue of approximately $2.9 million;
| | - |  | --------------------------------------------------



| |  |  | PBM segment gross profit of approximately $20,900;
| | - |  | --------------------------------------------------



| |  |  | PBM segment selling, general and administrative expenses of approximately $20,800; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | PBM segment exit income of approximately $8,300.
| | - |  | ------------------------------------------------

Effective October 16, 2007, we acquired 100% of the common stock of BOSS, a Florida corporation. BOSS develops, markets and distributes a wide variety of sports nutrition products, performance drinks,
non-prescription dietary supplements, health and beauty care products, health food and nutritional products, soft goods and other related products. The transaction was accounted for as a purchase. The results of operations of BOSS and its
subsidiaries have been included in our results of operations in our statement of operations, since the effective date of acquisition, October 16, 2007, as part of our distribution segment.



---

The unaudited pro forma effect of the acquisition of BOSS on our revenues, net income (loss) and net
income (loss) per share, had the acquisition occurred on April 1, 2007, is as follows:



|                                |  |                                     |            |   |                                   |   |            |  
|------------------------------- |  | ----------------------------------- | ---------- | - | --------------------------------- | - | ---------- | -
|                                |  | Three MonthsEndedSeptember 30, 2007 |            |   | Six MonthsEndedSeptember 30, 2007 |  
|Revenues                        |  | $                                   | 19,886,404 |   |                                   | $ | 42,028,795 |  
|                                |  |                                     |            |   |                                   |   |            |  
|Net income (loss)               |  | $                                   | (1,613,175 | ) |                                   | $ | (3,796,785 | )
|                                |  |                                     |            |   |                                   |   |            |  
|Basic income (loss) per share   |  | $                                   | (0.12      | ) |                                   | $ | (0.28      | )
|                                |  |                                     |            |   |                                   |   |            |  
|Diluted income (loss) per share |  | $                                   | (0.12      | ) |                                   | $ | (0.28      | )
|                                |  |                                     |            |   |                                   |   |            |  

The following amounts, which are included in our consolidated statement of operations for the
three months ended September 30, 2008, were attributable to BOSS:



| |  |  | Distribution revenue of approximately $10.8 million;
| | - |  | ----------------------------------------------------



| |  |  | Distribution gross profit of approximately $1.8 million;
| | - |  | --------------------------------------------------------



| |  |  | Selling, general and administrative expenses of approximately $2 million;
| | - |  | -------------------------------------------------------------------------



| |  |  | Depreciation and amortization expense of approximately $47,100;
| | - |  | ---------------------------------------------------------------



| |  |  | Interest income (expense), net of approximately $(31,400); and
| | - |  | --------------------------------------------------------------



| |  |  | Other income (expense), net of approximately $9,200.
| | - |  | ----------------------------------------------------

The impact of the results of operations of BOSS on our consolidated net loss for the three months ended September 30, 2008 was net income (loss) of approximately $(338,700).

The following amounts, which are included in our consolidated statement of operations for the six months ended September 30, 2008, were attributable
to BOSS:



| |  |  | Distribution revenue of approximately $22.6 million;
| | - |  | ----------------------------------------------------



| |  |  | Distribution gross profit of approximately $4 million;
| | - |  | ------------------------------------------------------



| |  |  | Selling, general and administrative expenses of approximately $4.1 million;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Depreciation and amortization expense of approximately $93,400;
| | - |  | ---------------------------------------------------------------



| |  |  | Interest income (expense), net of approximately $(63,500); and
| | - |  | --------------------------------------------------------------



| |  |  | Other income (expense), net of approximately $11,600.
| | - |  | -----------------------------------------------------

The impact of the results of operations of BOSS on our consolidated net loss for the six months ended September 30, 2008 was net income (loss) of approximately $(264,900).

Results of Operations

The table and the comparative
analysis below for results of operations of the three months ended September 30, 2008, as compared to the three months ended September 30, 2007, excludes (1) the results of operations of BOSS, acquired by us effective October 16,
2007 and (2) the results of operations of our discontinued operations, the PBM segment, effective May 15, 2007.

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



|                                                                             |  |                                 |    |  |       |   
|---------------------------------------------------------------------------- |  | ------------------------------- | -- |  | ----- | --
|                                                                             |  | Three Months EndedSeptember 30, |   
|                                                                             |  | 2008                            |    |  | 2007  |   
|Revenues                                                                     |  | 100.0                           | %  |  | 100.0 | % 
|Cost of goods sold (excluding depreciation and amortization)                 |  | 82.4                            | %  |  | 79.5  | % 
|                                                                             |  |                                 |    |  |       |   
|Gross profit                                                                 |  | 17.6                            | %  |  | 20.5  | % 
|Depreciation and amortization                                                |  | 13.0                            | %  |  | 6.2   | % 
|Stock compensation expense                                                   |  | 7.1                             | %  |  | 4.4   | % 
|Selling, general and administrative expenses                                 |  | 75.2                            | %  |  | 57.0  | % 
|Other income (expense), net                                                  |  | (9.4                            | )% |  | (0.5  | )%
|Income (loss) before minority interest, income taxes and preferred dividends |  | (87.0                           | )% |  | (47.6 | )%
|Minority interest benefit                                                    |  | 3.3                             | %  |  | 3.6   | % 
|Income tax benefit (expense)                                                 |  | 18.3                            | %  |  | 14.6  | % 
|Preferred stock dividends                                                    |  | 2.6                             | %  |  | 1.7   | % 
|                                                                             |  |                                 |    |  |       |   
|Net income (loss)                                                            |  | (68.0                           | )% |  | (31.1 | )%
|                                                                             |  |                                 |    |  |       |   

Three Months Ended September 30, 2008, Compared to Three Months Ended September 30, 2007

Our analysis of the three months ended September 30, 2008, as compared to the three months ended September 30, 2007, excludes the
results of operations of BOSS, acquired October 16, 2007, and our PBM segment, discontinued on May 15, 2007.

Revenues

Our total revenues decreased approximately $800,500, or 13.3%, to approximately $5.2 million for the three months ended September 30, 2008, from
approximately $6 million for the three months ended September 30, 2007.

Manufacturing revenues decreased approximately $115,400, or
2.5%, to approximately $4.5 million for the three months ended September 30, 2008, as



---

compared to approximately $4.7 million for the three months ended September 30, 2007. During the three months ended September 30, 2008, although
our contract manufacturing customer base and sales to existing customers have increased, temporary economic influences surrounding our manufacturing business have resulted in increased fuel costs and resin prices. Manufacturing capacities and
capabilities continue to be increased as we continue to enhance our existing core manufacturing equipment and standard operating procedures. As we expect customer advertising and period-sensitive promotions to continue to increase, we expect to have
increases in the number and size of orders.

Distribution revenues decreased approximately $1.2 million, or 89.6%, to approximately
$141,600 for the three months ended September 30, 2008, as compared to approximately $1.4 million for the three months ended September 30, 2007. 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, 2008, 417 cases of Hoodia DEX-L10 were sold versus 2,599
cases sold for the three months ended September 30, 2007. In addition, during March 2007, we had introduced a new product line DEX-C20, of which 1,883 cases were sold during the three months ended September 30, 2008. During the three
months ended September 30, 2008, we have experienced increased competition at the mass retail chain level where the majority of the product is sold, in addition to temporary economic influences affecting our distribution sales volumes.

Pharmaceutical revenues were approximately $534,000 for the three months ended
September 30, 2008. There were no sales for this business segment for the three months ended September 30, 2007. During the three months ended September 30, 2008, pharmaceutical revenues were comprised of sales of Vetprofen  ,
the Companys brand of Carprofen, which was approved by the FDA during November 2007. Our Carprofen is sold in three different strengths: 25 mg, 75 mg and 100 mg. Of the total pharmaceutical revenues for the three months ended
September 30, 2008, sales were comprised of 383 cases of 25 mg, 638 cases of 75 mg and 767 cases of 100 mg of Carprofen.

Gross Profit

Our total gross profit decreased approximately $311,800 or 25.3%, to approximately $919,700 for the three months ended
September 30, 2008, as compared to approximately $1.2 million for the three months ended September 30, 2007. Total gross margins decreased to 17.5% for the three months ended September 30, 2008 from 20.5% for the three months ended
September 30, 2007.

Manufacturing gross profit increased approximately $251,800, or 18.9%, to approximately $1.6 million for the
three months ended September 30, 2008, as compared to approximately $1.3 million for the three months ended September 30, 2007. For the three months ended September 30, 2008 manufacturing gross margin increased to 34.9%, from 28.6%
for the three months ended September 30, 2007. Although sales and gross profits have increased, gross margins have decreased during the three months ended September 30, 2008 as compared to the three months ended September 30, 2007,
due to higher costs with 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 our planned improvements surrounding enhanced standard operating and manufacturing procedures in all of our manufacturing plants. We expect that these improvements will continue to increase our visibility in the marketplaces that we
compete in for new and expanded business for the upcoming fiscal year.

Distribution gross profits decreased approximately $661,300, or
103.5%, to a gross profit deficit of approximately $22,100 for the three months ended September 30, 2008, as compared to gross profits of approximately $639,200 for the three months ended September 30, 2007. Distribution gross margins
decreased to (15.6)% for the three months ended September 30, 2008, as compared to 47.0% for the three months ended September 30, 2007. Gross profits and gross margins have declined based on increased competition which caused additional
short-term price concessions and a change in the chain store sales mix. In addition, gross margins can vary in a given quarter based on sales promotions and advertising efforts.

Pharmaceutical gross profits increased approximately $97,700, or 13.2%, to a gross profit deficit
of approximately $643,000 for the three months ended September 30, 2008, as compared to approximately $740,800 in gross profit deficit for this business segment for the three months ended September 30, 2007. This was based primarily on the
Cephalasporin and Beta-Lactam facilities that have no revenue streams but have costs associated with overall research and product development, and production and laboratory direct labor costs. The Largo, Florida generic drug plant has commenced
initial manufacturing and began shipping Vetprofen, its branded generic Carprofen, during the fourth fiscal quarter ended March 31,
2008, which has assisted in offsetting some of the costs associated with other research and product development, production and laboratory direct costs related to the pharmaceutical segment. The Largo, Florida Cephalasporin and generic drug plants
incurred approximately $1 million of costs with the Baltimore, Maryland Beta-Lactam facility having incurred approximately $135,000 of costs with revenue offsets of approximately $534,000. The drug revenues derived were generated from our generic
drug plant in Largo, Florida. We are awaiting FDA facility approval of both the Baltimore, Maryland Beta-Lactam and the Largo, Florida Cephalosporin drug facility plants and we estimate and anticipate that we will begin to derive revenues during the
third or fourth quarter of the fiscal year ending March 31, 2009.

Selling, General and Administrative Expenses

Selling, general and administrative (SGA) expenses consist of advertising and promotional expenses; stock compensation costs, insurance costs,
research and development costs associated with the generic drug segment, personnel costs related to general management functions, finance, accounting and information systems, payroll expenses and sales commissions; professional fees related to
legal, audit and tax matters; and depreciation and amortization expenses. Selling, general and administrative expenses, inclusive of stock compensation and depreciation and amortization expenses, increased approximately $905,300, or 22.3%, to
approximately $5 million for the three months ended September 30, 2008, as compared to approximately $4.1 million for the three months ended September 30, 2007. An increase of approximately $198,000 was due to the increase in amortizable
intangible assets related to our distribution segment; approximately $108,000 was due to the increase in purchased depreciable assets related to generic drug, cosmeceutical and nutraceutical manufacturing; approximately $345,000 in additional
advertising and promotional expenses associated with promoting our distribution segment and related branded product lines, including Hoodia DEX-L10 and DEX-C20; officer and employee salaries have increased approximately $107,000 in total based on
increases in the number of personnel in addition to merit increases and bonuses received, and the related increase in payroll taxes was approximately $38,000; approximately $104,000 increase in the stock compensation expense directly related to the
issuance of 3-year restricted stock awards; approximately $70,000 increase in bank and filing fees; and approximately $37,000 increase in proxy related costs; all of which were partially offset by a decrease of approximately $82,000 in insurance
costs and a decrease of approximately $50,000 in bad debt expense. As a percentage of sales, selling, general and administrative expenses increased to 95.2% for the three months ended September 30, 2008, from 67.5% for the three months ended
September 30, 2007.

Operating Income (Loss)

Operating loss was approximately $4.1 million, or 77.6% of revenues for the three months ended September 30, 2008, compared to an operating loss of approximately $2.8 million, or 47.1% of revenues for the three
months ended September 30, 2007.

Other Income (Expense), Net

Other income (expense), net was approximately $(488,300) for the three months ended September 30, 2008, compared to approximately $(33,100) for the three months ended September 30, 2007. Interest income
(expense), net, was approximately $(488,500) for the three months ended September 30, 2008, compared to approximately $(33,200) for the three months ended September 30, 2007. The increase in interest expense was primarily attributable to
interest expense associated with our convertible debt in addition to our short-term obligations issued during fiscal 2008, and was partially offset by interest capitalized on our generic pharmaceutical leasehold construction. For the three months
ended September 30, 2008 and 2007, other income (expense), net, of approximately $200 and $100, respectively, primarily consisted of recycling income.



---

Income Tax Benefit (Expense)

For the three months ended September 30, 2008, we had recorded approximately $955,500 of income tax benefit as compared to approximately $877,800 of income tax benefit for the three months ended
September 30, 2007. The tax benefit was based on our tax calculation of temporary and permanent differences using the effective tax rates applied to our net loss for the period, changes in information gained related to underlying assumptions
about our future operations, as well as the utilization of available operating loss carryforwards. In accordance with SFAS No. 109, Accounting for Income Taxes, we have evaluated whether it is more likely than not that the deferred
tax asset will be realized. Based on available evidence, we have concluded that it is more likely than not that the increase in the asset will be realized by carrying back approximately $3.5 million of the operating loss and by carrying forward the
remainder of the loss to future periods through the expiration dates of the operating loss carryforwards beginning 2021 and ending 2028.

The table and the comparative analysis below for results of operations of the six months ended September 30, 2008, as compared to the six months ended September 30, 2007, excludes (1) the results of operations of BOSS,
acquired by us effective October 16, 2007 and (2) the results of operations of our discontinued operations, the PBM segment, effective May 15, 2007.

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



|                                                                             |  |                               |    |  |       |   
|---------------------------------------------------------------------------- |  | ----------------------------- | -- |  | ----- | --
|                                                                             |  | Six Months EndedSeptember 30, |   
|                                                                             |  | 2008                          |    |  | 2007  |   
|Revenues                                                                     |  | 100.0                         | %  |  | 100.0 | % 
|Cost of goods sold (excluding depreciation and amortization)                 |  | 81.8                          | %  |  | 78.6  | % 
|                                                                             |  |                               |    |  |       |   
|Gross profit                                                                 |  | 18.2                          | %  |  | 21.4  | % 
|Depreciation and amortization                                                |  | 9.7                           | %  |  | 6.4   | % 
|Stock compensation expense                                                   |  | 5.0                           | %  |  | 3.3   | % 
|Selling, general and administrative expenses                                 |  | 56.9                          | %  |  | 49.1  | % 
|Other income (expense), net                                                  |  | (6.8                          | )% |  | (0.6  | )%
|Income (loss) before minority interest, income taxes and preferred dividends |  | (60.2                         | )% |  | (38.0 | )%
|Minority interest benefit                                                    |  | 2.8                           | %  |  | 3.4   | % 
|Income tax benefit (expense)                                                 |  | 12.0                          | %  |  | 13.1  | % 
|Preferred stock dividends                                                    |  | 2.1                           | %  |  | 1.6   | % 
|                                                                             |  |                               |    |  |       |   
|Net income (loss)                                                            |  | (47.5                         | )% |  | (23.0 | )%
|                                                                             |  |                               |    |  |       |   

Six Months Ended September 30, 2008, Compared to Six Months Ended September 30, 2007

Our analysis of the six months ended September 30, 2008, as compared to the six months ended September 30, 2007, excludes the results of operations
of BOSS, acquired October 16, 2007, and our PBM segment, discontinued on May 15, 2007.

Revenues

Our total revenues increased approximately $610,200, or 4.8%, to approximately $13.5 million for the six months ended September 30, 2008, from
approximately $12.9 million for the six months ended September 30, 2007.

Manufacturing revenues increased approximately $1.2 million,
or 12.9%, to approximately $10.8 million for the six months ended September 30, 2008, as compared to approximately $9.6 million for the six months ended September 30, 2007. During the six months ended September 30, 2008, our contract
manufacturing customer base increased, as well as sales to existing customers, as partially offset by temporary economic influences surrounding increased fuel costs and resin prices. Manufacturing capacities and capabilities continue to be increased
as we continue to enhance our existing core manufacturing equipment and standard operating procedures. As we expect customer advertising and period-sensitive promotions to continue to increase, we expect to have increases in the number and size of
orders.

Distribution revenues decreased approximately $1.2 million, or 38.6%, to approximately $2 million for the six months ended
September 30, 2008, as compared to approximately $3.2 million for the six months ended September 30, 2007. 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, 2008, 4,521 cases of Hoodia DEX-L10 were sold versus 5,072 cases sold for the six months ended
September 30, 2007, based on new mass chain store introductions, as partially offset by increased competition at the mass retail chain level where the majority of the product is sold. In addition, during March 2007, we had introduced a new
product line DEX-C20, of which 12,064 cases were sold during the six months ended September 30, 2008.

Pharmaceutical revenues increased approximately $617,200, or 1,498.2%, to approximately $658,400 for the six months ended September 30, 2008, as compared to approximately $41,200 in sales
for this business segment for the six months ended September 30, 2007. During the six months ended September 30, 2008, pharmaceutical revenues were comprised of sales of Vetprofen  , the Companys brand of Carprofen, which was
approved by the FDA during November 2007. Our Carprofen is sold in three different strengths: 25 mg, 75 mg and 100 mg. Of the total pharmaceutical revenues for the six months ended September 30, 2008, sales were comprised of 415 cases of 25 mg,
825 cases of 75 mg and 823 cases of 100 mg of Carprofen.

Gross Profit

Our total gross profit decreased approximately $291,700 or 10.6%, to approximately $2.5 million for the six months ended September 30, 2008, as compared to approximately $2.7 million for the six months ended
September 30, 2007. Total gross margins decreased to 18.2% for the six months ended September 30, 2008 from 21.4% for the six months ended September 30, 2007.

Manufacturing gross profit increased approximately $352,400, or 12.6%, to approximately $3.1 million for the six months ended September 30, 2008, as
compared to approximately $2.8 million for the six months ended September 30, 2007. For the six months ended September 30, 2008 manufacturing gross margin decreased to 29.1%, from 29.2% for the six months ended September 30, 2007.
Although sales and gross profits have increased, gross margins have decreased during the six months ended September 30, 2008 as compared to the six months ended September 30, 2007, due to higher costs with 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 our planned improvements surrounding
enhanced standard operating and manufacturing procedures in all of our manufacturing plants. We expect that these improvements will continue to increase our visibility in the marketplaces that we compete in for new and expanded business for the
upcoming fiscal year.

Distribution gross profits decreased approximately $721,200, or 48.7%, to approximately $758,600 for the six months
ended September 30, 2008, as compared to approximately $1.5 million for the six months ended September 30, 2007. Distribution gross margins decreased to 38.4% for the six months ended September 30,



---

2008, as compared to 46.0% for the six months ended September 30, 2007. Gross profits and gross margins have declined based on increased competition
which caused additional short-term price concessions and a change in the chain store sales mix. In addition, gross margins can vary in a given quarter based on sales promotions and advertising efforts.

Pharmaceutical gross profits increased approximately $77,100, or 5.0%, to a gross profit deficit
of approximately $1.5 million for the six months ended September 30, 2008, as compared to approximately $1.5 million in gross profit deficit for this business segment for the six months ended September 30, 2007. This was based primarily on
the Cephalasporin and Beta-Lactam facilities that have no revenue streams but have costs associated with overall research and product development, and production and laboratory direct labor costs. The Largo, Florida generic drug plant has commenced
initial manufacturing and began shipping Vetprofen, its branded generic Carprofen, during the fourth fiscal quarter ended March 31,
2008, which has assisted in offsetting some of the costs associated with other research and product development, production and laboratory direct costs related to the pharmaceutical segment. The Largo, Florida Cephalasporin and generic drug plants
incurred approximately $1.8 million of costs with the Baltimore, Maryland Beta-Lactam facility having incurred approximately $286,000 of costs with revenue offsets of approximately $658,000. The drug revenues derived were generated from our generic
drug plant in Largo, Florida. We are awaiting FDA facility approval of both the Baltimore, Maryland Beta-Lactam and the Largo, Florida Cephalosporin drug facility plants and we estimate and anticipate that we will begin to derive revenues during the
third or fourth quarter of the fiscal year ending March 31, 2009.

Selling, General and Administrative Expenses

Selling, general and administrative (SGA) expenses consist of advertising and promotional expenses; stock compensation costs, insurance costs,
research and development costs associated with the generic drug segment, personnel costs related to general management functions, finance, accounting and information systems, payroll expenses and sales commissions; professional fees related to
legal, audit and tax matters; and depreciation and amortization expenses. Selling, general and administrative expenses, inclusive of stock compensation and depreciation and amortization expenses, increased approximately $2.1 million, or 27.6%, to
approximately $9.6 million for the six months ended September 30, 2008, as compared to approximately $7.5 million for the six months ended September 30, 2007. An increase of approximately $248,000 was due to the increase in amortizable
intangible assets related to our distribution segment; approximately $233,000 was due to the increase in purchased depreciable assets related to generic drug, cosmeceutical and nutraceutical manufacturing; approximately $393,000 in additional
advertising and promotional expenses associated with promoting our distribution segment and related branded product lines, including Hoodia DEX-L10 and DEX-C20; officer and employee salaries have increased approximately $359,000 in total based on
increases in the number of personnel in addition to merit increases and bonuses received, and the related increase in payroll taxes was approximately $93,000; approximately $131,000 in increased accounting costs primarily associated with the initial
implementation of Sarbanes-Oxley compliance; approximately $131,000 increase in legal; approximately $106,000 increase in bank and filing fees; approximately $104,000 increase in utilities; approximately $223,000 increase in the stock compensation
expense directly related to the issuance of 3-year restricted stock awards; approximately $48,000 increase in proxy related costs, and approximately $45,000 increase in licenses and permits; all of which were partially offset by a decrease of
approximately $98,000 in insurance costs and a decrease of approximately $43,000 in director fees. As a percentage of sales, selling, general and administrative expenses increased to 71.6% for the six months ended September 30, 2008, from 58.8%
for the six months ended September 30, 2007.

Operating Income (Loss)

Operating loss was approximately $7.2 million, or 53.4% of revenues for the six months ended September 30, 2008, compared to an operating loss of
approximately $4.8 million, or 37.4% of revenues for the six months ended September 30, 2007.

Other Income (Expense), Net

Other income (expense), net was approximately $(913,500) for the six months ended September 30, 2008, compared to approximately $(70,700) for the six
months ended September 30, 2007. Interest income (expense), net, was approximately $(915,700) for the six months ended September 30, 2008, compared to approximately $(73,000) for the six months ended September 30, 2007. The increase
in interest expense was primarily attributable to interest expense associated with our convertible debt in addition to our short-term obligations issued during fiscal 2008, and was partially offset by interest capitalized on our generic
pharmaceutical leasehold construction. For the six months ended September 30, 2008, other income (expense), net, of approximately $2,300, primarily consisted of recycling income. For the six months ended September 30, 2007, other income
(expense), net, of approximately $2,200, primarily consisted of recycling income and customer deposits that were forfeited.

Income Tax Benefit
(Expense)

For the six months ended September 30, 2008, we had recorded approximately $1.6 million of income tax benefit as
compared to approximately $1.7 million of income tax benefit for the six months ended September 30, 2007. The tax benefit was based on our tax calculation of temporary and permanent differences using the effective tax rates applied to our net
loss for the period, changes in information gained related to underlying assumptions about our future operations, as well as the utilization of available operating loss carryforwards. In accordance with SFAS No. 109, Accounting for Income
Taxes, we have evaluated whether it is more likely than not that the deferred tax asset will be realized. Based on available evidence, we have concluded that it is more likely than not that the increase in the asset will be realized by
carrying back approximately $3.5 million of the operating loss and by carrying forward the remainder of the loss to future periods through the expiration dates of the operating loss carryforwards beginning 2021 and ending 2028.

Inflation And Seasonality

We believe that there was
no material effect on our operations or our financial condition as a result of inflation as of and for the three and six months ended September 30, 2008 and 2007. We also believe that our business is not seasonal, however significant
promotional activities can have a direct impact on our sales volume in any given quarter.

Economic And Industry Conditions

We believe that there is a decline in general economic and industry conditions and believe that such decline has had a negative effect, that we are unable
to quantify, on our operations and our financial condition as of and for the three and six months ended September 30, 2008 and 2007. Should there be a continued material deterioration of general economic or industry conditions, our results of
operations could further be impacted in any given quarter.

Financial Condition, Liquidity and Capital Resources

We had approximately $1.4 million of cash and cash equivalents as of September 30, 2008, an increase from approximately $523,800 as of March 31,
2008. We had a working capital deficit of approximately $831,900 as of September 30, 2008, inclusive of current portion of long-term obligations. As of March 31, 2008, we had working capital of approximately $1.2 million, inclusive of
current portion of long-term obligations. As of September 30, 2008 and March 31, 2008, our liquidity is affected by our certificate of deposit of approximately $6 million, which is included in current assets and which is pledged as
collateral for our short-term obligation to First Community Bank of America.

We have financed our operations and growth primarily through
cash flows operations, borrowing under our revolving credit facility, operating leases, trade payables, the issuance of short-term obligations, and the receipt of $15 million of gross private placement proceeds based on our April 2007 $10
million 6% convertible preferred stock private placement together with $2.5 million issuance of common stock and a March 2004 $5 million convertible preferred stock.



---

On April 5, 2007, we closed on $12.5 million financing with Whitebox Pharmaceutical Growth Fund,
Ltd. (Whitebox), comprised of 8%, 6 year Convertible Debt together with $2.5 million of our $0.01 par value common stock together with 400,000 warrants as related to the $2.5 million in common stock. The $10 million of debt is
convertible into our common stock at $4.36 with the 400,000 warrants convertible into our common stock at $5.23.

The Company and Whitebox
entered into two registration rights agreements dated April 5, 2007, one related to 573,395 shares of common stock of the Company owned by Whitebox and the other related to the shares of common stock of the Company issuable upon conversion, or
as payment of interest and principal with regard to, the $10,000,000 8% Secured Convertible Promissory Note dated April 5, 2007. In compliance with the foregoing, the Company filed a registration statement (file no. 333-142369) with the
Securities and Exchange Commission (the SEC) and caused it to become effective on December 7, 2007, pursuant to which the Company registered 1,931,395 shares, consisting of the 573,395 shares owned by Whitebox, up to 1,214,597
shares issuable upon the conversion of the note, up to 143,403 shares issuable upon the exercise of warrants owned by Rodman & Renshaw.

On April 24, 2008, the Company and Whitebox Pharmaceutical Growth Fund, Ltd. (Whitebox) entered into an Amended and Restated Note Purchase Agreement (the Restated Note Purchase Agreement), Amended and Restated
Convertible Promissory Note (the Restated Note), and Amended and Restated Registration Rights Agreement (the Restated Registration Rights Agreement and collectively with the Restated Note Purchase Agreement and
Restated Note, the Restated Agreements), all of which collectively serve to amend and restate the Original Note, Original Note Purchase Agreement and the Original Registration Rights Agreements. The material amendments
contained in the Restated Agreements include the following:



| |  |  | The Additional Notes contemplated by the Original Note Purchase Agreement have been eliminated and replaced by adding the principal amount of the Additional Notes
($5,000,000) to the Restated Note, thus increasing the total principal amount of the Restated Note to $15,000,000.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The terms and conditions necessary to satisfy the issuance of the Subsequent Notes contemplated by the Original Note Purchase Agreement have been modified so that
Whitebox is now required to make such loan upon the Companys acquisition of the real estate related to its Beta-Lactam facility (which it currently leases) in Baltimore, Maryland and the satisfaction or waiver of certain other closing
conditions related thereto.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All interest that had accrued on the Original Note from its original issue date (April 5, 2007) through April 24, 2008, in the amount of $865,058, has been
converted by Whitebox into a total of 389,666 shares of the Companys Common Stock in full satisfaction of such accrued interest.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The interest rate on the Restated Note from and after April 24, 2008 has been increased to 12%, but all of such interest may now be paid, at the option of the
Company in shares of common stock of the Company valued at 95% of the volume weighted average market price of the shares during the 5 trading days immediately preceding the payment of interest, provided that certain Equity Conditions (as
defined in the Restated Note) have been satisfied. If the Company does not meet the Equity Conditions, and if funds are legally available for the payment of interest, then the Company must pay such interest in cash.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All requirements that the Company meet certain minimum EBITDA targets have been deleted and replaced by a requirement
that the Companys Current Assets (defined as the sum of (w) 100% of the Companys cash, plus (x) 100% of the Companys net accounts receivables plus (y) 50% of the Companys net inventory plus (z) 30% of the
Companys net property, plant and equipment) exceeds the Companys Total Debt (defined as indebtedness of the Company and its subsidiaries (x) to Whitebox, (y) under the $4,000,000 revolving promissory note with Wachovia Bank,
National Association and (z) under the $5,000,000 promissory note with First Community Bank of America.) If the Company fails to satisfy the foregoing Current Assets Test as of the required date for filing any Form 10-K or Form 10-Q, as
applicable (the Current Assets Test Measurement Date), Whitebox may require the Company to redeem up to $2,000,000 of the principal amount of the Restated Note as of such Current Assets Test Measurement Date. In addition, if the
Companys Total Debt exceeds the Companys Current Assets by more than $2,000,000 as of the Current Assets Test Measurement Date, such shortfall will constitute an Event of Default under the Restated Note, in which case the entire
outstanding principal amount (including any Accreted Principal or Make-Whole Amounts (as defined by the Restated Note)) under the Restated Note will be due and payable on the 30thday after the occurrence of such default if the Company is unable to cure such default within such thirty (30) day period.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The provision of the Original Note Purchase Agreement that allowed Whitebox to put 1/10th of the outstanding principal amount of the Original Note
(including any accreted interest) to the Company at par if (A) the sum of the Companys (i) net accounts receivable, plus (ii) cash and cash equivalents, plus (iii) marketable securities at the end of any quarterly
period were less than $7,000,000, or (B) the Companys revenues were less than $5,000,000 for the most recently reported quarterly period, has been deleted.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company agreed to register all of the shares issuable pursuant to the Restated Note (whether as a result of a conversion or otherwise) to the extent permitted
by the SEC in accordance with its rules and regulations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company paid to Whitebox a $1,400,000 financing fee in cash.
| | - |  | ----------------------------------------------------------------

The offering and sale of the Restated Note (as well as the Original Note and the shares issuable to Whitebox pursuant thereto) were deemed to be exempt under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offering and sale were made only to one accredited investor, and transfer of the securities has been restricted in accordance
with the requirements of the Securities Act of 1933. The Company received written representations from Whitebox regarding, among other things, its accredited-investor status and investment intent.

On October 12, 2007, BOSS issued a revolving Promissory Note (Note) to Wachovia Bank, National Association (Wachovia), in the
amount of $4 million or such sum as may be advanced and outstanding from time to time, pursuant to the Loan Agreement. Interest shall accrue on the unpaid principal balance and varies based on the LIBOR Market Index Rate plus 1.75%, for any day. The
note is due and payable in consecutive monthly payments of accrued interest only, commencing on November 20, 2007, and continuing on the same day of each month thereafter until fully paid. In any event, all principal and accrued interest shall be
due and payable on August 31, 2008. On March 28, 2008, the Company entered into loan modification agreements with Wachovia, whereby the amount of the October 12, 2007 revolving Note to Wachovia was reduced from $4 million to $2.5 million, or such
sum as may be advanced and outstanding from time to time, and $750,000 of the principal balance of the revolving Note was converted to a term Promissory Note (Term Note), both maturing on August 31, 2008. In addition, the rate of
interest was modified whereby interest shall accrue on the unpaid principal balance and varies based on the LIBOR Market Index Rate plus 3.15%, for any day. Certain terms of the loan were modified including the financial covenant in regards to the
liquidity ratio. The Term Note is due and payable in consecutive monthly payments of principal equal to $50,000 plus accrued interest, commencing on May 1, 2008 and continuing on the same day of each month thereafter until fully paid. On April 25,
2008, we entered into a Modification Number 001 To Loan Agreement and a Modification Number 001 To Promissory Note with Wachovia, whereby certain terms of the loan were modified, including the financial covenant in regards to liquidity ratio.

On August 28, 2008, we entered into an Allonge to Promissory Note with Wachovia, with respect to the $2.5 million revolving Note, whereby
the rate of interest was modified so that interest shall accrue on the unpaid principal balance and varies based on the Prime Rate plus 2%. Prime Rate shall mean the floating annual rate of interest that is designated from time to time
by Wachovia as the Prime Rate and is used by Wachovia as a reference based with respect to interest rates charged to borrowers. In addition, the maturity date was extended to December 31, 2008. The principal balance was $2,451,000 and
$1,856,000, at September 30, 2008 and March 31, 2008, respectively.

In addition, on August 28, 2008, we entered into an Allonge to
Promissory Note with Wachovia, with respect to the $750,000 Term Note, whereby the rate of interest was modified so that interest shall accrue on the unpaid principal balance and varies based on the Prime Rate plus 2%. Prime Rate shall
mean the floating annual rate of interest that is designated from time to time by Wachovia as the Prime Rate and is used by Wachovia as a reference based with respect to interest rates charged to borrowers. In addition, the maturity date
was extended to December 31, 2008. The principal balance was $550,000 and $750,000, at September 30, 2008 and March 31, 2008, respectively.

On April 6, 2008, we entered into a Change In Terms Agreement with First Community Bank of America (FCB), whereby the $3,500,000 promissory note



---

issued to FCB on October 1, 2007 was modified and consolidated with the $500,000 promissory note issued to FCB on December 20, 2007 and the
$1,000,000 promissory note issued to FCB on January 18, 2008. In accordance with the modified terms, interest on the note is payable monthly in arrears, commencing May 6, 2008, at the rate of 5.15% per annum, with the entire principal
payment of $5,000,000 plus interest being due on October 6, 2008. In connection with the promissory note, we assigned, as collateral security for the note, a certificate of deposit account with FCB in the approximate balance of $6 million as of
March 31, 2008, including interest thereon. On October 6, 2008, the Company entered into a Change In Terms Agreement with FCB, whereby the terms of the promissory note were modified so that interest on the note is payable monthly in
arrears, commencing November 6, 2008, at the rate of 5.21% per annum, with the entire principal payment of $5,000,000 plus interest being due on October 6, 2009.

On June 18, 2008, the Compensation Committee of the Companys Board of Directors, with the approval of the Companys Board of Directors,
awarded the Companys management a total of 1,532,256 shares of 3-year restricted Company common stock pursuant to the 2005-2007 Compensation Incentive Plan. As a result, the Company recorded a deferred compensation asset of approximately
$2,221,771, which is being amortized over 36 months to stock compensation expense within selling, general and administrative expenses on the Companys statements of operations.

In September 2008, Jugal Taneja, the Companys Chairman of the Board of Directors, loaned the Company $150,000. Interest on the loan is at the rate
of 7% per annum. The loan, together with accrued interest, is due and payable on or before March 31, 2009. Proceeds of the loan were used for working capital.

On September 30, 2008, the Company issued an $800,000 promissory note to First Community Bank of America. The note is payable in six consecutive monthly payments of accrued interest only, commencing on
October 30, 2008, and 54 monthly consecutive principal and interest payments of approximately $17,166, commencing April 30, 2009, at the rate of 6.5% per annum. In any event, all principal and accrued interest shall be due and payable
on September 30, 2013. The note is secured by equipment as described in a Commercial Security Agreement issued to FCB on September 30, 2008. In addition, Jugal Taneja, the Companys Chairman of the Board of Directors, assigned, as
collateral security for the note, his certificate of deposit account with FCB in the amount of $400,000. Proceeds of the note were used for the purchase of equipment. Future advances under the note are to be used for equipment purchases. The
principal balance of the note was $334,130 at September 30, 2008.

SIX MONTH ENDED SEPTEMBER 30, 2008 CASH FLOW ANALYSIS

The following table summarizes our cash flows from operating, investing and financing activities for each of the six months ended September 30, 2008
and September 30, 2007:



|                                                 |  |      |            |   |      |   |            |  
|------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|Six Months Ended September 30,                   |  | 2008 |            |   | 2007 |  
|Total cash provided by (used in):                |  |      |            |   |      |   |            |  
|Operating activities                             |  | $    | (2,426,529 | ) |      | $ | (1,407,692 | )
|                                                 |  |      |            |   |      |   |            |  
|Investing activities                             |  | $    | (2,393,796 | ) |      | $ | (9,691,361 | )
|                                                 |  |      |            |   |      |   |            |  
|Financing activities                             |  | $    | 5,657,693  |   |      | $ | 12,061,066 |  
|                                                 |  |      |            |   |      |   |            |  
|Increase (decrease) in cash and cash equivalents |  | $    | 837,368    |   |      | $ | 962,013    |  
|                                                 |  |      |            |   |      |   |            |  

Operating Activities

Net cash used in operating activities was approximately $2.4 million for the six months ended September 30, 2008, as compared to net cash used in operating activities of approximately $1.4 million for the six
months ended September 30, 2007. The decline in operating cash flows for the six months ended September 30, 2008, compared with the six months ended September 30, 2007, was due primarily to the increase in our net loss.

We incurred a net loss before preferred stock dividends of approximately $6.4 million for the six months ended September 30, 2008, compared to a net
loss before preferred stock dividends of approximately $2.7 million for the six months ended September 30, 2007. The changes in operating assets and liabilities were due primarily to the decrease in accounts receivable, accounts receivable,
other, inventories, prepaid expenses and other current assets, and in the amount due from affiliates, and an increase in accrued expenses and other payables, all of which were partially offset by an increase in other assets, net, an increase in
deferred tax asset, net, and a decrease in accounts payable. The decrease in accounts receivable was primarily due to a decrease in credit sales and our increased collection efforts. The decrease in accounts receivable, other, was primarily related
to reimbursement received from a customer, which exceeded customary credit terms, for product and mass chain shelving requirements that we advanced. Inventories decreased primarily due to changes in our product mix and our efforts to improve our
levels of inventory on hand. The decrease in prepaid expenses and other current assets was primarily due to the timing of insurance policy renewals. The decrease in amounts due from affiliates, net, was based on receipt of payment of the total
outstanding balance due. The increase in accrued expenses and other payables resulted from the timing of vendor payments. The increase in deferred tax asset, net, was based on payment of income taxes. The increase in other assets, net, resulted from
an increase in contract related reimbursements. The decrease in accounts payable resulted primarily from the timing of vendor payments.

Investing
Activities

Net cash used in investing activities was approximately $2.4 million for the six months ended September 30, 2008, as
compared to net cash used of approximately $9.7 million for the six months ended September 30, 2007. The change in the six months ended September 30, 2008 was due primarily to leasehold improvement and equipment purchases, intangible asset
purchases and usage related to the minority interest associated with American Antibiotics plant in Baltimore, Maryland, all of which was partially offset by repayments of notes receivable.

Financing Activities

Net cash provided by financing
activities was approximately $5.7 million for the six months ended September 30, 2008, as compared to net cash provided by financing activities of approximately $12.1 million for the six months ended September 30, 2007. The change in the
six months ended September 30, 2008 was primarily attributable to proceeds received from private placement convertible debt, net advances on our revolving credit facility, proceeds received from the issuance of a note for equipment purchased,
proceeds from a related party and proceeds from stock options exercised, all of which were partially offset by payments of private placement fees, payments of acquisition costs, payments of short-term obligations and payments of long-term
obligations.

We believe that cash expected to be generated from operations, current cash reserves, and existing financial arrangements
will be sufficient for us to meet our capital expenditures and working capital needs for our operations as presently conducted. Our future liquidity and cash requirements will depend on a wide range of factors, including the level of business in
existing operations, expansion of facilities, expected results from recent procedural changes surrounding the acceptance of manufacturing sales orders, and possible acquisitions. In particular, we have added additional manufacturing lines and have
purchased additional fully automated manufacturing equipment to meet our present and future growth. Our plans may require the leasing of additional facilities and/or the leasing or purchase of additional equipment in the future to accommodate
further expansion of our manufacturing, warehousing and related storage needs.

If cash flows from operations, current cash reserves and
available credit facilities are not sufficient, it will be necessary for us to seek additional financing. There can be no assurance that such financing would be available in amounts and on terms acceptable to us.



---

|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------

We are not exposed to significant interest rate or foreign currency exchange rate risk.



|Item 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

Disclosure Controls and Procedures

Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as
defined in Rules 13a  15(e) and 15d  15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this quarterly report. They have concluded that, based on
such evaluation, our disclosure controls and procedures were effective as of September 30, 2008, as further described below.

Managements
Quarterly Report on Internal Control Over Financial Reporting

Overview

Internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) refers to the process designed by, or under the supervision of, our
principal executive officer and principal financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting
also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management has used the framework set forth in the report entitled Internal Control  Integrated Framework published by the Committee of
Sponsoring Organizations (COSO) of the Treadway Commission to evaluate the effectiveness of the Companys internal control over financial reporting. Management has concluded that the Companys internal control over
financial reporting was effective as of September 30, 2008.

Managements Assessment

We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in
the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired
control objectives and we are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management evaluated, under the supervision and with the participation of our CEO and our CFO, the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2008.

Based upon this evaluation, our CEO and CFO have concluded that our current disclosure controls and procedures are effective to provide
reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and accumulated and communicated to
our senior management, including our CEO and CFO, to allow timely decisions regarding required disclosures. This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only managements report in this Quarterly Report.

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. On February 14,
2008 Belcher and Schering entered into a stipulation to withdraw the motion to dismiss the New Jersey action and to consolidate the New Jersey and Florida actions.

On February 20, 2008, Sepracor Inc. and University of Massachusetts (Sepracor)
filed an action in the United States District Court for the District of New Jersey, 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 U.S. Patent No. 7,214,683 (the 683 patent) and U.S. Patent No. 7,214,684 (the 684 patent) Case
No. 3:08-cv-00945-MLC-TJB.

Company management and Belcher disputes Scherings claims in the two actions and believes its
proposed desloratadine product does not infringe any valid claim of the 274 patent. Company management and Belcher also disputes Sepracors claims and believes its proposed desloratadine product does not infringe any valid claim of the
683 patent or the 684 patent. The possible outcome cannot be determined at this time.

During September 2006, the Company,
through its 51% owned subsidiary, American Antibiotics, LLC, filed in the Circuit Court for Anne Arundel County, Maryland, Case No. C-06-117230, naming defendents Consolidated Pharmaceutical Group (CPG), the directors of CPG and two
other individuals acting on behalf of CPG (collectively the Defendents). The litigation arises from and relates to agreements entered into between American Antibiotics and CPG for the purchase by American Antibiotics all of CPGs
rights, title and interest in various pharmaceutical Abbreviated New Drug Applications (ANDAs) and for the Baltimore Maryland facility lease (the Lease). The Suit brought by the Company alleges that the Defendents breached
the ANDA agreement with certain misrepresentations and by failing to perform all the required improvements and modifications to the Baltimore, Maryland facility. Consolidated with American Antibiotics lawsuit is a separate action file against
it by CPG, alleging that American Antibiotics has failed to pay rent that is due and owing under the Lease. Both cases have been stayed pending the outcome of settlement discussions, which are ongoing between the parties.



---

On May 1, 2006 Esther Krausz and Sharei Yeshua (Note Holders) filed an action against
Dynamic Health Products, Inc. in the Circuit Court of Broward County, Florida (Index No. 06-6187) alleging Dynamic Health Products, Inc. defaulted on note payment obligations. The face amount of the note alleged to be held by Ester Krausz
totals $280,000, the face amount of the note alleged to be held by Sharei Yeshua totals $220,000. The notes contain an interest rate of 8% per annum. Preliminary discovery has been conducted. Dynamic Health Products, Inc. filed a third party
action against the agent for the Note Holders seeking indemnity and that action was settled in May 2008. The Note Holders have filed a request for trial with the court but no date has been set. Dynamic Health Products, Inc. is investigating whether
the purported agent made any payments to the Note Holders on behalf of Dynamic Health Products, Inc. without disclosing those payments. To date, Plaintiffs have not provided copies of the notes to Dynamic Health Products, Inc. or made a specific
monetary demand. Dynamic Health Products, Inc. intends to vigorously defend itself in this action.

From time to time the Company is
subject to litigation incidental to its business including possible product liability claims. Such claims, if successful, could exceed applicable insurance coverage.

The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary course of business. The Company believes that none of the claims that were outstanding as of
September 30, 2008 and March 31, 2008 should have a material adverse impact on its financial condition or results of operations.



|Item 1A. | RISK FACTORS.
|-------- | -------------

In addition to other information set
forth in this Report, you should carefully consider the risk factors previously disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the year ended March 31, 2008. There were no material changes from the risk
factors during the three and six months ended September 30, 2008.



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

None.



|Item 5. | OTHER INFORMATION.
|------- | ------------------

(a) Not applicable.

(b) None.



|Item 6. | EXHIBITS
|------- | --------

Exhibits

The following Exhibits are filed as part of this Report:



|               |  |                                                                                                                                                                                                       
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                           
|3.1            |  | Articles of Incorporation of Energy Factors, Inc., filed September 3, 1985. (1)**                                                                                                                     
|               | 
|3.2            |  | By-Laws of GeoPharma, Inc. (4)**                                                                                                                                                                      
|               | 
|3.3            |  | Articles of Amendment to Articles of Incorporation of Innovative Companies, Inc., changing name. (4)**                                                                                                
|               | 
|3.4            |  | Certificate of Designation of Series B preferred stock. (2)**                                                                                                                                         
|               | 
|10.1           |  | Form of Employment Agreement with Mihir K. Taneja, dated as of April 1, 2008. (4)**                                                                                                                   
|               | 
|10.2           |  | Form of Employment Agreement with Kotha S. Sekharma, Ph.D., dated as of April 1, 2008. (4)**                                                                                                          
|               | 
|10.3           |  | Form of Employment Agreement with Carol Dore-Falcone, dated as of April 1, 2008. (4)**                                                                                                                
|               | 
|10.4           |  | Form of Employment Agreement with Mandeep K. Taneja, dated as of April 1, 2008. (4)**                                                                                                                 
|               | 
|10.5           |  | Form of Consulting Agreement with Jugal K. Taneja, dated as of April 1, 2008. (4)**                                                                                                                   
|               | 
|10.6           |  | Change in Terms Agreement between the Company and First Community Bank of America, dated April 6, 2008. (4)**                                                                                         
|               | 
|10.7           |  | Amended and Restated Secured Convertible Note Purchase Agreement between the Company and Whitebox Pharmaceutical Growth Fund, Ltd., dated April 24, 2008. (3)**                                       
|               | 
|10.8           |  | Amended and Restated 12% Secured Convertible Promissory Note issued by the Company to Whitebox Pharmaceutical Growth Fund, Ltd., dated April 24, 2008. (3)**                                          
|               | 
|10.9           |  | Amended and Restated Registration Rights Agreement between the Company and Whitebox Pharmaceutical Growth Fund, Ltd., dated April 23, 2008. (3)**                                                     
|               | 
|10.10          |  | Modification Number 001 to Promissory Note between Bob OLeary Health Food Distributor Co., Inc., Dynamic Marketing I, Inc. and Wachovia Bank, National Association, dated as of April 25,
2008. (4)**



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|      |  |                                                                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 |  | Allonge To Promissory Note between Bob OLeary Health Food Distributor Co., Inc., Dynamic Marketing I, Inc. and Wachovia Bank, National Association, dated as of August 28,
2008.
|      | 
|10.12 |  | Allonge To Promissory Note between Bob OLeary Health Food Distributor Co., Inc., Dynamic Marketing I, Inc. and Wachovia Bank, National Association, dated as of August 28,
2008.
|      | 
|10.13 |  | Promissory Note issued by the Company to First Community Bank of America, dated September 30, 2008.                                                                              
|      | 
|31.1  |  | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.                  
|      | 
|31.2  |  | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.                  
|      | 
|32.1  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)                                 
|      | 
|32.2  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)                                 



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

|1. | Filed as an exhibit to the Companys Form SB-2 filed with the Securities and Exchange Commission on December 15, 1999 and incorporated herein by reference.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Filed as an exhibit to the Companys Form 8-K filed with the Securities and Exchange Commission on February 13, 2004 and incorporated herein by reference.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Filed as an exhibit to the Companys Form 8-K filed with the Securities and Exchange Commission on April 30, 2008 and incorporated herein by reference.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on June 30, 2008 and incorporated herein by reference.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------





---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                        |  |                 |  |                                                            
|----------------------- |  | --------------- |  | -----------------------------------------------------------
|                        |  | GeoPharma, Inc.
|                        |  |                
|Date: November 14, 2008 |  | By:             |  | /s/ Mihir K. Taneja                                        
|                        |  |                 |  | Mihir K. Taneja                                            
|                        |  |                 |  | Chief Executive Officer, Secretary and Director            
|                        |  |                 |  | (Principal Executive Officer)                              
|                        |  |                
|Date: November 14, 2008 |  | By:             |  | /s/ Carol Dore-Falcone                                     
|                        |  |                 |  | Carol Dore-Falcone                                         
|                        |  |                 |  | Senior Vice President, Chief Financial Officer and Director
|                        |  |                 |  | (Principal Financial and Accounting Officer)