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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

For the fiscal year ended December 31, 2005

For the transition period from                      to                     .

Commission file number 001-31982

SCOLR Pharma, Inc.

(Name of small business issuer in its charter)

Registrant’s telephone number, including area code: (425) 373-0171

Securities registered under Section 12(b) of the Exchange Act:

Common Stock, $0.001 par value per share

(Title of Class)

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2005, was approximately $100 million, based upon the closing sale price on the American Stock Exchange reported for such date. Shares of the registrant’s common stock held by each officer and director and each person who owns more than 5% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates of the registrant.

The number of shares outstanding of the registrant’s common stock was 35,216,506 as of March 1, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this annual report, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement relating to the registrant’s 2006 annual meeting of stockholders. Such definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant’s fiscal year ended December 31, 2005.

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SCOLR Pharma, Inc.

FORM 10-K

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PART I

In this document, the words “we,” “our,” “ours,” and “us” refer only to SCOLR Pharma, Inc. and not any other person or entity.

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the words “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect,” and similar expressions identify certain of such forward-looking statements. Although we believe that our plans, intentions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. Actual results, performance or achievements could differ materially from historical results or those contemplated, expressed or implied by the forward-looking statements contained in this annual report. Important factors that could cause actual results to differ materially from our forward-looking statements are set forth in this annual report, including Item 1A, as well as those discussed elsewhere in this annual report and others detailed from time to time in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update any forward-looking statements, whether as a results of new information, future events or otherwise.

Overview

We are a specialty pharmaceutical company. Our corporate objective is to combine our formulation experience and knowledge with our proprietary and patented Controlled Delivery Technology (CDT^®) platform to develop novel pharmaceutical, over-the-counter (OTC), and nutritional products. Our CDT platform is based on four recently patented drug delivery technologies for the programmed release of solid oral medications and nutritional products.

Our innovative CDT drug delivery technologies enable us to formulate tablets or capsules that release their active agents predictably and programmably over a specified timeframe of up to 24 hours. Our CDT technology platform is designed to reduce the frequency of drug administration, improve the effectiveness of the drug treatment, ensure greater patient compliance with a treatment program, and reduce side effects or increase drug safety. In addition, our amino-acid technology can be incorporated into oral formulations to increase the solubility characteristics of previously non-soluble and sparingly soluble drugs without employing costly micro-milling and coated particle technologies.

We have developed multiple private label nutritional products incorporating our CDT platform that are sold in national retailers such as Wal-Mart, Rite-Aid and Trader Joe’s and provide us with royalty revenue. In October 2005, we entered into a strategic alliance with a subsidiary of Perrigo Company for the manufacture, marketing, distribution, sale and use of certain dietary supplement products in the United States. We will receive royalty payments based on a percentage of Perrigo’s net profits derived from the sales of products covered by our agreement.

In December 2005, Wyeth Consumer Healthcare, a division of Wyeth, licensed the worldwide rights to use our CDT platform for products containing ibuprofen. Ibuprofen is an analgesic typically used for the treatment of pain, fever and inflammation. Wyeth currently markets its ibuprofen products under the trade name Advil^®. Pursuant to the agreement, Wyeth paid us an upfront fee and agreed to make additional payments upon achievement of specified milestones. Our agreement provides for payment of royalties based on a percentage of Wyeth’s annual net sales of ibuprofen based products utilizing our CDT technologies that are commercialized under our agreement.

We are also engaged in development of CDT-based extended release formulations of ibuprofen, gabapentin, pseudoephedrine, phenylephrine, and ondansetron, as well as immediate release formulations of raloxifene and fenofibrate. Ibuprofen is an analgesic approved for treatment of pain and fever. Gabapentin is the prescription drug in Neurontin^®, a Pfizer product for neuralgia (neural pain) and used as an adjunct treatment of partial

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seizures associated with epilepsy. Psuedoephedrine is a decongestant that is widely used to relieve sinus pressure related to allergies and the common cold. Phenylephrine is a decongestant often substituted for pseudoephedrine as a result of regulatory restrictions on the sale and marketing of products containing pseudoephedrine. Ondansetron HCl is the drug in Zofran^®, GlaxoSmithKline’s product for anti-nausea and vomiting associated with chemotherapy and radiation treatments for cancer. Raloxifene HCl is the active ingredient in Evista^®, Eli Lilly’s product for osteoporosis which uses a different solubilization technology. Fenofibrate is the drug in Tricor^®, an Abbott product for hypercholesterolemia (elevated total cholesterol). The seven drugs referenced above each have addressable market sales ranging between $0.6 million and $1.5 billion as more fully described in the Product Development summary below. We are currently evaluating additional drugs as potential CDT development candidates for expanding our growing portfolio of CDT applications.

Prior to January 1, 2004, we manufactured nutraceutical-based health and dietary supplements for the animal and human nutrition markets. Our transition to a focused specialty pharmaceutical business was completed with the sale of our probiotics business, effective as of December 31, 2003.

We were incorporated on October 12, 1994, in Delaware under the name Caddy Systems, Inc. From April 1995 to July 2002, we operated under the name Nutraceutix, Inc. In July 2002, we changed our name to SCOLR, Inc. and to SCOLR Pharma, Inc. in July 2004. SCOLR is an acronym for “Self Correcting Oral Linear Release,” an important feature of our lead technology.

Our website is www.scolr.com. Information contained on our website is not part of, and is not incorporated into, this annual report. Our filings with the SEC are available without charge on our website.

Corporate Strategy

Our strategy is to develop pharmaceutical, OTC, and nutraceutical products utilizing our innovative oral drug delivery technologies. Our technologies enable us to formulate tablets or capsules that release their active agents predictably and programmably over a specified timeframe of up to 24 hours. We believe that our technologies are capable of significantly improving the delivery of many pharmaceutical, OTC, and nutraceutical products.

We seek collaborative arrangements and alliances with corporate partners, licensors, and licensees to provide funding for the research, development, clinical testing, manufacturing, marketing, and commercialization of our product candidates. Controlled-release drug delivery technologies such as CDT can be applied to reformulate existing drugs and extend their patent protection, thereby improving product release profiles and defending important revenue streams for pharmaceutical companies. Many pharmaceutical and specialty pharmaceutical companies have also successfully utilized controlled-release technologies to develop product line extensions.

We expect to seek collaborations in order to advance the manufacturing, selling, and marketing of our potential products. However, based on an evaluation of each product opportunity, we may consider establishing limited manufacturing or sales and marketing capabilities to better maintain control over product development timelines and to capture more of their economic value. We do not currently have commercialization or manufacturing capabilities.

In 2005 and 2004, we spent $5.9 million and $2.6 million, respectively, on product research and development. We plan to increase our research and development expenditures to more aggressively evaluate and pursue commercial opportunities for our technology in the pharmaceutical and OTC markets.

Commericial Relationships

An important part of our strategy is to seek collaborations and strategic partnerships to develop or market some of our products. We have entered into collaborations and currently plan to enter into additional

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collaborations with established third parties to manufacture and commercialize our existing and potential products. We are engaged in discussions with pharmaceutical companies regarding development of products incorporating our CDT platform and other types of marketing, manufacturing or distribution opportunities. Following is a summary of our existing collaborations.

Perrigo Company. On October 20, 2005, we entered into a strategic alliance with a subsidiary of Perrigo Company. Perrigo is a leading global healthcare supplier and the world’s largest manufacturer of OTC pharmaceutical and nutritional products for the store brand and contract manufacturing markets. Under the agreement, we granted a license to our CDT technology to Perrigo for the manufacture, marketing, distribution, and sale of specific dietary supplements in the United States. In addition, Perrigo may request that we develop additional dietary supplement products that use our technology to be added to the agreement. Subject to certain exceptions described in the agreement, the license we granted to Perrigo is exclusive. We will receive royalty payments based on Perrigo’s net profits derived from the sales of products subject to the agreement. The first product shipments by Perrigo began in the first quarter of 2006.

Wyeth Consumer Healthcare. On December 21, 2005, we entered a licensing agreement with Wyeth Consumer Healthcare, a division of Wyeth, granting Wyeth exclusive worldwide rights to use our CDT platform for the development, manufacture and commercialization of products containing ibuprofen. Wyeth is one of the world’s premier consumer healthcare companies and the leading provider of ibuprofen products. Wyeth agreed to use its commercially reasonable efforts to research and develop at least one ibuprofen product for the purposes of seeking regulatory approval for the commercialization of that product and we will receive certain minimum royalty payments for this product under the agreement. We will work with Wyeth on a coordinated development program to complete the clinical development and commercialization of the initial ibuprofen product. We have the right to participate in the development of any additional products containing ibuprofen utilizing CDT technology that Wyeth seeks to advance.

Wyeth paid us an initial research and development fee and agreed to pay additional fees upon the achievement of specified milestones. Wyeth also agreed to pay us a licensing fee and a technology transfer fee upon the completion of certain specified events associated with additional products containing ibuprofen. In addition, the agreement provides for quarterly royalty payments based upon a percentage of Wyeth’s annual net sales of products covered by the agreement on a product-by-product basis. There are currently no extended release formulations of ibuprofen approved for use in North America.

Archer Daniels Midland. On March 8, 2002, we entered into an exclusive patent license agreement with Archer Daniels Midland Company (ADM) which granted ADM an exclusive license and right of first refusal to develop and market certain dietary supplement and nutraceutical products using our CDT technology. We receive royalties based on a percentage of net sales of the licensed products. We have developed an extended release formulation for use in soy isoflavones for ADM. ADM has reported ownership of approximately 5% of our outstanding common stock.

Nutraceutix. Effective as of December 31, 2003, we completed the sale of our probiotics development and manufacturing activities to Nutraceutix, Inc. The acquiring entity was established and is owned by our former vice president of operations, chief financial officer and general manager of the probiotics operations. Substantially all of the assets and properties used in connection with our probiotics sales, including equipment, inventory and intellectual property rights, were sold in this transaction. The unit engaged in the business of formulating and manufacturing probiotics-based health and dietary supplements for the animal and human nutrition markets.

In connection with the sale, we granted Nutraceutix the right to manufacture and sell certain products utilizing our patented CDT technology. On August 3, 2005, we entered into a settlement and amended agreement with Nutraceutix which, among other things, restricted the license granted to Nutraceutix to use our CDT technology for sales to a limited number of designated customers. The settlement provided for Nutraceutix to pay us royalties on the sale of products incorporating CDT technology at a reduced rate from July 2005, until termination of its license on December 31, 2007, subject to extension for an additional year under certain circumstances.

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Our CDT Platform

We believe that our proprietary CDT controlled-release technologies have the potential to significantly improve a large universe of oral pharmaceutical, OTC, and nutritional products. Our CDT platform is designed to reduce the frequency of drug administration, improve the effectiveness of the drug treatment, ensure greater patient compliance with a treatment program, and reduce side effects or increase drug safety by releasing drug dosages at specific times or to specific locations in the body. Our proprietary CDT technologies can be used in solid oral dosage formulations to yield tablets or capsules that release their active agents predictably and programmably over a specified timeframe of up to 24 hours.

Oral administration is the preferred route for drug delivery, owing to its convenience and ease of use. However, many orally-administered, immediate-release drug products are rapidly utilized by the body, thereby requiring repeat administration throughout the day. Consequently, patient non-compliance can be a significant problem for many of these products. Our oral controlled-release technologies eliminate this need for multiple daily dosing by extending the release of the active drug component so that the product maintains its therapeutic usefulness over a longer period of time. In addition, lowering the peak levels of certain drugs in the blood by extending their release profile may reduce the adverse effects associated with these drugs.

Our CDT platform represents a robust and simple approach to drug tablet and capsule formulation which employs a low cost simplified manufacturing process utilizing conventional granulation, blending, and compression equipment in a two- or three-step process. Our controlled-release tablet and capsule formulations contain readily available and generally-regarded-as-safe (GRAS) excipients (i.e., non-active ingredients such as combinations of hydrophilic polymers and amino acids or electrolytes). These excipients are used to modulate the release rate of the drug within the CDT tablet in order to provide predictable delivery profiles. These profiles include attaining sustained-release with improved linearity or zero-order kinetics.

Our CDT technology can accommodate comparatively high “payloads” of an active ingredient while being programmable to deliver these active ingredients over a wide range of release profiles and timeframes. We believe that our CDT-based continuous release tablet and capsule formulations are capable of generating the sustained release profiles required for reproducible, cost-effective, and optimized in-vivo delivery of drugs for up to 24 hours.

In addition, our proprietary amino-acid technologies can be incorporated into solid oral formulations to increase the solubility characteristics of previously non-soluble or sparingly-soluble compounds. Our amino acid technologies are designed to allow the successful manufacture of these drugs without employing costly micro-milling, nano-particulate, coated-particle or other complex solubility enhancing technologies.

Our CDT platform is currently based on four issued patents for the programmed release of solid oral medications. In aggregate, our amino acid, salt-based, and dual polymer technologies offer a range of formulation alternatives capable of addressing some of the most challenging hurdles in oral drug delivery, including zero order kinetics, poorly soluble active ingredients, and ingredients that are difficult to tablet. Our issued patents are summarized below:

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Datamonitor has estimated the sales and license fees from drug delivery systems for OTC and prescription drug products to be $79 billion in 2005 with a forecast of approximately $117.3 billion in 2009. The leading revenue source for drug delivery systems is the oral sector, with estimated total global revenues by Datamonitor of over $20 billion in 2005 and forecast revenues of approximately $29 billion in 2009. The United States continues to be the largest market for drug delivery systems with estimated total revenues of over $42 billion in 2005 with a forecast of approximately $57.6 billion in 2009. We believe that the drug delivery industry will continue to show strong growth in the future as many multi-national pharmaceutical companies seek new drug delivery technologies to extend the life of existing pharmaceutical franchises through new drug introductions involving older molecules incorporating new patented drug delivery technology.

Product Development

Our proprietary drug delivery technologies are applicable to a wide range of drugs with different physical and chemical properties including water soluble and insoluble drugs as well as high dose and low dose drugs. Using our CDT platform, we can formulate drugs with precise release profiles. In selecting product candidates for development, we focus on the applicability of our platform to a particular compound, benefits to patients, as well as market size, patent protection, and other factors.

Our CDT technology has been used to develop several dietary supplement products that are currently manufactured and distributed by third parties. We currently receive royalties and other payments from the sale of products that incorporate our CDT technology, including combinations of glucosamine and chondroitin, soy isoflavones, niacin, and other dietary products. These sales are being generated through relationships with retailers such as Wal-Mart, Rite-Aid, Trader Joe’s, and GNC, or by sales through Nutraceutix, our former probiotics division. Our CDT Glucosamine and Chondroitin product is currently available nationwide in more than 8,000 retail outlets, including Wal-Mart (under the Spring Valley label), Trader Joe’s (under the Trader Darwin’s label), and Rite-Aid stores.

We have also applied our CDT platform to a portfolio of more than twenty potential pharmaceutical targets on a preclinical demonstration basis. These target candidates include existing analgesic, cardiovascular, diabetes, nausea, and pulmonary products. We have an internal development program targeting a select group of significant, existing drugs for reformulation in an effort to demonstrate the applicability and viability of our CDT platform. We are engaged in development of CDT-based extended release formulation of a number of products, including gabapentin, ibuprofen, pseudoephedrine, phenylephrine, and ondansetron, as well as immediate release formulations of raloxifene and fenofibrate. We are currently evaluating additional drugs as potential CDT development candidates for expanding our growing portfolio of CDT applications.

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The following table summarizes information regarding our current primary target candidates. This table is qualified in its entirety by reference to the more detailed descriptions contained elsewhere in this Form 10-K.

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Development Status of Lead Products

Intellectual Property

We have rights to four U.S. patents and three federal trademark registrations. Our policy is to pursue registrations for all of the trademarks associated with our key products and technologies. A list of our registered trademarks is as follows: CDT, CDT logo and design, and SCOLR.

Our CDT platform is currently based on four patented drug delivery technologies and includes intellectual property from two U.S. patents licensed exclusively to us by Temple University and two patent rights assigned to

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us by Dr. Reza Fassihi, a Professor of Biopharmaceutics and Industrial Pharmacy at the Temple University School of Pharmacy. Dr. Fassihi currently serves on our board of directors and is a consultant. Dr. Fassihi is also one of the inventors of the two patents licensed to us by Temple University. We are obligated to pay annual license maintenance fees, share in some up-front payments from customers, and pay royalties based on product sales with respect to the CDT patents licensed from Temple University or assigned to us by Dr. Fassihi. A portion of the royalty payment we make to Temple University is paid to Dr. Fassihi by Temple. In the future, we plan to file further U.S. and foreign patent applications directed to new or improved products or processes.

We attempt to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology inventions and improvements that are important to the development of our business. Our success will depend in part on our ability to obtain and maintain patent protection for our technologies, preserve our trade secrets and operate without infringing the proprietary rights of others. However, the issuance of a patent is not conclusive as to its validity or as to the enforceable scope of the claims of the patent. Our competitors may challenge or circumvent any of our issued patents and they may not provide us proprietary protection or a commercial advantage. Furthermore, we cannot assure you that any of our future processes or products will be patentable or will not infringe upon the patents of third parties.

Competition

Our business is highly competitive and is affected by new technologies, government regulations, availability of financing, and other factors. In the drug delivery field, examples of our major competitors include Alza Corporation, Biovail, Inc., Penwest, Skyepharma PLC, Elan, Flamel, Impax Laboratories, Inc., Labopharm, and KV Pharmaceuticals, Inc. The successful development and commercialization of major controlled delivery prescription drugs can take five or more years and millions of dollars of research and clinical trials. These major competitors generally are better funded and equipped to fully realize the potential from new and unique patented drug delivery systems and are in possession of significantly stronger financial and research and development resources.

Manufacturing

We do not have commercial scale manufacturing facilities. Accordingly, we have to rely on third party manufacturers of the products we are evaluating in clinical trials. We currently have agreements with Cardinal Health, Inc. and UPM Pharmaceuticals, Inc. for the manufacture of our CDT ibuprofen, pseudoephedrine, raloxifene, and ondansetron. We also work with Perrigo, Nutra, and Nutraceutix regarding the manufacturing of dietary supplements containing our CDT technology.

Sources and Availability of Raw Materials and Principal Suppliers

Our technology allows for the use of conventional, readily available generally regarded as safe (GRAS) excipients. A wide variety of materials can be used for our controlled delivery formulation development and are available from a large number of manufacturers and distributors. The active chemical raw materials essential to our business are generally readily available from multiple sources in the U.S. and throughout the world. Certain raw materials used in the manufacture of our products are, however, available from limited sources and, in some cases a single source. Any curtailment in the availability of such raw materials could result in production or other delays and, in the case of products for which only one raw material supplier exists or has been approved by the FDA, could result in material loss of sales with consequent adverse effects on our business and results of operations. Also, because raw material sources for pharmaceutical products must generally be identified and approved by regulatory authorities, changes in raw material suppliers may result in production delays, higher raw material costs and loss of sales and customers. We obtain a portion of our raw materials from foreign suppliers, and our arrangements with such suppliers are subject to, among other risks, FDA approval, governmental clearances, export duties, political instability, and restrictions on the transfers of funds.

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Government Regulation

Government authorities in the United States and other countries extensively regulate the research, development, testing, manufacture, labeling, promotion, advertising, distribution, and marketing of drug products. We must receive separate regulatory approval for each of our product candidates before we or our collaborators can sell them in the United States or internationally. In the U.S., the FDA regulates drug products under the Food, Drug and Cosmetic Act (FDCA), and implements regulations and other laws. Before any of our drug products may be marketed in the U.S., each product must be approved by the FDA. The approval process requires substantial time, effort and financial resources, and there can be no assurances that any approval will be granted on a timely basis, or at all. There are several kinds of New Drug Applications (NDA) that may be submitted to the FDA to obtain approval of our new drugs, including full new drug applications; section 505(b)(2) NDAs; or Abbreviated New Drug Applications (ANDA). A full NDA is an NDA in which the information required for approval, including investigation of safety and effectiveness, comes from studies conducted by or for the sponsor or for which the sponsor has obtained a right of reference. A section 505(b)(2) NDA is an NDA in which at least some of the information required for approval comes from studies not conducted by or for the sponsor and for which the sponsor has obtained a right of reference. An ANDA generally utilizes existing data for proof of safety and effectiveness if the new drug subject to the ANDA can be shown to be “bioequivalent” to a drug which the FDA has previously approved.

Our products currently under development will require significant development, preclinical and clinical testing, and investment of significant funds prior to their commercialization. The process of obtaining such approvals is likely to take many years and require the expenditure of substantial resources, and there can be no assurance that our development and clinical trials will be successful.

Employees

As of December 31, 2005, we employed 19 full time employees, including four executives, one sales and marketing person, 7 research and development personnel, and 3 quality assurance personnel. None of our employees are represented by labor unions. We believe our relationship with employees is good.

Executive Officers

Our executive officers are generally elected annually at the meeting of our board of directors held in conjunction with the annual meeting of stockholders. The following are our current executive officers and their ages as of March 1, 2006:

The following sets forth the business experience, principal occupations and employment of each of our current executive officers.

Daniel O. Wilds was appointed our President and Chief Executive Officer and a Director in August 2003. From 1998 to July 2003, Mr. Wilds served as Chairman, President and CEO of Northwest Biotherapeutics, Inc., a biotechnology company focused on discovering, developing, and commercializing immunotherapy products that safely generate and enhance immune system responses to effectively treat cancer. Prior to that position, he was President and CEO of Shiloov Biotechnologies (USA), Inc. from 1997 to 1998. From 1992 to 1996, Mr. Wilds was President and CEO of Adeza Biomedical Corporation, prior to which he served as the President and CEO of Medisense, Inc. and President of Baxter’s Chemotherapy Service. Mr. Wilds has also served as President and

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COO of Travenol-Genentech, Inc., a joint venture between Baxter International and Genentech, Inc., and has held other domestic and international senior management positions in the biomedical and biopharmaceutical fields. Mr. Wilds currently serves on the board of Helix BioMedix, Inc. and is a member of the Leadership Council for the Albert B. Sabine Vaccine Institute’s Cancer Vaccine Consortium. Mr. Wilds holds a BA from California State University, Los Angeles and an MBA from Northwestern University.

Stephen J. Turner has worked for SCOLR Pharma since the fall of 1999 and primarily has been responsible for the commercialization and application of the CDT, controlled delivery technology platform. In 2003, Mr. Turner was promoted to our vice president and chief technical officer. In addition to Mr. Turner’s involvement in our growth and application of our technology platform, he is named on one patent issued to SCOLR, has contributed to numerous additional patent filings, has several industry related publications, and has presented his research findings at numerous academic seminars and symposia. Mr. Turner is an active member in scientific organizations including AAPS (American Association of Pharmaceutical Scientists) and the Controlled Release Society. Mr. Turner holds a BS in biology with a minor in geochemistry from Western Washington University.

Alan M. Mitchel has worked for SCOLR Pharma since January 2005 as senior vice president of business and legal affairs and chief legal officer. For more than five years prior to joining us, Mr. Mitchel practiced corporate law with private law firms in Seattle and Miami. Mr. Mitchel received an LLB from Duke University School of Law.

Richard M. Levy was appointed interim chief financial officer and vice president of finance on December 15, 2005. Mr. Levy has over twenty-six years of experience in financial institutions as a chief financial officer, controller, consultant and auditor. He served as the corporate controller for Safeco Insurance, and prior to that the CFO for the specialty finance segment and corporate controller for Washington Mutual Bank. Mr. Levy worked for Bank of America for seven years. His experience there included serving as the senior vice president and controller of Bank of America Texas operations and also included coordinating all accounting activities and acting as chief financial officer for new acquisitions, including acquisitions of community banks and the transition process into a larger holding company. His work at Bank of America also included international financial management experience in their international private banking and world banking divisions. His corporate financial duties included serving as director and as chief financial officer of various Bank of America subsidiaries. Mr. Levy earned his BA in business economics and accounting from the University of California, Santa Barbara and is licensed as a CPA in Washington State.

This annual report on Form 10-K contains forward looking statements that involve risks and uncertainties. Our business, operating results, financial performance, and share price may be materially adversely affected by a number of factors, including but not limited to the following risk factors, any one of which could cause actual results to vary materially from anticipated results or from those expressed in any forward-looking statements made by us in this annual report on Form 10-K or in other reports, press releases or other statements issued from time to time. Additional factors that may cause such a difference are set forth elsewhere in this annual report on Form 10-K.

We have incurred substantial operating losses since we started doing business and we expect to continue to incur substantial losses in the future, which may negatively impact our ability to run our business.

We have incurred net losses since 2000, including net losses of $8.9 million in 2005, and $5.7 million in 2004 and $8.7 million in 2003. We have accumulated net losses of approximately $36.3 million from our inception through December 31, 2005, and we expect to continue to incur significant operating losses in the future.

We plan to continue the costly process of simultaneously conducting clinical trials and preclinical research for multiple product candidates. Our product development program may not lead to commercial products, either

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because our product candidates fail to be effective, are not attractive to the market, or because we lack the necessary financial or other resources or relationships to pursue our programs through commercialization. Our net losses are likely to increase significantly as we continue preclinical research and clinical trials, apply for regulatory approvals, develop our product candidates, and develop the infrastructure to support commercialization of our potential products.

We have funded our operations primarily through the issuance of equity securities to investors and may not be able to generate positive cash flow in the future. We expect that we will need to seek additional funds through the issuance of equity securities or other sources of financing during 2006. If we are unable to obtain necessary additional financing, our ability to run our business will be adversely affected and we may be required to reduce the scope of our research and business activity or cease our operations.

We do not have sufficient cash to fund the development of our drug delivery operations. If we are unable to obtain additional equity or debt financing in the future, we will be required to reduce the scope of our business or cease our operations.

With the $14.1 million in net proceeds we raised in our private placement of common stock completed in February 2005, we believe that our cash on hand, including our cash equivalents, will be sufficient to fund our drug delivery business at planned levels through early 2007. We will need to raise additional capital to fund operations, conduct clinical trials, continue research and development projects, and commercialize our product candidates. The timing and amount of our need for additional financing will depend on a number of factors, including:

Additional equity or debt financing may not be available to us on acceptable terms, or at all. If we raise additional capital by issuing equity securities, substantial dilution to our existing stockholders may result which could decrease the market price of our common stock due to the sale of a large number of shares of our common stock in the market, or the perception that these sales could occur. These sales, or the perception of possible sales, could also impair our ability to raise capital in the future. In addition, the terms of any equity financing may adversely affect the rights of our existing stockholders. If we raise additional funds through strategic alliance, and licensing arrangements, we may be required to relinquish rights to certain of our technologies or product candidates, or to grant licenses on terms that are unfavorable to us, which could substantially reduce the value of our business.

If we are unable to obtain sufficient additional financing, we would be unable to meet our obligations and we would be required to delay, reduce or eliminate some or all of our business operations, including the pursuit of licensing, strategic alliances and development of drug delivery programs.

If our clinical trials are not successful or take longer to complete than we expect, we may not be able to develop and commercialize our products.

In order to obtain regulatory approvals for the commercial sale of potential products utilizing our CDT platform, we or our collaborators will be required to complete clinical trials in humans to demonstrate the safety and efficacy, or in certain cases, the bioequivalence, of the products. However, we or our collaborators may not

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be able to commence or complete these clinical trials in any specified time period, or at all, either because the appropriate regulatory agency objects or for other reasons, including:

We also rely on academic institutions and clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our product candidates. We have less control over the timing and other aspects of these clinical trials than if we conducted the monitoring and supervision on our own. Third parties may not perform their responsibilities for our clinical trials on our anticipated scheduled or consistent with a clinical trial protocol.

Even if we complete a clinical trial of one of our potential products, the clinical trial may not indicate that our product is safe or effective to the extent required by the FDA or other regulatory agency to approve the product. If clinical trials do not show any potential product to be safe or efficacious, or if we are required to conduct additional clinical trials or other testing of our products in development beyond those that we currently contemplate, we may be delayed in obtaining, or may not obtain, marketing approval for our products. Our product development costs may also increase if we experience delays in testing or approvals, which could allow our competitors to bring products to market before we do and would impair our ability to commercialize our products.

We may not obtain regulatory approval for our products, which would materially impair our ability to generate revenue.

Each OTC or pharmaceutical product developed by us will require a separate costly and time consuming regulatory approval before we or our collaborators can manufacture and sell it in the United States or internationally. The regulatory process to obtain market approval for a new drug takes many years and requires the expenditure of substantial resources. We have had only limited experience in preparing applications and do not have experience in obtaining regulatory approvals. As a result, we believe we will rely primarily on third party contractors to obtain regulatory approval, which means we will have less control over the timing and other aspects of the regulatory process than if we had our own expertise in this area. Third parties may not perform their responsibilities on our anticipated schedule or consistent with our priorities.

We may encounter delays or rejections during any stage of the regulatory approval process based upon the failure of clinical data to demonstrate compliance with, or upon the failure of the product to meet the FDA’s requirements for safety, efficacy, quality, and/or bioequivalence; and, those requirements may become more stringent due to changes in regulatory agency policy or the adoption of new regulations. After submission of a marketing application, in the form of an NDA or ANDA, the FDA may deny the application, may require additional testing or data, and/or may require post marketing testing and surveillance to monitor the safety or efficacy of a product. In addition, the terms of approval of any marketing application, including the labeling content, may be more restrictive than we desire and could affect the marketability of products incorporating our controlled release technology.

Certain products incorporating our technology will require the filing of an NDA. A full NDA must include complete reports of preclinical, clinical, and other studies to prove adequately that the product is safe and effective, which involves among other things, full clinical testing, and as a result requires the expenditure of

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substantial resources. In certain cases involving controlled release versions of FDA-approved immediate release products, we may be able to rely on existing publicly available safety and efficacy data to support an NDA for controlled release products under Section 505(b)(2) of the FDCA when such data exists for an approved immediate release or controlled release version of the same active chemical ingredient. We can provide no assurance, however, that the FDA will accept a Section 505(b)(2) NDA, or that we will be able to obtain publicly available data that is useful. The Section 505(b)(2) NDA process is a highly uncertain avenue to approval because the FDA’s policies on Section 505(b)(2) have not yet been fully developed. There can be no assurance that the FDA will approve an application submitted under Section 505(b)(2) in a timely manner or at all. Our inability to rely on the 505(b)(2) process would increase the cost and extend the time frame for FDA approvals.

We face intense competition in the drug delivery business, and our failure to compete effectively would decrease our ability to generate meaningful revenues from our products.

The drug delivery business is highly competitive and is affected by new technologies, governmental regulations, health care legislation, availability of financing, litigation and other factors. Many of our competitors have longer operating histories and greater financial, research and development, marketing and other resources than we do. We are subject to competition from numerous other entities that currently operate or intend to operate in the industry. These include companies that are engaged in the development of controlled-release drug delivery technologies and products as well as other manufacturers that may decide to undertake in-house development of these products. Some of our direct competitors in the drug delivery industry include Alza Corporation, Biovail, Inc., Penwest, Skyepharma PLC, Elan, Flamel, Impax Laboratories, Inc., Labopharm, and KV Pharmaceuticals, Inc.

Many of our competitors have more extensive experience than we have in conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. Many competitors also have competing products that have already received regulatory approval or are in late-stage development, and may have collaborative arrangements in our target markets with leading companies and research institutions.

Our competitors may develop or commercialize more effective, safer or more affordable products, or obtain more effective patent protection, than we are able to develop, commercialize or obtain. As a result, our competitors may commercialize products more rapidly or effectively than we do, which would adversely affect our competitive position, the likelihood that our products will achieve market acceptance, and our ability to generate meaningful revenues from our products.

If we fail to comply with extensive government regulations covering the manufacture, distribution and labeling of our products, we may have to withdraw our products from the market, close our facilities or cease our operations.

Our products, potential products, and manufacturing and research activities are subject to varying degrees of regulation by a number of government authorities in the United States (including the Drug Enforcement Agency, Food and Drug Administration, Federal Trade Commission (FTC), and Environmental Protection Agency) and in other countries. For example, our activities, including preclinical studies, clinical trials, manufacturing, distribution, and labeling are subject to extensive regulation by the FDA and comparable authorities outside the United States. Also, our statements and our customers’ statements regarding dietary supplement products are subject to regulation by the FTC. The FTC enforces laws prohibiting unfair or deceptive trade practices, including false or misleading advertising. In recent years, the FTC has brought a number of actions challenging claims by nutraceutical companies.

Each OTC or pharmaceutical product developed by us will require a separate costly and time consuming regulatory approval before we or our collaborators can manufacture and sell it in the United States or internationally. Even if regulatory approval is received, there may be limits imposed by regulators on a product’s

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use or it may face subsequent regulatory difficulties. Approved products are subject to continuous review and the facilities that manufacture them are subject to periodic inspections. Furthermore, regulatory agencies may require additional and expensive post-approval studies. If previously unknown problems with a product candidate surface or the manufacturing or laboratory facility is deemed non-compliant with applicable regulatory requirements, an agency may impose restrictions on that product or on us, including requiring us to withdraw the product from the market, close the facility, and/or pay substantial fines.

We also may incur significant costs in complying with environmental laws and regulations. We are subject to federal, state, local and other laws and regulations governing the use, manufacture, storage, handling, and disposal of materials and certain waste products. The risk of accidental contamination or injury from these materials cannot be completely eliminated. If an accident occurs, we could be held liable for any damages that result and these damages could exceed our resources.

If we cannot establish collaborative arrangements with leading individuals, companies and research institutions, we may have to discontinue the development and commercialization of our products.

We have limited experience in conducting full scale clinical trials, preparing and submitting regulatory applications or manufacturing and selling pharmaceutical products. In addition, we do not have sufficient resources to fund the development, regulatory approval, and commercialization of our products. We expect to seek collaborative arrangements and alliances with corporate and academic partners, licensors and licensees to assist with funding research and development, to conduct clinical testing, and to provide manufacturing, marketing, and commercialization of our product candidates. We may rely on collaborative arrangements to obtain the regulatory approvals for our products.

For our collaboration efforts to be successful, we must identify partners whose competencies complement ours. We must also enter into collaboration agreements with them on terms that are favorable to us and integrate and coordinate their resources and capabilities with our own. We may be unsuccessful in entering into collaboration agreements with acceptable partners or negotiating favorable terms in these agreements.

Factors that may affect the success of our collaborations include the following:

If we cannot establish collaborative relationships, we will be required to find alternative sources of funding and to develop our own capabilities to manufacture, market, and sell our products. If we were not successful in finding funding and developing these capabilities, we would have to terminate the development and commercialization of our products.

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We have no manufacturing capabilities and will be dependent on third party manufacturers.

We do not have commercial scale facilities to manufacture any products we may develop in accordance with requirements prescribed by the FDA. Consequently, we have to rely on third party manufacturers of the products we are evaluating in clinical trials. There can be no assurance that any third parties upon which we rely for our products in clinical development will perform. If there are any failures by these third parties, they may delay development of or the submission of products for regulatory approval, impair our collaborators’ ability to commercialize products as planned and deliver products on a timely basis, require us or our collaborators to cease distribution or recall some or all batches of our products or otherwise impair our competitive position, which could have a material adverse effect on our business, financial condition and results of operations.

If we fail to protect and maintain the proprietary nature of our intellectual property, our business, financial condition and ability to compete would suffer.

We principally rely on patent, trademark, copyright, trade secret and contract law to establish and protect our proprietary rights. We own or have exclusive rights to several U.S. patents and patent applications and we expect to apply for additional U.S. and foreign patents in the future. The patent positions of pharmaceutical, nutraceutical, and bio-pharmaceutical firms, including ours, are uncertain and involve complex legal and factual questions for which important legal issues are largely unresolved. The coverage claimed in our patent applications can be significantly reduced before a patent is issued, and the claims allowed on any patents or trademarks we hold may not be broad enough to protect our technology. In addition, our patents or trademarks may be challenged, invalidated or circumvented, or the patents of others may impede our collaborators’ ability to commercialize the technology covered by our owned or licensed patents. Moreover, any current or future issued or licensed patents, or trademarks, or existing or future trade secrets or know-how, may not afford sufficient protection against competitors with similar technologies or processes, and the possibility exists that certain of our already issued patents or trademarks may infringe upon third party patents or trademarks or be designed around by others. In addition, there is a risk that others may independently develop proprietary technologies and processes that are the same as, or substantially equivalent or superior to ours, or become available in the market at a lower price. There is a risk that we have infringed or in the future will infringe patents or trademarks owned by others, that we will need to acquire licenses under patents or trademarks belonging to others for technology potentially useful or necessary to us, and that licenses will not be available to us on acceptable terms, if at all. We cannot assure you that:

We may have to litigate to enforce our patents or trademarks or to determine the scope and validity of other parties’ proprietary rights. Litigation could be very costly and divert management’s attention. An adverse outcome in any litigation could adversely affect our financial results and stock price.

We also rely on trade secrets and proprietary know-how, which we seek to protect by confidentiality agreements with our employees, consultants, advisors, and collaborators. There is a risk that these agreements may be breached, and that the remedies available to us may not be adequate. In addition, our trade secrets and proprietary know-how may otherwise become known to or be independently discovered by others.

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Significant expenses in applying for patent protection and prosecuting our patent applications will increase our need for capital and could harm our business and financial condition.

We intend to continue our substantial efforts in applying for patent protection and prosecuting pending and future patent applications both in the United States and internationally. These efforts have historically required the expenditure of considerable time and money, and we expect that they will continue to require significant expenditures. If future changes in United States or foreign patent laws complicate or hinder our efforts to obtain patent protection, the costs associated with patent prosecution may increase significantly.

If we fail to attract and retain key executive and technical personnel we could experience a negative impact on our ability to develop and commercialize our products and our business will suffer.

The success of our operations will depend to a great extent on the collective experience, abilities and continued service of relatively few individuals. We are dependent upon the continued availability of the services of our employees, many of whom are individually key to our future success. For example, if we lose the services of our President and CEO, Daniel O. Wilds, or our Vice President and Chief Technical Officer, Stephen J. Turner, we could experience a negative impact on our ability to develop and commercialize our CDT technology, our financial results and our stock price. We also rely on members of our scientific staff for product research and development. The loss of the services of key members of this staff could substantially impair our ongoing research and development and our ability to obtain additional financing.

In addition, we are dependent upon the continued availability of Dr. Reza Fassihi, a member of our board of directors with whom we have a consulting agreement. The agreement expires December 31, 2006, but may be terminated by either party on 30- days’ notice. If our relationship with Dr. Fassihi is terminated, we could experience a negative impact on our ability to develop and commercialize our CDT technology.

Our success also significantly depends upon our ability to attract and retain highly qualified personnel. We face intense competition for personnel in the drug delivery industry. To compete for personnel, we may need to pay higher salaries and provide other incentives than those paid and provided by more established entities. Our limited financial resources may hinder our ability to provide such salaries and incentives. Our personnel may voluntarily terminate their relationship with us at any time, and the process of locating additional personnel with the combination of skills and attributes required to carry out our strategy could be lengthy, costly, and disruptive. If we lose the services of key personnel, or fail to replace the services of key personnel who depart, we could experience a severe negative impact on our financial results and stock price.

Future laws or regulations may hinder or prohibit the production or sale of our products.

We may be subject to additional laws or regulations in the future, such as those administered by the FDA or other federal, state or foreign regulatory authorities. Laws or regulations that we consider favorable, such as the Dietary Supplement Health and Education Act, DSHEA, may be repealed. Current laws or regulations may be interpreted more stringently. We are unable to predict the nature of such future laws, regulations or interpretations, nor can we predict what effect they may have on our business. Possible effects or requirements could include the following:

Any such requirement could have a material adverse effect on our results of operations and financial condition.

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If we fail to adequately manage the size of our business, it could have a severe negative impact on our financial results or stock price.

Our management believes that, to be successful, we must appropriately manage the size of our business. We have added numerous personnel and have added several new research and development projects. We anticipate that we will experience additional growth in connection with the development, manufacture, and commercialization of our products. If we experience rapid growth of our operations, we will be required to implement operational, financial and information procedures and controls that are efficient and appropriate for the size and scope of our operations. The management skills and systems currently in place may not be adequate and we may not be able to manage any significant growth effectively. Our failure to effectively manage our existing operations or our growth could have a material adverse effect on our financial performance or stock price.

A significant number of shares of our common stock are or will be eligible for sale in the open market, which could drive down the market price for our common stock and make it difficult for us to raise capital.

As of March 1, 2006, 35,216,506 shares of our common stock were outstanding, and there were 5,629,792 shares of our common stock issuable upon exercise or conversion of outstanding options and warrants. Sales of a large number of shares could materially decrease the market price of our common stock and make it more difficult to raise additional capital through the sale of equity securities.

Our stockholders may experience substantial dilution if we raise additional funds through the sale of equity securities. We will need to seek additional funds through the issuance of equity securities or other sources of financing. The issuance of a large number of additional shares of our common stock upon the exercise or conversion of outstanding options or warrants or in an equity financing transaction could cause a decline in the market price of our common stock due to the sale of a large number of shares of our common stock in the market, or the perception that these sales could occur.

The risk of dilution and the resulting downward pressure on our stock price could also encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

Certain provisions in our charter documents and otherwise may discourage third parties from attempting to acquire control of our company, which may have an adverse effect on the price of our common stock.

Our board of directors has the authority, without obtaining stockholder approval, to issue up to 5,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions of such shares without any further vote or action by our stockholders. Our certificate of incorporation and bylaws also provide for a classified board and special advance notice provisions for proposed business at annual meetings. In addition, Delaware and Washington law contain certain provisions that may have the effect of delaying, deferring or preventing a hostile takeover of our company. Further, we have a stockholder rights plan that is designed to cause substantial dilution to a person or group that attempts to acquire our company without approval of our board of directors, and thereby make a hostile takeover attempt prohibitively expensive for a potential acquiror. These provisions, among others, may have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of our company, even if stockholders may consider such a change in control to be in their best interests, which may cause the price of our common stock to suffer.

None.

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Our corporate headquarters, including administrative offices and research and development facilities, are located approximately 15 miles east of Seattle, Washington at 3625 132nd Avenue SE, Bellevue, Washington 98006. The property, consisting of approximately 14,600 square feet, is leased until September 30, 2008. We are currently evaluating the lease of additional space to use as a pilot manufacture plant.

We are not a party to any material litigation.

No matters were submitted to our stockholders during the quarter ended December 31, 2005.

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PART II

Commencing on February 6, 2004, our common stock has been traded on the American Stock Exchange under the symbol “DDD.” Prior to February 6, 2004, our common stock traded in the over-the-counter bulletin board (OTCBB) under the symbol “SCLL.”

The last sale price of our common stock as reported on the American Stock Exchange on March 1, 2006, was $6.83 per share. The following table sets forth the range of high and low close prices for our common stock as reported on the OTCBB for each full quarterly period from January 1, 2004, through February 6, 2004, and the range of the high and low close prices for our common stock as quoted on the American Stock Exchange from February 6, 2004, through December 31, 2005. The over-the-counter market figures shown below reflect inter-dealer prices, without retail markup, markdown, or commission, and may not necessarily represent actual transactions.

COMMON STOCK

As of March 1, 2006, we had 1,411 stockholders of record. We have not paid or declared any dividends upon our common stock since inception and do not contemplate or anticipate paying any dividends upon the common stock in the foreseeable future.

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The following selected financial data are derived from our financial statements. The data should be read in connection with the financial statements, related notes and other financial information included herein.

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We are a specialty pharmaceutical company that develops and formulates over-the-counter products, prescription drugs, and dietary supplement products that use our patented CDT technology. Prior to January 1, 2004, we engaged in the drug delivery business as well as a probiotics business in which we formulated and manufactured nutraceutical-based health and dietary supplements for the animal and human nutrition markets. We completed our transition to a focused specialty pharmaceutical business with the sale of our probiotics division effective as of December 31, 2003. As a result of the sale of this division, our financial results for 2005 and 2004 do not include operations of the probiotics division except for payments of the deferred purchase price and royalties relating to our CDT technology.

Our drug delivery business generates royalty revenue from CDT-based sales in the dietary supplement markets. However, our net losses are likely to increase significantly as we continue preclinical research and clinical trials, apply for regulatory approvals, develop our product candidates, expand our operations and develop the infrastructure to support commercialization of our potential products. Our strategy includes a significant commitment to research and development activities in connection with the growth of our drug delivery platform. Our results of operations going forward will be dependent on our ability to commercialize our products and technology and generate royalties, development fees, milestone and similar payments.

We have generated substantially all of our working capital though the sale of securities. On February 8, 2005, we raised approximately $15.0 million in gross proceeds through a private placement of 3,750,000 shares of our common stock. On February 24, 2004, we raised approximately $10.4 million in gross proceeds through a private placement of 3,206,538 shares of our common stock and warrants to purchase 801,636 shares of common stock. In November 2005, the Securities and Exchange Commission declared effective our registration statement that we filed using a “shelf” registration process. Under this process, we may offer from time-to-time in one or more offerings common stock and/or warrants to purchase common stock at an aggregate public offering price of up to $40 million.

Restatement

As more fully described in Note B of our Notes to Financial Statements, we have restated financial information for 2004 to reflect liquidated damage provisions provided under registration rights agreements associated with certain of our warrants and common shares. We determined that common shares issued in the February 2004 private placement are subject to potential liquidated damages and should have been classified as temporary equity. The effect of the restatement on the 2004 financial statements was to reclassify as of February 24, 2004, an aggregate of $7,954,715 associated with the issuance of 3,206,528 shares of common stock (net of issue costs) from permanent equity to temporary equity. At December 31, 2004, 2,635,760 of these common shares were no longer subject to potential liquidated damages and therefore, $6,538,741 was transferred from temporary equity to permanent equity. At December 31, 2004, a total of $1,415,974 associated with 570,778 shares of common stock remain subject to potential liquidated damages and continued to be classified as temporary equity. In addition, we determined that the value associated with warrants issued to investors in connection with our private placement in February 2004 should have been classified as a liability. The effect of the restatement on the 2004 financial statements was to reclassify as of February 24, 2004, the estimated fair value of $1,527,245 associated with 801,636 warrants issued in the private placement from stockholder’s equity to a liability on our financial statements. The liability was subsequently marked-to-market at each interim reporting date and an associated non-cash unrealized gain (loss) was recorded in results of operations. The total non-cash unrealized loss reflected in the restated 2004 results of operations was $834,866 or $0.03 per share. As a result, our previously reported net loss of $4,912,815, or $0.16 per share, in fiscal 2004 has been restated to $5,747,681, or $0.19 per share. The liability associated with warrants issued and outstanding at December 31, 2004, was $2,133,160.

This restatement also impacted our previously reported financial results for each quarter in the years ended December 31, 2004 and 2005. The effect on the results of operations for these interim periods is more fully

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described in Note T of our Notes to the Financial Statements. We have not separately amended our 2004 Annual Report on Form 10-K or Quarterly Reports on Form 10-Q for periods affected by the restatement, and the financial statements and any independent registered public accounting firm’s report and related financial information for the affected periods contained in such reports should no longer be relied upon. Any disclosures in any such amendments to our Form 10-K or Form 10-Q for periods affected by the restatement would in large part repeat the disclosures contained in this report. All financial and other information included in this Form 10-K reflects the restatement of our financial statements for such prior periods.

Critical Accounting Policies and Estimates

The financial statements are presented in accordance with accounting principles that are generally accepted in the United States. All professional accounting standards effective as of December 31, 2005, have been taken into consideration in preparing the financial statements. The preparation of the financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Some of those estimates are subjective and complex, and, therefore, actual results could differ from those estimates. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements.

Revenue Recognition—Royalties and Licensing Fees

We generate revenue from collaborative agreements, licensing fees and from the assignment of developed and patented technology. We must exercise judgment and use estimates to determine the amount of revenue to recognize each period. Revenue under collaborative arrangements may take the form of up-front payments, payments for milestones and licensing payments. We recognize license revenue from intellectual technology agreements. The payments received under these research collaboration agreements are contractually not refundable even if the research effort is not successful. Performance under our collaborative agreements is measured by scientific progress, as mutually agreed upon by us and our collaborators.

Up-front Payments. Up-front payments from our research collaborations include payments for technology transfer and access rights. Non-refundable, up-front payments received in connection with collaborative research and development agreements are deferred and recognized on a straight-line basis over the relevant periods specified in the agreement, generally the research term. When the research term is not specified in the agreement and instead the agreement specifies the completion or attainment of a particular development goal, we make an estimate of the time required to achieve that goal considering our experience with similar projects, level of effort and the development stage of the project. We review the basis of our revenue recognition and adjust it as necessary based on the status of the project against the estimated timeline as additional information becomes available.

License Fees. Non-refundable license fees where we have completed all future obligations are recognized as revenue in the period when persuasive evidence of an agreement exists, delivery has occurred, collectability is reasonably assured and the price is fixed and determinable.

Royalty income. Royalties from licensees are based on reported sales of licensed products and revenue is calculated based on contract terms when reported sales are reliably measurable and collectability is reasonably assured.

Our judgment in determining the collectability of amounts due impacts the timing of revenue recognition. Credit worthiness and collectability are assessed, and when a party is not deemed credit worthy, revenue is

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recognized when payment is received. We also assess whether fees are fixed determinable prior to recognizing revenue. We must make interpretations of our customer contracts and use estimates and judgments in determining if the fees associated with a license arrangement are fixed or determinable. In applying these criteria to revenue transactions, we must exercise judgment and use estimates to determine the amount of up-front payments, license fees and royalty income revenue to be recognized each period.

Derivative Financial Instruments

We issued warrants in a private placement financing which contain registration rights where significant liquidated damages could be required to be paid to the holder of the instrument in the event a registration statement covering the resale of shares issuable upon exercise of the warrants fails to remain effective for a preset time period. We account for these warrants at fair value in accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Stock. The Black-Scholes option pricing valuation model is used to determine the fair value of these warrants. Use of this model requires us to make assumptions regarding stock volatility, dividend yields, expected term of the warrants and risk-free interest rates.

Deferred Taxes—Valuation Allowance

We make estimates and use our judgment in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we may consider any potential future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period in which we made such determination was made. At December 31, 2005, we had recorded full valuation totaling approximately $8.9 million against our net deferred tax assets.

Results of Operations

Fiscal 2005 Compared to Fiscal 2004

Revenues. Our drug delivery technology generates royalty revenue from CDT-based product sales to the dietary supplement markets, including sales through retailers such as Wal-Mart, Rite-Aid, Trader Joe’s, and GNC. Net revenues increased 44% to $635,407 for 2005, compared to $441,993 for 2004. The increase in net revenue during 2005 was attributable to higher levels of sales of nutritional products incorporating our CDT technology, $98,762, as well as the reporting of revenue from the buyer of our probiotics business, $94,630. During 2005 and 2004, we received royalty income for sales of products incorporating the CDT technology from Nutra and Archer Daniels Midland, which accounted for 79% and 6%, respectively, of our net revenues for 2005, and 84% and 16% of such revenues for 2004.

In connection with the sale of our probiotics business in December 2003, we determined that certain minimum payments (including royalties relating to the sale of our probiotics business to Nutraceutix, Inc.) represented consideration relating to the sale of the probiotics assets. Therefore, under the original agreement we treated these payments, including $234,190 received in 2005 and $249,598 received in 2004, as deferred consideration rather than revenue. In August 2005, we entered into a settlement and amended agreement with Nutraceutix which, among other things, restricted the license granted to Nutraceutix to use our CDT technology and resulted in cancellation of Nutraceutix’s obligation to make the minimum payments due under the original agreement. With the execution of this agreement, effective as of July 1, 2005 we began receiving royalty payments at a reduced rate and we recognize these payments as royalty revenue when earned.

During October 2005, we entered into a strategic alliance with a subsidiary of the Perrigo Company pursuant to which we granted Perrigo a license to use our CDT platform for the manufacture, marketing,

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distribution, sale and use of specific dietary supplement products in the United States. The first shipments of products by Perrigo began in the first quarter of 2006. We will receive payments based on a percentage of Perrigo’s net profits derived from the sales of products under the agreement commencing in 2006. We expect revenues from Nutra to decrease significantly during 2006 as we advance our marketing and distribution alliance with Perrigo and discontinue sales through Nutra.

We did not generate revenues from licensing fees and research and development contract work during 2005 or 2004. On December 21, 2005, we granted Wyeth Consumer Healthcare an exclusive license to use our CDT technology for the development, manufacture and commercialization of products containing ibuprofen. Wyeth agreed to use its commercially reasonable efforts to research and develop at least one ibuprofen product for the purpose of seeking regulatory approval for the commercialization of that product and we will receive certain minimum royalty payments for this product under the agreement subject to the achievement of these milestones. We will work with Wyeth on a coordinated development program to complete the clinical development and commercialization of the initial ibuprofen product. We have the right to participate in the development of any additional products containing ibuprofen utilizing CDT technology that Wyeth seeks to advance. Wyeth paid us an upfront fee of $250,000 and agreed to make additional payments upon the achievement of specified milestones during the product development period. Wyeth will also pay us a licensing fee and a technology transfer fee upon the completion of certain specified events associated with additional products containing ibuprofen. In addition, the agreement provides for quarterly royalty payments based upon a percentage of Wyeth’s annual net sales of products covered by the agreement on a product-by-product basis.

Cost of Goods Sold. During 2005 and 2004 gross profit was $635,407 and $441,993, respectively, and was equal to net revenues as we had no cost of goods sold during these periods.

Marketing and Selling Expenses. Marketing and selling expenses increased 33% to $286,377 for 2005, as compared to $215,751 in 2004. Marketing and selling expenses represented approximately 3% and 4% of our operating expenses for 2005 and 2004, respectively. The increase of $70,626 for 2005 reflects increased expenses associated with our selling and marketing efforts in support of the commercialization of our drug delivery technology.

Research and Development Expenses. Research and development expenses increased 126% to $5.9 million for 2005, as compared to $2.6 million for 2004. Research and development expenses represented approximately 62% and 47% of our operating expenses for 2005 and 2004, respectively. The higher level of research and development expenses during 2005 reflects an increase in the number of development projects and includes costs associated with clinical work, regulatory applications, personnel, equipment and consulting support from third parties. We expect research and development costs to increase during 2006 as we expand the number of our development projects.

General and Administrative Expenses. General and administrative expenses increased 21% to $3.3 million for 2005, as compared to $2.7 million for 2004. The increase in 2005 reflects increased personnel, including our chief legal and business development officer, as well as a higher level of consulting and auditing fees associated with compliance with the Sarbanes-Oxley Act of 2002. During 2005, we devoted significant resources to developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act.

Other Income (Expense), Net. Other income (expense) was ($89,265) for 2005 as compared to ($677,408) for 2004. Other income (expense) included interest income of $486,288 for 2005, compared to $57,463 in 2004, and such increase was primarily due to interest received on our higher cash balances and to imputed interest income realized on the discount of the net present value for the note receivable due from the buyer of the probiotics business. The increase in the fair value of warrants accounted for as liabilities generated a non-cash expense of $97,297 and $834,866 in 2005 and 2004, respectively. Other expense for 2005 included a non-recurring expense of $537,921 for the settlement in connection with the asset sale and license agreement

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with Nutraceutix. The amount of the settlement expense was determined based on the difference between the remaining discounted minimum payments due under the original agreement and the value of the consideration received of approximately $974,000 including a promissory note of $759,000. In addition, during 2005, we recovered a discounted portion of an accounts receivable balance written off as a bad debt in 2004 in the amount of $21,322.

Net Loss. Net loss for 2005 increased to $8.9 million, as compared to a net loss of $5.7 million for 2004. This increased net loss was primarily due to higher levels of research and development and general and administrative expenses, and the loss on the settlement agreement with Nutraceutix. The impact of these increased costs was partially offset by increased interest income and smaller increase in the fair value of our warrants. Our net losses are likely to increase as we continue our preclinical research and clinical trials, apply for regulatory approvals, develop our product candidates, expand our operations, and build the infrastructure to support commercialization of our potential products.

During 2005 and 2004, we invested approximately $347,000 and $634,000, respectively, in capital equipment and leasehold improvements to build the infrastructure to support our drug delivery business, including expansion of our formulation capability and capacity to conduct laboratory based dissolution testing. We plan to invest approximately $450,000 in additional capital equipment during 2006.

Fiscal 2004 Compared to Fiscal 2003

Revenues. Prior to the sale of our probiotics unit, we generated substantially all of our revenues through the probiotics unit. Net revenues decreased 93% to $441,993 for 2004, from $6.6 million for 2003. Revenues for 2003 included $6.0 million in manufacturing revenues related to the probiotics business sold in December 2003. Other revenues for 2003 of $621,953 consisted of $582,953 from royalties and $39,000 for research and development contract fees. Revenues from royalties decreased 24% to $441,993 for 2004 as compared to $582,953 for 2003.

Cost of Goods Sold. Gross profit decreased 78% to $441,993 for 2004 from $2.0 million for 2003. Gross profit in 2003 primarily consisted of manufacturing revenues and related cost of revenues associated with our former probiotics business whereas gross profit in 2004 only consisted of royalty revenues. As a result of the sale of the probiotics business in December 2003, there were no costs of revenues from the sale of manufactured probiotics products in 2004 compared to $4.6 million for 2003.

Marketing and Selling Expenses. Marketing and selling expenses decreased 55% to $215,751 for 2004 from $479,714 for 2003. Reduced selling and marketing expenses in 2004 were primarily attributable to a decrease in personnel in connection with the sale of the probiotics operations.

Research and Development Expenses. Research and development expenses increased $2.2 million to $2.6 million for 2004 from $403,186 for 2003. The higher level of research and development expenses during 2004 was consistent with our transition to developing and commercializing our CDT drug delivery technology. These costs consisted of clinical work, regulatory, personnel, equipment, and outside consulting support.

General and Administrative Expenses. General and administrative expenses decreased $1.5 million to $2.7 million for 2004 as compared with $4.2 million for 2003. Although there were substantial decreases in administrative costs during 2004 due to the sale of the probiotics business, we incurred offsetting expenses in 2004 relating to increased legal costs and services associated with our financing activities, compliance with new regulatory requirements, and establishing the infrastructure needed to support our increased research and development activities.

Other Income (Expense), Net. Other income was ($677,408) for 2004 compared to ($5.7 million) for 2003. Other income reflects a decrease in interest expense to $36,318 for 2004 compared with $5.7 million for 2003.

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Interest expense in 2003 included non-cash interest of $5.3 million attributable to the accounting for the convertible notes issued in June 2003 (and converted into common stock in December 2003), including the amortization of debt discount and associated debt issue costs, and expense associated with the issuance of a warrant issued in connection with a $1 million loan from a stockholder in 2002. In addition, certain leases and obligations were transferred to the buyer of the probiotics business. In addition, the reduction in interest expense in 2004 was the result of repayment of our outstanding indebtedness in conjunction with the sale of the probiotics business and the sale of equity securities which enabled us to finance our operating activities internally. Interest income increased to $57,463 in 2004 from $11,589 for 2003 due to imputed interest income realized on the discount of the net present value for the note receivable due from the buyer of the probiotics business. Other income increased to $136,313 for 2004 from $3,056 in 2003 as a result of settlement of a contract and recognition of $100,000 of deferred revenue received as a non-refundable fee. The increase in the fair value of warrants issued in February 2004 generated a non-cash expense of $834,866 for 2004 included in other income.

Operating Loss. Operating loss for 2004 was $5.1 million as compared to an operating loss of $3.1 million for 2003. The increases in operating loss for 2004 reflected the increased expenses associated with our transition to a drug delivery company and the decline in revenue as a result of the sale of our probiotics operations.

Net Loss. Net loss for 2004 was $5.7 million compared to $8.7 million for 2003. The higher net loss in 2003 was primarily the result of non-cash interest of $5.3 million in 2003 related to convertible notes issued and converted in 2003.

Liquidity and Capital Resources

As of December 31, 2005, we had $13.4 million of working capital compared to $6.3 million as of December 31, 2004. We have accumulated net losses of approximately $36.3 million from our inception through December 31, 2005, and we have continued to accumulate net losses since December 31, 2005. We have funded our operations primarily through the issuance of equity securities, including $14.1 million in net proceeds from our private placement in February 2005. Net cash provided by financing activities increased to $14.5 million in 2005 compared to $9.4 million in 2004.

We used cash of $8.2 million for operating activities in 2005, which was $4.2 million more than the amount used in operations during 2004. Expenditures during this period increased as a result of research and development expenses, clinical trial costs, contract manufacturing costs, general and administrative expenses in support of our operations and marketing expenses. Cash used in investing activities was $2.2 million in 2005, compared to $19,000 provided by investing activities in 2004. The increase in cash usage in 2005 was primarily the result of our acquisition of short-term investments of $2.4 million and $451,000 in equipment and furniture purchases and patent related expenditures offset by payments received on a note receivable of $665,000. In 2004, the $19,000 increase resulted from $858,000 in payments received on our note receivable offset by $839,000 in equipment and furniture purchases and patent related expenditures.

We expect our operating losses and negative cash flow to increase as we continue preclinical research and clinical trials, apply for regulatory approvals, develop our product candidates, expand our operations and continue to develop the infrastructure to support commercialization of our products. We believe that our cash, cash equivalents and short term investments, will be sufficient to fund our operations at planned levels through early 2007. We plan to continue the costly process of simultaneously conducting clinical trials and preclinical research for multiple product candidates. We currently do not have a credit line or other borrowing facility to fund our operations, and we will need to raise additional capital to fund operations, continue research and development projects, and commercialize our products. We may not be able to secure additional financing on favorable terms, or at all. We anticipate that we will need to seek additional funds through the issuance of equity securities or other sources of financing. In November 2005, the Securities and Exchange Commission declared effective our registration statement that we filed using a “shelf” registration process. Under this process, we may offer from time to time in one or more offerings common stock and/or warrants to purchase common stock at an aggregate public offering

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price of up to $40 million. The issuance of a large number of additional equity securities could cause substantial dilution to existing stockholders and could cause a decrease in the market price for shares of our common stock, which could impair our ability to raise capital in the future through the issuance of equity securities. If we are unable to obtain necessary additional financing, our ability to run our business will be adversely affected and we may be required to reduce the scope of our development activities or discontinue operations.

Contractual Obligations/Off-Balance Sheet Arrangements

We have no material off-balance arrangements as defined in Item 303 of Regulation S-K.

As of December 31, 2005, our commitments to make future payments under long term contractual obligations were as follows:

We have certain material agreements with our manufacturing and testing vendors related to our ongoing clinical trial work associated with our development programs. Contract amounts are paid based on materials-used and on a work-performed basis. Generally, we have the right to terminate these agreements upon 30 days notice and would be responsible for services and materials and related costs incurred prior to termination.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement 123(R) Share-Based Payment, which requires companies to recognize in the income statement the fair value of all employee share-based payments, including grants of employee stock options as well as compensatory employee stock purchase plans. The original implementation date was for interim periods beginning after June 15, 2005. In March 2005, a staff accounting bulletin No. 107 deferred the implementation dates for annual and interim periods beginning after December 15, 2005. As a result, this standard will become effective for us beginning on January 1, 2006. SFAS 123(R) eliminates the ability to account for share based compensation using APB 25, and the pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to the recognition of employee stock based compensation at fair value. We believe the adoption of SFAS 123(R) will have a material impact on the statements of operations in future periods. We plan to implement FAS 123(R) using the Modified Prospective Transition Method.

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement 154, Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement changes the requirements for the accounting for and reporting of a change in accounting principle. It applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement where that pronouncement does not include specific transition provisions.

Opinion 20 previously required that these changes in accounting principle be recognized by including the cumulative effect of changing to the new accounting principle in net income of the period of the change. Statement 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Statement 154 also requires that a change in depreciation or amortization be accounted for as a change in accounting estimate brought about by a change in accounting principle.

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The primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing our risk. We invest excess cash principally in U.S. marketable securities from a diversified portfolio of institutions with strong credit ratings and in U.S. government and agency bills and notes, and by policy, limit the amount of credit exposure at any one institution. Some of the securities we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we schedule our investments to have maturities that coincide with our expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly, we believe we have no material exposure to interest rate risk arising from our investments.

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CONTENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

SCOLR Pharma, Inc.

We have audited the accompanying balance sheets of SCOLR Pharma, Inc. as of December 31, 2005 and 2004, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SCOLR Pharma, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note B to the accompanying financial statements, the Company has restated its 2004 financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SCOLR Pharma, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 17, 2006 expressed an unqualified opinion on management’s assessment, and an adverse opinion on the effective operation, of internal control over financial reporting.

/s/    GRANT THORNTON LLP

March 17, 2006

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of SCOLR Pharma, Inc.

We have audited management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting included in Item 9A in this annual report, that SCOLR Pharma, Inc. did not maintain effective internal control over financial reporting as of December 31, 2005 because of the effect of the material weakness identified in management’s assessment, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). SCOLR Pharma, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment:

The Company did not maintain appropriate control to provide reasonable assurance that complex transactions are appropriately accounted for or that all disclosure requirements under generally accepted accounting principles are fulfilled. In this regard, the Company’s processes are not sufficient to ensure that appropriate consideration is given to the accounting implications of such transaction, that accounting conclusions regarding these transactions are analyzed and documented, or that all relevant financial statement disclosures required under generally accepted accounting principles are provided. Furthermore, the number of accounting personnel with sufficient experience is insufficient to ensure that the preparation and review of accounting analysis relating to such transactions is performed by different individuals.

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This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 financial statements, and this report does not affect our report dated March 17, 2006 on those financial statements.

In our opinion, management’s assessment that SCOLR Pharma, Inc. did not maintain effective internal control over financial reporting as of December 31, 2005 is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, SCOLR Pharma Inc. has not maintained effective internal control over financial reporting as of December 31, 2005 based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/    GRANT THORNTON LLP

Seattle, WA

March 17, 2006

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SCOLR Pharma, Inc.

BALANCE SHEETS

The accompanying notes are an integral part of these financial statements.

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SCOLR Pharma, Inc.

STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.

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SCOLR Pharma, Inc.

STATEMENT OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2005, 2004 and 2003