---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---



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

For the quarterly period ended June 30, 2007

or



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

Commission File Number: 0-23031



---

DYNAMIC HEALTH PRODUCTS, INC.

(Name
of registrant as specified in its charter)



---



|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|Florida                                                       |  | 34-1711778                          
|(State or other jurisdiction of incorporation or organization |  | (I.R.S. Employer Identification No.)
|                                                              | 
|12399 Belcher Road South, Suite 140, Largo, Florida           |  | 33773                               
|(Address of principal executive offices)                      |  | (Zip Code)                          

Registrants telephone number, including area code: (727) 683-0670



---

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

The number of shares outstanding of the
Issuers common stock at $.01 par value as of August 10, 2007 was 16,691,860.



---



---

PART I  FINANCIAL INFORMATION



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

DYNAMIC
HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                               |             |               |            |           |               |   |            |  
|------------------------------------------------------------------------------------------------------------------------------ | ----------- | ------------- | ---------- | --------- | ------------- | - | ---------- | -
|                                                                                                                               |             | June 30, 2007 |            |           | March 31,2007 |  
|                                                                                                                               | (Unaudited) |               |            | (Audited) |              
|ASSETS                                                                                                                         |             |               |            |           |               |   |            |  
|                                                                                                                               |             |              
|Current assets:                                                                                                                |             |               |            |           |               |   |            |  
|Cash and cash equivalents                                                                                                      |             | $             | 803,402    |           |               | $ | 1,104,845  |  
|Certificates of deposit                                                                                                        |             |               | 200,301    |           |               |   | 203,908    |  
|Marketable equity securities, net                                                                                              |             |               | 863,804    |           |               |   | 947,223    |  
|Accounts receivable, net                                                                                                       |             |               | 2,307,578  |           |               |   | 2,694,188  |  
|Inventories, net                                                                                                               |             |               | 5,806,232  |           |               |   | 6,021,047  |  
|Prepaid expenses                                                                                                               |             |               | 345,351    |           |               |   | 310,994    |  
|Deferred consulting fees                                                                                                       |             |               | 41,564     |           |               |   | 83,127     |  
|Other current assets                                                                                                           |             |               | 217,027    |           |               |   | 194,928    |  
|Due from affiliates                                                                                                            |             |               | 24,109     |           |               |   | 3,960      |  
|Notes receivable, net                                                                                                          |             |               | 187,125    |           |               |   | 205,125    |  
|                                                                                                                               |             |               |            |           |               |   |            |  
|Total current assets                                                                                                           |             |               | 10,796,493 |           |               |   | 11,769,345 |  
|                                                                                                                               |             |              
|Property, plant and equipment, net                                                                                             |             |               | 681,335    |           |               |   | 714,043    |  
|                                                                                                                               |             |              
|Goodwill                                                                                                                       |             |               | 4,145,130  |           |               |   | 4,145,130  |  
|Intangible assets, net                                                                                                         |             |               | 394,489    |           |               |   | 464,268    |  
|Other assets                                                                                                                   |             |               | 21,831     |           |               |   | 21,831     |  
|Deferred income taxes                                                                                                          |             |               | 148,500    |           |               |   | 49,400     |  
|                                                                                                                               |             |               |            |           |               |   |            |  
|Total assets                                                                                                                   |             | $             | 16,187,778 |           |               | $ | 17,164,017 |  
|                                                                                                                               |             |               |            |           |               |   |            |  
|                                                                                                                               |             |              
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                           |             |               |            |           |               |   |            |  
|                                                                                                                               |             |              
|Current liabilities:                                                                                                           |             |               |            |           |               |   |            |  
|Revolving notes payable, net                                                                                                   |             | $             | 3,170,655  |           |               | $ | 1,989,765  |  
|Current portion of long-term obligations                                                                                       |             |               | 4,111,026  |           |               |   | 3,755,176  |  
|Accounts payable                                                                                                               |             |               | 6,503,483  |           |               |   | 7,911,918  |  
|Other payables                                                                                                                 |             |               | 528,755    |           |               |   | 676,034    |  
|Income tax payable                                                                                                             |             |               |           |           |               |   | 115        |  
|Accrued expenses                                                                                                               |             |               | 614,019    |           |               |   | 397,026    |  
|Accrued income taxes                                                                                                           |             |               | 231        |           |               |   | 925        |  
|Obligations to affiliates                                                                                                      |             |               | 42,040     |           |               |   | 26,363     |  
|Notes payable                                                                                                                  |             |               |           |           |               |   | 49,863     |  
|Derivative financial instruments                                                                                               |             |               | 495,325    |           |               |   | 650,529    |  
|                                                                                                                               |             |               |            |           |               |   |            |  
|Total current liabilities                                                                                                      |             |               | 15,465,534 |           |               |   | 15,457,714 |  
|                                                                                                                               |             |              
|Long-term obligations, less current portion                                                                                    |             |               | 10,665     |           |               |   | 11,837     |  
|                                                                                                                               |             |               |            |           |               |   |            |  
|Total liabilities                                                                                                              |             |               | 15,476,199 |           |               |   | 15,469,551 |  
|                                                                                                                               |             |               |            |           |               |   |            |  
|                                                                                                                               |             |              
|Commitments and contingencies                                                                                                  |             |               |            |           |               |   |            |  
|                                                                                                                               |             |              
|Shareholders' equity:                                                                                                          |             |               |            |           |               |   |            |  
|Preferred stock, undesignated; 800,000 shares authorized; no shares issued or outstanding                                      |             |               |           |           |               |   |           |  
|Series A Convertible Preferred stock, $.01 par value; 400,000 shares authorized; no shares issued or outstanding               |             |               |           |           |               |   |           |  
|Series B 6% Cumulative Convertible Preferred stock, $.01 par value; 800,000 shares authorized; no shares issued or outstanding |             |               |           |           |               |   |           |  
|Common stock, $.01 par value; 45,000,000 shares authorized; 16,691,860 and 16,241,860 shares issued and outstanding            |             |               | 166,919    |           |               |   | 162,419    |  
|Additional paid-in capital                                                                                                     |             |               | 5,220,370  |           |               |   | 5,045,370  |  
|Retained earnings (deficit)                                                                                                    |             |               | (5,196,117 | )         |               |   | (4,087,118 | )
|Accumulated other comprehensive income:                                                                                        |             |               |            |           |               |   |            |  
|Unrealized gains (losses) on marketable equity securities, net of tax                                                          |             |               | 520,407    |           |               |   | 573,795    |  
|                                                                                                                               |             |               |            |           |               |   |            |  
|Total shareholders' equity                                                                                                     |             |               | 711,579    |           |               |   | 1,694,466  |  
|                                                                                                                               |             |               |            |           |               |   |            |  
|Total liabilities and shareholders' equity                                                                                     |             | $             | 16,187,778 |           |               | $ | 17,164,017 |  
|                                                                                                                               |             |               |            |           |               |   |            |  

See accompanying notes to condensed consolidated financial statements.



2



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                             |      |                             |            |      |  |   |            |  
|------------------------------------------------------------ | ---- | --------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                             |      | Three Months Ended June 30, |           
|                                                             | 2007 |                             |            | 2006 | 
|Revenues                                                     |      | $                           | 15,339,492 |      |  | $ | 13,818,021 |  
|Cost of goods sold                                           |      |                             | 12,565,974 |      |  |   | 11,111,973 |  
|                                                             |      |                             |            |      |  |   |            |  
|Gross profit                                                 |      |                             | 2,773,518  |      |  |   | 2,706,048  |  
|                                                             |      |                            
|Operating expenses:                                          |      |                             |            |      |  |   |            |  
|Selling, general and administrative expenses                 |      |                             | 2,795,188  |      |  |   | 2,573,854  |  
|Amortization expense                                         |      |                             | 82,519     |      |  |   | 77,222     |  
|Depreciation expense                                         |      |                             | 48,983     |      |  |   | 44,710     |  
|                                                             |      |                             |            |      |  |   |            |  
|Total operating expenses                                     |      |                             | 2,926,690  |      |  |   | 2,695,786  |  
|                                                             |      |                             |            |      |  |   |            |  
|Operating income (loss) before other income and expense      |      |                             | (153,172   | )    |  |   | 10,262     |  
|                                                             |      |                            
|Other income (expense):                                      |      |                             |            |      |  |   |            |  
|Interest income                                              |      |                             | 2,092      |      |  |   | 6,119      |  
|Other income and expenses, net                               |      |                             | (65,013    | )    |  |   | 93,180     |  
|Gain (loss) on sale of property                              |      |                             | (3,781     | )    |  |   | 775        |  
|Gain on sale of marketable equity securities                 |      |                             |           |      |  |   | 572,096    |  
|Gain from debt extinguishment                                |      |                             |           |      |  |   | 153,750    |  
|Derivative instrument income (expense), net                  |      |                             | 155,204    |      |  |   | 731,503    |  
|Derivative instrument interest expense                       |      |                             | (827,938   | )    |  |   | (745,805   | )
|Interest expense                                             |      |                             | (280,288   | )    |  |   | (209,690   | )
|                                                             |      |                             |            |      |  |   |            |  
|Total other income (expense)                                 |      |                             | (1,019,724 | )    |  |   | 601,928    |  
|                                                             |      |                             |            |      |  |   |            |  
|Income (loss) before income taxes                            |      |                             | (1,172,896 | )    |  |   | 612,190    |  
|Income tax expense (benefit)                                 |      |                             | (63,897    | )    |  |   | 170,488    |  
|                                                             |      |                             |            |      |  |   |            |  
|Net income (loss)                                            |      |                             | (1,108,999 | )    |  |   | 441,702    |  
|Preferred stock dividends                                    |      |                             |           |      |  |   |           |  
|                                                             |      |                             |            |      |  |   |            |  
|Net income (loss) available to common shareholders           |      | $                           | (1,108,999 | )    |  | $ | 441,702    |  
|                                                             |      |                             |            |      |  |   |            |  
|Basic income (loss) per share                                |      | $                           | (0.07      | )    |  | $ | 0.03       |  
|                                                             |      |                             |            |      |  |   |            |  
|Basic weighted average number of common shares outstanding   |      |                             | 16,636,915 |      |  |   | 14,806,418 |  
|                                                             |      |                             |            |      |  |   |            |  
|Diluted income (loss) per share                              |      | $                           | (0.07      | )    |  | $ | 0.03       |  
|                                                             |      |                             |            |      |  |   |            |  
|Diluted weighted average number of common shares outstanding |      |                             | 16,636,915 |      |  |   | 15,506,418 |  
|                                                             |      |                             |            |      |  |   |            |  

See accompanying notes to condensed consolidated financial statements.



3



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY



|                                                                                     |        |                         |         |                         |        |                                        |         |                          |        |                           |         |            |                                       |   |         |                          |   |           |  |   |            |   |  |   |         |   |  |   |            |  
|------------------------------------------------------------------------------------ | ------ | ----------------------- | ------- | ----------------------- | ------ | -------------------------------------- | ------- | ------------------------ | ------ | ------------------------- | ------- | ---------- | ------------------------------------- | - | ------- | ------------------------ | - | --------- |  | - | ---------- | - |  | - | ------- | - |  | - | ---------- | -
|                                                                                     |        | Series APreferred Stock |         | Series BPreferred Stock |        | Common Stock                           |         | AdditionalPaid-inCapital |        | RetainedEarnings(Deficit) |         |            | Accumulated OtherComprehensive Income |   |         | TotalShareholders'Equity |  
|                                                                                     |        |                         |         |                         |        | Unrealized Gains(Losses) on Securities |         |                         
|                                                                                     | Shares |                         | Dollars |                         | Shares |                                        | Dollars |                          | Shares |                           | Dollars |            |                                       |   |        
|Balances at March 31, 2007 (Audited)                                                 |        |                        |         | $                       |       |                                        |        |                          | $      |                          |         | 16,241,860 |                                       | $ | 162,419 |                          | $ | 5,045,370 |  | $ | (4,087,118 | ) |  | $ | 573,795 |   |  | $ | 1,694,466  |  
|COMPREHENSIVE INCOME (LOSS)                                                          |        |                         |         |                         |        |                                        |         |                          |        |                           |         |            |                                       |   |         |                          |   |           |  |   |            |   |  |   |         |   |  |   |            |  
|Net income (loss)                                                                    |        |                        |         |                         |       |                                        |        |                          |        |                          |         |           |                                       |   |        |                          |   |          |  |   | (1,108,999 | ) |  |   |         |   |  |   | (1,108,999 | )
|Unrealized gains (losses) on marketable equity securities (net of tax of $30,061)    |        |                        |         |                         |       |                                        |        |                          |        |                          |         |           |                                       |   |        |                          |   |          |  |   |           |   |  |   | (53,388 | ) |  |   | (53,388    | )
|                                                                                     |        |                         |         |                         |        |                                        |         |                          |        |                           |         |            |                                       |   |         |                          |   |           |  |   |            |   |  |   |         |   |  |   |            |  
|Comprehensive income (loss)                                                          |        |                         |         |                         |        |                                        |         |                          |        |                           |         |            |                                       |   |         |                          |   |           |  |   |            |   |  |   |         |   |  |   | (1,162,387 | )
|Issuance of 350,000 shares of common stock in connection with Postponement Agreement |        |                        |         |                         |       |                                        |        |                          |        |                          |         | 350,000    |                                       |   | 3,500   |                          |   | 161,000   |  |   |           |   |  |   |         |   |  |   | 164,500    |  
|Issuance of 100,000 shares of common stock for consulting services                   |        |                        |         |                         |       |                                        |        |                          |        |                          |         | 100,000    |                                       |   | 1,000   |                          |   | 14,000    |  |   |           |   |  |   |         |   |  |   | 15,000     |  
|                                                                                     |        |                         |         |                         |        |                                        |         |                          |        |                           |         |            |                                       |   |         |                          |   |           |  |   |            |   |  |   |         |   |  |   |            |  
|Balances at June 30, 2007 (Unaudited)                                                |        |                        |         | $                       |       |                                        |        |                          | $      |                          |         | 16,691,860 |                                       | $ | 166,919 |                          | $ | 5,220,370 |  | $ | (5,196,117 | ) |  | $ | 520,407 |   |  | $ | 711,579    |  
|                                                                                     |        |                         |         |                         |        |                                        |         |                          |        |                           |         |            |                                       |   |         |                          |   |           |  |   |            |   |  |   |         |   |  |   |            |  

See accompanying notes to condensed consolidated financial statements.



4



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                                     |      |                             |            |      |  |   |            |  
|------------------------------------------------------------------------------------ | ---- | --------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                     |      | Three Months Ended June 30, |           
|                                                                                     | 2007 |                             |            | 2006 | 
|Cash flows from operating activities:                                                |      |                             |            |      |  |   |            |  
|Net income (loss)                                                                    |      | $                           | (1,108,999 | )    |  | $ | 441,702    |  
|                                                                                     |      |                            
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |      |                             |            |      |  |   |            |  
|Depreciation and amortization                                                        |      |                             | 131,502    |      |  |   | 121,932    |  
|Amortization of deferred consulting fees                                             |      |                             | 41,563     |      |  |   | 65,938     |  
|Amortization of debt discount to interest expense                                    |      |                             | 107,231    |      |  |   | 31,657     |  
|Common stock issued for consulting fees                                              |      |                             | 15,000     |      |  |   |           |  
|Share-based compensation expense                                                     |      |                             |           |      |  |   | 77,375     |  
|Derivative instrument (income) expense, net                                          |      |                             | (155,204   | )    |  |   | (731,503   | )
|Derivative instrument interest expense                                               |      |                             | 827,938    |      |  |   | 745,805    |  
|(Gain) loss on sale property                                                         |      |                             | 3,781      |      |  |   | (775       | )
|Gain on sale of marketable equity securities                                         |      |                             |           |      |  |   | (572,096   | )
|Gain from debt extinguishment                                                        |      |                             |           |      |  |   | (153,750   | )
|Changes in operating assets and liabilities:                                         |      |                             |            |      |  |   |            |  
|Accounts receivable                                                                  |      |                             | 386,610    |      |  |   | (72,997    | )
|Inventories                                                                          |      |                             | 214,815    |      |  |   | (164,981   | )
|Due to/from affiliates, net                                                          |      |                             | (4,472     | )    |  |   | 14,387     |  
|Prepaid expenses                                                                     |      |                             | (34,357    | )    |  |   | (26,646    | )
|Other current assets                                                                 |      |                             | (5,099     | )    |  |   | 3,744      |  
|Other assets                                                                         |      |                             |           |      |  |   | 60,335     |  
|Accounts payable                                                                     |      |                             | (1,408,435 | )    |  |   | (168,742   | )
|Other payables                                                                       |      |                             | (147,279   | )    |  |   | 93,535     |  
|Income tax payable                                                                   |      |                             | (115       | )    |  |   | 35,000     |  
|Accrued expenses                                                                     |      |                             | 216,993    |      |  |   | 31,843     |  
|Accrued income taxes                                                                 |      |                             | (694       | )    |  |   | 38,165     |  
|Deferred income taxes                                                                |      |                             | (69,069    | )    |  |   | 97,607     |  
|                                                                                     |      |                             |            |      |  |   |            |  
|Net cash used in operating activities                                                |      |                             | (988,290   | )    |  |   | (32,465    | )
|                                                                                     |      |                             |            |      |  |   |            |  
|                                                                                     |      |                            
|Cash flows from investing activities:                                                |      |                             |            |      |  |   |            |  
|Purchases of property and equipment                                                  |      |                             | (22,056    | )    |  |   | (68,183    | )
|Proceeds from sale of property                                                       |      |                             | 2,000      |      |  |   | 14,500     |  
|Repayments of notes receivable                                                       |      |                             | 1,000      |      |  |   | 44,983     |  
|Proceeds from sale of marketable equity securities                                   |      |                             |           |      |  |   | 572,096    |  
|Purchase of distributor agreement                                                    |      |                             |           |      |  |   | (25,000    | )
|Purchase of certificate of deposit                                                   |      |                             | (301       | )    |  |   |           |  
|Proceeds from certificates of deposit                                                |      |                             | 3,908      |      |  |   |           |  
|                                                                                     |      |                             |            |      |  |   |            |  
|Net cash provided by (used in) investing activities                                  |      |                             | (15,449    | )    |  |   | 538,396    |  
|                                                                                     |      |                             |            |      |  |   |            |  
|                                                                                     |      |                            
|Cash flows from financing activities:                                                |      |                             |            |      |  |   |            |  
|Payments of long-term obligations                                                    |      |                             | (226,047   | )    |  |   | (307,371   | )
|Proceeds from issuance of short-term obligations                                     |      |                             | 3,365,695  |      |  |   | 2,509,635  |  
|Payments of short-term obligations                                                   |      |                             | (2,424,612 | )    |  |   | (3,068,127 | )
|Payment of loan costs                                                                |      |                             | (12,740    | )    |  |   |           |  
|                                                                                     |      |                             |            |      |  |   |            |  
|Net cash used in financing activities                                                |      |                             | 702,296    |      |  |   | (865,863   | )
|                                                                                     |      |                             |            |      |  |   |            |  
|Net increase (decrease) in cash                                                      |      |                             | (301,443   | )    |  |   | (359,932   | )
|Cash at beginning of period                                                          |      |                             | 1,104,845  |      |  |   | 1,009,012  |  
|                                                                                     |      |                             |            |      |  |   |            |  
|Cash at end of period                                                                |      | $                           | 803,402    |      |  | $ | 649,080    |  
|                                                                                     |      |                             |            |      |  |   |            |  

See accompanying notes to condensed consolidated financial statements.



5



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  Continued



|                                                                               |      |                            |         |  |   |        
|------------------------------------------------------------------------------ | ---- | -------------------------- | ------- |  | - | -------
|                                                                               |      | Three Months EndedJune 30,
|                                                                               | 2007 |                            | 2006   
|Supplemental disclosure of cash flow information:                              |      |                            |         |  |   |        
|Cash paid during the period for interest                                       |      | $                          | 175,668 |  | $ | 183,814
|                                                                               |      |                            |         |  |   |        
|Cash paid during the period for income taxes                                   |      | $                          | 1,159   |  | $ | 810    
|                                                                               |      |                            |         |  |   |        
|                                                                               |      |                           
|Supplemental schedule of non-cash investing activities:                        |      |                            |         |  |   |        
|Conversion of accounts receivable to note receivable                           |      | $                          |        |  | $ | 170,403
|                                                                               |      |                            |         |  |   |        
|                                                                               |      |                           
|Supplemental schedule of non-cash financing activities:                        |      |                            |         |  |   |        
|Issuance of common stock for postponement agreement                            |      | $                          | 164,500 |  | $ | 82,500 
|                                                                               |      |                            |         |  |   |        
|Issuance of common stock for consulting services                               |      | $                          | 15,000  |  | $ |       
|                                                                               |      |                            |         |  |   |        
|Issuance of common stock in exchange for cancellation of common stock warrants |      | $                          |        |  | $ | 45,000 
|                                                                               |      |                            |         |  |   |        
|Issuance of common stock for employer contribution to profit sharing plan      |      | $                          |        |  | $ | 44,929 
|                                                                               |      |                            |         |  |   |        

See accompanying notes to condensed consolidated financial statements.



6



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED

JUNE 30, 2007 AND 2006 (UNAUDITED)

NOTE 1  BASIS OF PRESENTATION

The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles for interim financial information and with the instruction to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2007 and 2006 are not necessarily indicative of the results that may be expected for the year ending
March 31, 2008. For further information, refer to the consolidated financial statements and footnotes included in the Companys Form 10-KSB for the year ended March 31, 2007.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.
Principles of Consolidation

The accompanying consolidated financial statements as of June 30, 2007 and March 31, 2007 and for
the three months ended June 30, 2007 and 2006 include the accounts of Dynamic Health Products, Inc. and its principally wholly-owned subsidiaries (collectively the Company), Pharma Labs Rx, Inc. (FL), Dynamic Life Products, Inc.,
Herbal Health Products, Inc., Online Meds Rx, Inc., and its subsidiary Dynamic Financial Consultants, LLC, Bryan Capital Limited Partnership, Pharma Labs Rx, Inc. (NV), Bob OLeary Health Food Distributor Co., Inc. (BOSS), Dynamic
Marketing I, Inc. (DMI) and DYHP Acquisitions, Inc. All transactions relating to intercompany balances and transactions have been eliminated in consolidation.

b. Cash and Cash Equivalents

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

c. Investments in Equity Securities

At June 30, 2007 and March 31, 2007, the marketable equity securities are classified as available for sale. In accordance
with Statement of Financial Accounting Standards No. 115, Accounting For Certain Investments In Debt And Equity Securities (SFAS 115), marketable equity securities available for sale are recorded in the Companys financial
statements at fair market value. The corresponding unrealized gain or loss in the fair market value in relation to cost is accounted for as a separate component of shareholders equity, net of tax.

d. Accounts Receivable

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

e. Inventories

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



7



---

f. Property, Plant and Equipment

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

g. Intangible Assets

Intangible assets consist
primarily of goodwill, customer lists and loan costs. Effective April 1, 2002 with the adoption of Statement of Financial Accounting Standards No. 142, Goodwill And Other Intangibles (SFAS 142), intangible assets with an
indefinite life, namely goodwill, are not amortized. Intangible assets with a definite life are amortized on a straight-line basis with estimated useful lives ranging from one to five years. Loan costs are amortized on a straight-line basis over the
life of the loan. Intangible assets with indefinite lives will be tested for impairment yearly and will also be tested for impairment between the annual tests, should an event occur or should circumstances change that would indicate that the
carrying amount may be impaired. The Company has selected September 30 as the annual date to test these assets for impairment.

h. Impairment of
Assets

In accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting For The
Impairment Or Disposal Of Long-Lived Assets (SFAS 144), the Companys policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets, certain identifiable intangibles and goodwill when certain events
have taken place that indicate that the remaining unamortized balance may not be recoverable. When factors indicate that the intangible assets should be evaluated for possible impairment, the Company uses an estimate of related undiscounted cash
flows. A deficiency in these cash flows relative to the carrying amounts is an indication of the need for a write-down due to impairment. The impairment write-down would be the difference between the carrying amounts and the fair value of these
assets. Losses on impairment are recognized by a charge to earnings. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. There were no impairment losses recorded as of
June 30, 2007 and March 31, 2007, and for the three months ended June 30, 2007 and 2006.



8



---

i. Income Taxes

The Company utilizes the guidance provided by Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes (SFAS 109). Under the liability method specified by SFAS 109, deferred
tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax
expense is the result of changes in deferred tax assets and liabilities. Valuation allowances are provided if necessary to reduce deferred tax assets to the amount expected to be realized.

j. Earnings (Loss) Per Common Share

Earnings (loss)
per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted average number
of shares of common stock outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect
of common stock equivalents, using the treasury stock method (see Note 14).

k. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at June 30, 2007 and March 31, 2007, as well as the reported amounts of revenues and expenses for three months ended
June 30, 2007 and 2006. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.

l. Revenue Recognition

In accordance with Staff Accounting Bulletin No. 101, Revenue Recognition In Financial
Statements (SAB101), revenues result from product sales and are recognized by the Company upon passage of title and risk of loss to customers (when product is delivered to common carrier for shipment to customers). Provisions for discounts and
sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers and returns have thus far been immaterial to the Company. All shipping and handling costs
invoiced to customers are included in revenues. Costs incurred by the Company for shipping, handling and warehousing are included in selling, general and administrative expenses, and were $596,525 and $507,132, for the three months ended
June 30, 2007 and 2006, respectively.

m. Advertising Costs

In accordance with Statement of Position No. 93-7, Reporting On Advertising Costs (SOP 93-7), the Company charges advertising costs, including those for catalog sales and direct mail, to expense as
incurred. Advertising expenses are included in selling, general and administrative expenses in the statements of operations and were $82,601 and $86,782 for the three months ended June 30, 2007 and 2006, respectively.

For cooperative advertising allowances received from third party manufacturers and vendors, the Company applies EITF Issue No. 02-16
Accounting By A Customer (Including A Reseller) For Certain Consideration Received From A Vendor. These allowances are included as a reduction in cost of goods sold and were $108,188 and $79,810, respectively, for the three months ended
June 30, 2007 and 2006, respectively.

n. Research and Development Costs

The Company charges research and development costs to expense as incurred. There were no research and development costs incurred for the three months
ended June 30, 2007 and 2006.

o. Stock Based Compensation

On April 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (FAS



9



---

123(R)), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on
estimated fair values. The Company adopted FAS 123(R) using the modified prospective transition method. Under the modified prospective transition method, compensation cost is recognized on a prospective basis for all share-based payments granted
prior to, but not yet vested as of April 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FAS 123(R). For share-based payment awards granted after April 1, 2006, the Company recognizes
compensation cost based on estimated grant date fair value using the Black-Scholes option pricing model. In accordance with the modified prospective method, the Companys consolidated financial statements for prior periods have not been
restated to reflect, and do not include, the impact of FAS 123(R).

p. Fair Value of Financial Instruments

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

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

Short-Term Obligations:
The fair value of the Companys fixed-rate short-term obligations is estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At June 30,
2007 and March 31, 2007, the fair value of the Companys short-term obligations approximated its carrying value.

Revolving
Note Payable: The carrying amount of the Companys revolving note payable approximates fair market value since the interest rate on this instrument corresponds to market interest rates.

Long-Term Obligations: The fair value of the Companys fixed-rate long-term obligations is estimated using discounted cash flow analyses,
based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At June 30, 2007 and March 31, 2007, the fair value of the Companys fixed-rate long-term obligations approximated its
carrying value.

q. Reclassifications

Certain reclassifications have been made to the financial statements as of March 31, 2007 and for the three months ended June 30, 2006 to conform to the presentation as of and for the three months ended June 30, 2007.

NOTE 3  RELATED PARTY TRANSACTIONS

As of June 30, 2007 and March 31, 2007, the Companys investment in GeoPharma, Inc. (GeoPharma), consisting of 204,914 shares of its common stock, is included in marketable equity securities, net. Jugal K. Taneja,
a principal shareholder and Chairman of the Board of the Company is also a principal shareholder and Chairman of the Board of GeoPharma.

As of June 30, 2007 and March 31, 2007, the Companys investment in Vertical Health Solutions, Inc. (Vertical), consisting of 253,337 shares of its common stock, is included in marketable equity securities, net.
Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company is also a director and a principal shareholder of Vertical.

Amounts due from and to affiliates represent balances owed to or from the Company for sales or purchases occurring in the normal course of business. Amounts due from and to these affiliates are in the nature of trade payables or receivables
and fluctuate based on sales and purchasing volume and payments received. Any future transactions between the Company and its officers, directors or affiliates will be subject to approval by a majority of disinterested directors or shareholders in
accordance with Florida law.

For the three months ended June 30, 2007 and 2006, purchases of products from subsidiaries of GeoPharma
were $16,925 and $30,756, respectively, and sales of products to subsidiaries of GeoPharma were zero



10



---

and $65, respectively. As of June 30, 2007 and March 31, 2007, $42,040 and $26,363, respectively, were due to subsidiaries of GeoPharma and are
included in obligations to affiliates. As of June 30, 2007 and March 31, 2007, $24,109 and $3,960, respectively, were due from GeoPharma and its subsidiaries.

Research and development is primarily contracted through Innovative Health Products, Inc. (Innovative), a wholly-owned subsidiary of GeoPharma, and product nutritional information, as well as product label
requirements, are prepared by Innovatives regulatory staff personnel. Research and development costs have been immaterial to the operations of the Company, and are charged to expense as incurred.

On May 14, 2007, the Company and GeoPharma entered into a definitive agreement (the Merger Agreement) under which the Company will merge
with and into a wholly-owned subsidiary of GeoPharma in a stock transaction (the Merger). The Board of Directors of the Company determined that the Merger would further the Companys long-term business objectives, including without
limitation, providing additional capital to support continued growth.

Under the terms of the Merger Agreement, GeoPharma will exchange
approximately 0.1429 shares of its common stock for each share of Company common stock and fractional shares will be rounded up to the nearest whole share. Based on an average 10-day market closing price of GeoPharmas common stock from
May 1-14, 2007 of $4.24 per share, the transaction would be valued at $14 million, based on an estimated 3.3 million shares of GeoPharma common stock to be issued to the shareholders of the Company in the Merger. The actual value at
consummation of the Merger will be based on GeoPharmas share price at that time.

Completion of the Merger of the Company into a
wholly-owned subsidiary of GeoPharma and the issuance of the GeoPharma common shares to the shareholders of the Company is subject to the approval of the transaction by the shareholders of both companies, the conversion of the Companys
convertible notes prior to the closing of the Merger, the receipt of required regulatory approvals, and the satisfaction of usual and customary closing conditions. The Merger Agreement contains certain termination rights for both the Company and
GeoPharma.

Directors and executive officers of GeoPharma beneficially own and are entitled to vote approximately 43% of the shares of
GeoPharma common stock outstanding. Directors and executive officers of the Company beneficially own and are entitled to vote approximately 47% of the shares of Company common stock outstanding.

On May 15, 2007, the Company and GeoPharma filed with the Securities and Exchange Commission (the SEC) a joint proxy
statement/prospectus on Form S-4, in connection with the proposed acquisition of the Company by GeoPharma pursuant to the terms of the definitive Merger Agreement. The SEC declared the S-4 Registration Statement, as amended, effective on July 5,
2007. On August 10, 2007, the Merger Agreement was approved by the shareholders of the Company and GeoPharma. The merger will be effected once all of the conditions of the merger have been completed or waived.

NOTE 4  MARKETABLE EQUITY SECURITIES, NET

At
June 30, 2007 and March 31, 2007, investments in marketable equity securities, net are summarized as follows:

Available for sale equity
securities:



|                           |  |              |         |   |               |   |         |  
|-------------------------- |  | ------------ | ------- | - | ------------- | - | ------- | -
|                           |  | June 30,2007 |         |   | March 31,2007 |  
|Cost of securities         |  | $            | 50,667  |   |               | $ | 50,667  |  
|Plus gross unrealized gain |  |              | 825,803 |   |               |   | 901,622 |  
|Less gross unrealized loss |  |              | (12,666 | ) |               |   | (5,066  | )
|                           |  |              |         |   |               |   |         |  
|Fair value                 |  | $            | 863,804 |   |               | $ | 947,223 |  
|                           |  |              |         |   |               |   |         |  

Realized gains and losses from available for sale equity securities are determined on the basis of
the specific cost of the security sold versus the sale price of the security. For the three months ended June 30, 2007 and 2006, the Company had no realized losses. The change in marketable equity securities included in earnings for the three
months ended June 30, 2006 was $572,096, of which $572,096 of unrealized holding gains were reclassified from accumulated other comprehensive income into earnings. For the three months ended June 30, 2007, the Company had no realized
gains.



11



---

NOTE 5  ACCOUNTS RECEIVABLE, NET

At June 30, 2007 and March 31, 2007, accounts receivable, net consist of the following:



|                                          |  |              |           |   |               |   |           |  
|----------------------------------------- |  | ------------ | --------- | - | ------------- | - | --------- | -
|                                          |  | June 30,2007 |           |   | March 31,2007 |  
|Accounts receivable                       |  | $            | 2,580,982 |   |               | $ | 2,945,141 |  
|Less allowance for uncollectible accounts |  |              | (273,404  | ) |               |   | (250,953  | )
|                                          |  |              |           |   |               |   |           |  
|Total                                     |  | $            | 2,307,578 |   |               | $ | 2,694,188 |  
|                                          |  |              |           |   |               |   |           |  

For the three months ended June 30, 2007 and 2006, bad debt expense charged to operations for
estimated uncollectible accounts receivable was $28,867 and $(17,671), respectively, whereas uncollectible accounts receivable written off during the three months ended June 30, 2007 and 2006 amounted to $2,947 and $32,929, respectively.

NOTE 6  INVENTORIES

At
June 30, 2007 and March 31, 2007, inventories, net consist of the following:



|                              |  |              |           |   |               |   |           |  
|----------------------------- |  | ------------ | --------- | - | ------------- | - | --------- | -
|                              |  | June 30,2007 |           |   | March 31,2007 |  
|Raw materials                 |  | $            | 75,872    |   |               | $ | 102,947   |  
|Finished goods                |  |              | 5,797,755 |   |               |   | 5,988,014 |  
|                              |  |              |           |   |               |   |           |  
|                              |  |              | 5,873,627 |   |               |   | 6,090,961 |  
|Less reserve for obsolescence |  |              | (67,395   | ) |               |   | (69,914   | )
|                              |  |              |           |   |               |   |           |  
|Total                         |  | $            | 5,806,232 |   |               | $ | 6,021,047 |  
|                              |  |              |           |   |               |   |           |  

NOTE 7  INCOME TAXES

Income tax expense (benefit) for the three months ended June 30, 2007 and 2006 are as follows:



|                                      |  |      |         |   |      |   |        
|------------------------------------- |  | ---- | ------- | - | ---- | - | -------
|                                      |  | 2007 |         |   | 2006
|Current income tax expense (benefit)  |  | $    | 5,173   |   |      | $ | 72,881 
|Deferred income tax expense (benefit) |  |      | (69,070 | ) |      |   | 97,607 
|                                      |  |      |         |   |      |   |        
|Income tax expense (benefit)          |  | $    | (63,897 | ) |      | $ | 170,488
|                                      |  |      |         |   |      |   |        

Income taxes for the three months ended June 30, 2007 and 2006 differ from the amounts
computed by applying the effective income tax rate of 37% to income (loss) before income taxes as a result of the following:



|                                                     |  |      |          |   |      |   |          |  
|---------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                     |  | 2007 |          |   | 2006 |  
|Computed tax expense (benefit) at the statutory rate |  | $    | (438,400 | ) |      | $ | 237,600  |  
|Increase (decrease) in taxes resulting from:         |  |      |          |   |      |   |          |  
|Non-deductible items                                 |  |      | 1,103    |   |      |   | 1,340    |  
|Derivative (income) expense and other adjustments    |  |      | 248,000  |   |      |   | 31,548   |  
|Increase (decrease) in valuation allowance           |  |      | 125,400  |   |      |   | (100,000 | )
|                                                     |  |      |          |   |      |   |          |  
|Income tax expense (benefit)                         |  | $    | (63,897  | ) |      | $ | 170,488  |  
|                                                     |  |      |          |   |      |   |          |  



12



---

Temporary differences that give rise to deferred tax assets and liabilities as of June 30, 2007 and March 31, 2007:



|                                                |  |              |           |   |               |   |           |  
|----------------------------------------------- |  | ------------ | --------- | - | ------------- | - | --------- | -
|                                                |  | June 30,2007 |           |   | March 31,2007 |  
|Deferred tax assets:                            |  |              |           |   |               |   |           |  
|Bad debts                                       |  | $            | 149,500   |   |               | $ | 134,700   |  
|Inventories                                     |  |              | 116,200   |   |               |   | 120,700   |  
|Net operating loss carryforward                 |  |              | 872,400   |   |               |   | 716,300   |  
|Accrued vacation                                |  |              | 25,000    |   |               |   | 21,400    |  
|Amortization                                    |  |              | 120,500   |   |               |   | 100,900   |  
|                                                |  |              |           |   |               |   |           |  
|Gross deferred tax assets                       |  |              | 1,283,600 |   |               |   | 1,094,000 |  
|Less valuation allowance                        |  |              | (698,400  | ) |               |   | (573,000  | )
|                                                |  |              |           |   |               |   |           |  
|                                                |  | $            | 585,200   |   |               | $ | 521,000   |  
|                                                |  |              |           |   |               |   |           |  
|                                                |  |             
|Deferred tax liabilities:                       |  |              |           |   |               |   |           |  
|Deferred revenue                                |  | $            | 4,600     |   |               | $ | 5,800     |  
|Depreciation                                    |  |              | 126,200   |   |               |   | 128,400   |  
|Unrealized gain on marketable equity securities |  |              | 305,900   |   |               |   | 337,400   |  
|                                                |  |              |           |   |               |   |           |  
|Gross deferred tax liability                    |  | $            | 436,700   |   |               | $ | 471,600   |  
|                                                |  |              |           |   |               |   |           |  
|Net increase (decrease) in valuation allowance  |  | $            | 125,400   |   |               | $ | 273,000   |  
|                                                |  |              |           |   |               |   |           |  

As of June 30, 2007 and March 31, 2007, the Company had a current income tax liability
of zero and $115, respectively, an accrued income tax liability of $231 and $925, respectively, a net deferred income tax asset of $148,500 and $49,400, respectively, and a net deferred income tax liability of zero, which primarily represents the
potential future tax expense associated with the unrealized gains on marketable equity securities, and is partially offset due to potential utilization of net operating losses not previously recognized. The Company has net operating losses that
expire through June 30, 2027.

The Company adopted Financial Standards Board Interpretation No. 48, Accounting for Income Taxes
(FIN 48), an interpretation of SFAS 109, on April 1, 2007. As a result of the adoption of FIN 48, the Company has not recognized a material adjustment in the liability for unrecognized tax benefits and has not recorded any provisions for
accrued interest and penalties related to uncertain tax positions.

NOTE 8  REVOLVING NOTES PAYABLE

On March 29, 2005, the Company entered into agreements with Laurus Master Fund, Ltd. (Laurus), a Cayman Islands corporation, whereby the
Company completed the sale to Laurus of convertible debt and a warrant to purchase Company common stock in a private offering pursuant to exemption from registration under Section 4(2) of the Securities Act of 1933. The securities sold to
Laurus include the following:



| |  |  | A secured convertible minimum borrowing note with a principal amount of $2,000,000;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | A secured revolving note with a principal amount not to exceed $4,000,000; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | A common stock purchase warrant to purchase 750,000 shares of common stock of the Company, at a purchase price of $1.37 per share, exercisable for a period of seven
years.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The combined principal amount that may be outstanding under the $2,000,000 minimum borrowing note and the
$4,000,000 revolving note at any point in time cannot exceed $4,000,000.

The proceeds of the funding were used for the March 31, 2005
acquisition of Dynamic Marketing, Inc., for costs associated with the acquisition and for working capital. The borrowing is in excess of the advance rates provided for in the note. The lender has issued a waiver to this covenant whereby the Company
is permitted to bring the ratios into compliance within one year from the date of the note.

As of June 30, 2007 and March 31,
2007, the outstanding principal balance on the notes was $2,265,359 and $2,274,413, respectively.



13



---

Because the common stock underlying the conversion feature embedded in the $2,000,000 convertible minimum
borrowing note and the warrant are subject to our Registration Rights Agreement with Laurus, they have been accounted for as derivative instrument liabilities (see Note 11). The embedded derivative instruments (primarily the conversion feature)
related to the $2,000,000 convertible minimum borrowing note were bifurcated and recorded as a derivative instrument liability. The warrants were valued using the Black-Scholes option pricing model at $937,500. Because the fair value of the warrants
of $937,500 and the fair value of the bifurcated derivative instrument of $2,530,973 exceeded the proceeds received, the convertible minimum borrowing note was initially recorded at zero and an initial expense of $1,468,473 was recognized to record
the warrants and the bifurcated derivative instrument at their fair values (see Note 11).

The Company is permitted to borrow an amount
based upon its eligible accounts receivable and inventory, as defined in the agreements with Laurus. The Company must pay certain fees for any unused portion of the credit facility or in the event the facility is terminated prior to expiration. The
Companys obligations under the notes are secured by all of the assets of the Company, including but not limited to inventory and accounts receivable. The notes mature on March 29, 2008. Annual interest on the Notes is equal to the
prime rate published in The Wall Street Journal from time to time, plus 2.0%, provided, that, such annual rate of interest may not be less than 6%, subject to certain downward adjustments resulting from certain increases in the
market price of the Companys common stock. Interest on the notes is payable monthly in arrears on the first day of each month, commencing on April 1, 2005.

The principal amount of the secured convertible minimum borrowing note, together with accrued interest thereon is payable on March 29, 2008. The secured convertible minimum borrowing note may be redeemed by the
Company in cash by paying the holder 115% of the principal amount, plus accrued interest. The holder of the term note may require the Company to convert all or a portion of the term note, together with interest and fees thereon at any time. The
number of shares to be issued shall equal the total amount to be converted, divided by $1.13.

Upon an issuance of shares of common stock
below the fixed conversion price, the fixed conversion price of the notes will be reduced accordingly. In connection with the September 12, 2005 and the April 16, 2007 stock issuances, the lender waived this provision. The conversion price of
the secured convertible notes may be adjusted in certain circumstances such as if the Company pays a stock dividend, subdivides or combines outstanding shares of common stock into a greater or lesser number of shares, or takes such other actions as
would otherwise result in dilution.

115% of the full principal amount of the convertible notes is due upon default under the terms of the
convertible notes. Laurus has contractually agreed to restrict its ability to convert if the convertible notes would exceed the difference between the number of shares of common stock beneficially owned by the holder or issuable upon exercise of the
warrant and the option held by such holder and 4.99% of the outstanding shares of common stock of the Company. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, this provision was modified from 4.99% to 9.99%. In
addition, this restriction would not apply in the event there was an event of default or if we sought to redeem the outstanding balance of the convertible debentures.

The warrants were exercisable until seven years from the date of the notes at a purchase price equal to $1.37 per share. The warrants were exercisable on a cashless basis. In the event that the warrants were exercised
on a cashless basis, then the Company would not receive any proceeds. In addition, the exercise price of the warrants would be adjusted in the event the Company issues common stock at a price below market, with the exception of any securities issued
as of the date of this warrant or issued in connection with the convertible minimum borrowing note. In September 2005, we sold 150,000 restricted shares of our common stock at a price below market. In connection therewith, Laurus waived their
anti-dilution provisions related to all convertible notes and warrants issued to Laurus. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, we issued 52,941 restricted shares of our common stock to Laurus, in
exchange for cancellation of the 750,000 warrants.

The Company was obligated to file a registration statement registering the resale of
shares of the Companys common stock issuable upon conversion of the convertible notes, exercise of the warrant and exercise of the conversion option. If the registration statement was not filed by April 28, 2005, or declared effective
within 75 days thereafter, or if the registration is suspended other than as permitted, in the registration rights agreement between the Company and Laurus, the Company was obligated to pay Laurus certain fees and the obligations may be deemed to be
in default. On April 22, 2005, the Company filed such registration statement on Form S-2, which was subsequently withdrawn by the Company.



14



---

On July 19, 2005, the Company entered into a Postponement Agreement with Laurus, whereby Laurus
agreed to postpone the Companys obligation to make certain amortization payments on its September 30, 2004 secured convertible note (see Note 10). In connection with the agreement, Laurus agreed to amend the Registration Rights Agreement
with the Company, to extend the dates for the filing requirements of the Registration Statement.

On August 19, 2005, the Company
filed such Registration Statement on Form S-2 for the registration of up to 3,219,690 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the March 29, 2005 convertible minimum borrowing note
issued to Laurus, in the principal amount of $2,000,000, up to 750,000 shares issuable upon the exercise of common stock purchase warrants, and up to 275,000 shares issued in connection with the July 19, 2005 Postponement Agreement. Such
Registration Statement was subsequently withdrawn by the Company on May 11, 2006.

In November 2005, the Company reached an agreement
with Laurus in principle pursuant to which we will be obligated to pay Laurus $48,000 as payment in full for all late effectiveness fees. The agreement was subject to negotiation and execution of a definitive agreement.

On April 28, 2006, the Company entered into a Postponement and Amendment Agreement with Laurus, pursuant to which the Company modified the
September 30, 2004 and the March 29, 2005 earlier agreements among the parties. The Postponement and Amendment Agreement provides for the following:



| |  |  | Principal payments under the September 30, 2004 note are reduced by $137,500 per month for the eight months commencing May 2006, all of which shall be paid on
the maturity date of the convertible note;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys obligation to repay overadvances of up to $1,721,000 under the March 29, 2005 notes shall be suspended for a period of eight months;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All of the common stock purchase warrants issued to Laurus in connection with the September 30, 2004 and March 29, 2005 agreements are cancelled in their
entirety;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 150,000 restricted shares of our common stock to Laurus, for cancellation of the warrants issued to Laurus;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 275,000 restricted shares of our common stock to Laurus, for postponement of the portion of principal payments
in connection with the September 30, 2004 note.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the 275,000 shares issued in connection with the
April 28, 2006 Postponement and Amendment Agreement was $45,000, based upon the closing price of our common stock on that date. This financing cost was recorded as a discount on the September 2004 note and the discount is being amortized to
interest expense over the life of the note, in accordance with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.

In connection with the Postponement and Amendment Agreement, the Company also executed restated promissory notes in favor of Laurus and an amended and restated registration rights agreement (the Restated
Registration Rights Agreement). Pursuant to the Restated Registration Rights Agreement, we agreed to file a registration statement by June 30, 2006, covering the resale of the securities issued or issuable to Laurus. The Company was
obligated to have such registration statement declared effective by September 30, 2006, but there were no stated penalties for failure to meet such deadline.

On July 3, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 10,221,275 shares of the Companys common stock, including up to 2,194,690 shares of common stock
underlying the March 2005 secured convertible notes, up to 7,326,585 shares of common stock underlying the September 2004



15



---

secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the
April 2006 amendment and postponement agreement. Such Registration Statement was subsequently withdrawn by the Company on October 4, 2006.

On October 4, 2006, the Company entered into an agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties (the Amendment Agreement). The Amendment Agreement (i) eliminated
the obligation of the Company to register for resale the shares of common stock underlying the securities sold in September 2004, and (ii) removed Laurus right to waive 9.99% ownership limitations contained in their convertible
debentures.

In connection with the Amendment Agreement, the Company also executed second amended and restated promissory notes in favor of
Laurus. Pursuant to the Amendment Agreement, the Company agreed to file a registration statement by October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. The Company was obligated to have such registration
statement declared effective by November 30, 2006, but there were no stated penalties for failure to meet such deadline. Laurus could have declared the obligations in default and sought immediate repayment, but it gave no indication of doing
so. If immediate repayment had been required, we would not have had sufficient funds and Laurus could have taken legal action to recover amounts due from our assets.

On October 20, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 2,761,335 shares of the Companys common stock, including up to 2,061,335 shares of common stock
underlying the March 2005 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. On
December 14, 2006, March 8, 2007 and March 27, 2007, the Company filed amendments to this Registration Statement on Form SB-2. On April 9, 2007, the Securities and Exchange Commission declared the Registration Statement to
be effective.

On May 24, 2006, the Company entered into an Amendment Agreement with Laurus, pursuant to which the Company modified
earlier agreements among the parties. In connection with the March 29, 2005 financing, the Company received certain overadvances of funds in the aggregate amount of $572,094, as of May 24, 2006. In accordance with the Amendment Agreement,
Laurus permitted the Company to sell a sufficient number of shares of GeoPharma, pledged by the Company to Laurus, in connection with the September 30, 2004 financing, by June 5, 2006 in satisfaction of the overadvances, with the proceeds
being paid to Laurus. Any remaining unsold shares of GeoPharma were delivered to Laurus to be held pursuant to the original pledge agreement.

On April 11, 2007, the Company entered into a Postponement and Amendment Agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties. The agreement provides for the following:



| |  |  | Principal payments under the September 2004 note are reduced to $75,000 per month for each of the months commencing January 2007 through the maturity date of the
note, at which time all deferred payments become due and owing;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys obligation to repay overadvances of up to $1,721,000 under the March 2005 revolving note shall be due and payable on December 31, 2007;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 275,000 restricted shares of our common stock to Laurus, for postponement of the portion of principal payments
in connection with the September 2004 note;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 75,000 restricted shares of our common stock to Laurus, for postponement of the obligation to repay the
overadvances in connection with the March 2005 note.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the 350,000 shares issued in connection with the
April 11, 2007 Postponement and Amendment Agreement was $164,500, based upon the closing price of our common stock on that date. This



16



---

financing cost was recorded as a discount in the amount of $129,250 on the September 2004 note and a discount in the amount of $35,250 on the March 2005
note, and the discounts are being amortized to interest expense over the lives of the respective notes, in accordance with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.

The revolving note payable provides for borrowings utilizing an asset based formula, based on eligible accounts receivable and inventory, less certain
allowances and reserves.

On April 26, 2007, the Company entered into a
Business Loan Agreement with First Community Bank of America (FCB), whereby the Company issued a secured Promissory Note to FCB in the maximum principal amount of $1,000,000, or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance from time to time. Loan advances will be made from time to time upon the request of the Company. The note matures on October 15, 2007. Annual interest on the note is equal to the U.S. Prime Rate as
published in The Wall Street Journal, plus 1%. Interest shall be calculated from the date of each advance until repayment of each advance. Interest on the note is payable monthly on the 26thday of each month, commencing May 26, 2007. There is no prepayment penalty on the note. The note is guaranteed by Jugal K. Taneja, the Companys Chairman and Mandeep K. Taneja, the
Companys Chief Executive Officer and President. In addition, Jugal Taneja and his spouse, and Mandeep Taneja have pledged certain shares of the Companys common stock as collateral for the note. Proceeds of the note were used for
short-term working capital needs. As of June 30, 2007, the outstanding principal balance on the note was $1,000,000

Revolving
notes payable consists of the following at June 30, 2007 and March 31, 2007:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |               |            |   |                |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ---------- | - | -------------- | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | June 30, 2007 |            |   | March 31, 2007 |  
|Principal balance of revolving note payable collateralized by all assets, interest payable at prime (8.25% at June 30, 2007 and
March 31, 2007) plus 2% through March 29, 2008.                                                                                                                                                                                                                                                                                                                  |  | $             | 2,265,359  |   |                | $ | 2,274,413  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |              
|Less face value of convertible portion of revolving note payable, accounted for as a derivative financial instrument liability, convertible
into shares of the Companys common stock at a conversion price of $1.13 per share. Proceeds from the convertible debenture were allocated first to the embedded conversion feature and the residual to the debenture. The resulting discount is
being amortized through period charges to interest expense using the effective interest method. (a) |  |               | (2,000,000 | ) |                |   | (2,000,000 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |              
|Plus amortization of discount recorded as derivative instrument interest expense using an effective interest rate of 300%. (a)                                                                                                                                                                                                                                                                                                                                                                   |  |               | 1,929,771  |   |                |   | 1,715,352  |  
|Less discount recorded for April 11, 2007 postponement agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               | (35,250    | ) |                |   |           |  
|Plus amortization of discount as interest expense, related to postponement agreement.                                                                                                                                                                                                                                                                                                                                                                                                            |  |               | 10,775     |   |                |   |           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |              
|Principal balance of revolving note payable collateralized by certain assets, interest payable at prime (8.25% at June 30, 2007) plus 1%
through October 15, 2007.                                                                                                                                                                                                                                                                                                                               |  |               | 1,000,000  |   |                |   |           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |               |            |   |                |   |            |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $             | 3,170,655  |   |                | $ | 1,989,765  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |               |            |   |                |   |            |  

---

|(a) | See Note 11 for information on the derivative instrument liabilities related to the warrants issued to Laurus and the bifurcated embedded derivative instruments related to the
convertible minimum borrowing note.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



---

NOTE 9  SHORT-TERM OBLIGATIONS

Short-term obligations consist of the following at June 30, 2007 and March 31, 2007:



|                                                                                                              |  |               |   |                |   |       
|------------------------------------------------------------------------------------------------------------- |  | ------------- | - | -------------- | - | ------
|                                                                                                              |  | June 30, 2007 |   | March 31, 2007
|Note payable, unsecured, due in monthly payments of $15,149, including interest at 7.732%, through June 2007. |  | $             |  |                | $ | 30,008
|Note payable, unsecured, due in monthly payments of $2,933, including interest at 9.861%, through June 2007.  |  |               |  |                |   | 5,798 
|Note payable, unsecured, due in monthly payments of $1,601, including interest at 10%, through June 2007.     |  |               |  |                |   | 4,727 
|Note payable, unsecured, due in monthly payments of $4,710, including interest at 7.73%, through June 2007.   |  |               |  |                |   | 9,330 
|                                                                                                              |  |               |   |                |   |       
|Total                                                                                                         |  | $             |  |                | $ | 49,863
|                                                                                                              |  |               |   |                |   |       



18



---

NOTE 10  LONG-TERM OBLIGATIONS

On September 30, 2004, the Company entered into a Securities Purchase Agreement with Laurus Master Fund, Ltd., whereby the Company completed the sale to Laurus of a secured convertible note in the principal
amount of $6,000,000 and warrants to purchase 1,375,000 shares of Company common stock. Net proceeds from the offering were used to pay the purchase price for the acquisition of Bob OLeary Health Food Distributor Co., Inc., effective on
October 1, 2004.

The convertible note accrues interest at a rate per annum equal to the prime rate published in The Wall Street
Journal plus 2%, subject to a floor of 6%. The interest rate on the convertible note is subject to possible downward adjustment as follows:



| |  |  | the interest rate will be decreased by 1.0% (or 100 basis points) for every 25% increase of the Companys common stock price above the fixed conversion price
prior to an effective registration statement covering the shares of common stock underlying the convertible notes and warrants; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the interest rate will be decreased by 2.0% (or 200 basis points) for every 25% increase of the Companys common stock price above the fixed conversion price
after an effective registration statement covering the shares of common stock underlying the convertible notes and warrants, however, the interest rate cannot drop below 0%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The convertible note has a term of three years. The fixed conversion rate is equal to $.90 (103% of the average closing price for the ten days prior to
the execution of the securities purchase agreement). Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the note will be reduced accordingly. In connection with the September 12, 2005 and
the April 16, 2007 stock issuances, the lender waived this provision. The conversion price of the note may be adjusted in certain circumstances such as if the Company pays a stock dividend, subdivides or combines outstanding shares of common
stock into a greater or lesser number of shares, or takes such other actions as would otherwise result in dilution.

Beginning on
December 1, 2004, and each month thereafter, the Company shall pay $187,500 of the outstanding principal, together with accrued interest on the convertible note, in cash or registered stock. The monthly payments shall be payable in registered
stock if: (i) the Company has an effective registration statement under which the stock can be sold; (ii) the average closing price of the Companys common stock as reported by Bloomberg, L.P. on the Companys principal trading
market for the five trading days immediately preceding such repayment date shall be greater than or equal to 110% of the fixed conversion rate; and (iii) the amount of such conversion does not exceed 25% of the aggregate dollar trading volume
of our common stock for the twenty 22 day trading period immediately preceding the applicable repayment date. If the conversion criteria are not met, the investor shall convert only such part of the monthly payment that meets the conversion
criteria. Any part of the monthly payment due on a repayment date that the investor has not been able to convert into shares of common stock due to failure to meet the conversion criteria, shall be paid by the Company in cash at the rate of 102% of
the principal portion of the monthly payment otherwise due on such repayment date.

As of June 30, 2007 and March 31, 2007, the
outstanding principal balance on the convertible note was $3,462,500 and $3,687,500, respectively. As of June 30, 2007 and March 31, 2007, 989,758 shares of Company common stock have been issued to Laurus in payment of $750,000 of
principal and $140,782 of interest on the note.

Laurus will not be entitled to be issued shares of common stock in repayment of any
portion of the convertible note or upon exercise of the warrants if and to the extent such issuance would result in Laurus and its affiliates beneficially owning more than 4.99% of the Companys issued and outstanding common stock upon such
issuance, unless Laurus shall have provided at least 75 days prior written notice to the Company of its revocation of such restriction. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, this provision was modified
from 4.99% to 9.99%. In addition, this restriction would not apply in the event there was a default or if we sought to redeem the outstanding balance of the convertible debentures.



19



---

The convertible note may be prepaid by the Company in cash by paying to the holder 115% of the principal
and related accrued and unpaid interest thereon being prepaid. 115% of the full principal amount of the convertible note is due upon default under the terms of the convertible note. In addition, the Company has granted the investor a security
interest in substantially all of the Companys assets and intellectual property, as well as registration rights.

The warrants were
exercisable until five years from the date of the Securities Purchase Agreement at a purchase price equal to $1.04 per share (115% of the average closing price of the Companys common stock for the 10 trading days immediately prior to the
execution date). The warrants were exercisable on a cashless basis. In the event that the warrants were exercised on a cashless basis, then the Company would not receive any proceeds. In addition, the exercise price of the warrants was to be
adjusted in the event the Company issues common stock at a price below market, with the exception of any securities issued as of the date of this warrant or issued in connection with the convertible notes issued pursuant to the Securities Purchase
Agreement. In connection therewith, Laurus waived their anti-dilution provisions related to all convertible notes and warrants issued to Laurus. In September 2005, we sold 150,000 restricted shares of our common stock at a price below market. In
connection therewith, Laurus waived their anti-dilution provisions related to all convertible notes and warrants issued to Laurus. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, we issued 97,059 restricted shares
of our common stock to Laurus, in exchange for cancellation of the 1,375,000 warrants.

Because the common stock underlying the conversion
feature embedded in the $6,000,000 convertible note and the warrant are subject to our Registration Rights Agreement with Laurus, they have been accounted for as derivative instrument assets or liabilities (see Note 10). The interest rate index
derivative asset related to the interest rate index feature was recorded as a derivative instrument asset. The embedded derivative instruments (primarily the conversion feature) related to the $6,000,000 convertible note were bifurcated and recorded
as a derivative instrument liability. The warrants were valued using the Black-Scholes option pricing model at $1,357,125. Because the fair value of the warrants of $1,357,125 and the fair value of the bifurcated derivative instrument of $6,579,999
exceeded the proceeds received, the convertible minimum borrowing note was initially recorded at zero and a charge to income of $1,937,124 was recognized to record the warrants and the bifurcated derivative instrument at their fair values (see Note
11).

The Companys obligations under the Security Agreement, Securities Purchase Agreement and the Note are secured by a first
priority lien on all of the Companys assets and all future assets acquired, including a pledge by the Company of shares representing 100% of the Companys share capital of GeoPharma, Inc. and a put option on the pledged shares of
GeoPharma, Inc. at $6.00 per share. Additionally, the note guaranteed by the Companys Chairman of the Board, Jugal K. Taneja.

On
October 29, 2004, we filed a Registration Statement on Form S-2 for the registration of up to 8,701,585 shares of the our common stock, including up to 7,326,585 shares of common stock underlying the Secured Convertible Note issued to Laurus
Master Fund, Ltd., in the principal amount of $6,000,000 and up to 1,375,000 shares issuable upon the exercise of common stock purchase warrants. On November 15, 2004, the Securities and Exchange Commission declared the Registration Statement
to be effective. Such registration statement is no longer current.

On July 19, 2005, we entered into a Postponement Agreement with
Laurus, whereby Laurus agreed to postpone our obligation to make certain amortization payments on its secured convertible note and, in consideration therefore, we issued to Laurus 275,000 shares of our restricted common stock. Pursuant to the
agreement, the principal portion of the monthly amount that is due in connection with the September 30, 2004 note, on the first business day of each of the months from August 2005 through March 2006 in the amount of $187,500 per month, shall
not be required to be paid until the first business day of each of the months from February 2007 through September 2007, respectively, in each case, in addition to the regular monthly principal payments due in each of the months. In connection with
the agreement, Laurus agreed to amend the Registration Rights Agreement with us, to extend the dates for the filing requirements of our Registration Statement in connection with the March 29, 2005 financing and in connection with the shares
issued under the Postponement Agreement.

The fair value of the 275,000 shares issued in connection with the July 19, 2005
Postponement Agreement was $189,750, based upon the closing price of our common stock on that date. This financing cost was recorded as a discount on the September 2004 note and the discount is being amortized to interest expense over the life of
the note, in accordance with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.



20



---

On August 19, 2005, the Company filed a Registration Statement on Form S-2 for the registration of
up to 3,219,690 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the March 29, 2005 Secured Convertible Notes issued to Laurus, in the principal amount of $4,000,000, up to 750,000 shares
issuable upon the exercise of common stock purchase warrants, and up to 275,000 shares issued in connection with the July 19, 2005 Postponement Agreement. Such Registration Statement was subsequently withdrawn by the Company on May 11,
2006.

On April 28, 2006, the Company entered into a Postponement and Amendment Agreement with Laurus, pursuant to which the Company
modified the September 30, 2004 and the March 29, 2005 earlier agreements among the parties. The Postponement and Amendment Agreement provides for the following:



| |  |  | Principal payments under the September 30, 2004 note are reduced by $137,500 per month for the eight months commencing May 2006, all of which shall be paid on
the maturity date of the convertible note;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys obligation to repay overadvances of up to $1,721,000 under the March 29, 2005 notes shall be suspended for a period of eight months;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All of the common stock purchase warrants issued to Laurus in connection with the September 30, 2004 and March 29, 2005 agreements are cancelled in their
entirety;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 150,000 restricted shares of our common stock to Laurus, for cancellation of the warrants issued to Laurus;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 275,000 restricted shares of our common stock to Laurus, for postponement of the portion of principal payments
in connection with the September 30, 2004 note.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the 275,000 shares issued in connection with the
April 28, 2006 Postponement and Amendment Agreement was $45,000, based upon the closing price of our common stock on that date. This financing cost was recorded as a discount on the September 2004 note and the discount is being amortized to
interest expense over the life of the note, in accordance with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.

In connection with the Postponement and Amendment Agreement, the Company also executed restated promissory notes in favor of Laurus and an amended and restated registration rights agreement (the Restated
Registration Rights Agreement). Pursuant to the Restated Registration Rights Agreement, we agreed to file a registration statement by June 30, 2006, covering the resale of the securities issued or issuable to Laurus. The Company was
obligated to have such registration statement declared effective by September 30, 2006, but there were no stated penalties for failure to meet such deadline.

On May 24, 2006, the Company entered into an Amendment Agreement with Laurus, pursuant to which the Company modified earlier agreements among the parties. In connection with the March 29, 2005 financing, the
Company received certain overadvances of funds in the aggregate amount of $572,094, as of May 24, 2006. In accordance with the Amendment Agreement, Laurus permitted the Company to sell a sufficient number of shares of GeoPharma, pledged by us
to Laurus, in connection with the September 30, 2004 financing, by June 5, 2006 in satisfaction of the overadvances, with the proceeds being paid to Laurus. Any remaining unsold shares of GeoPharma were delivered to Laurus to be held
pursuant to the original pledge agreement.

On July 3, 2006, the Company filed a Registration Statement on Form SB-2 for the
registration of up to 10,221,275 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the March 2005 secured convertible notes, up to 7,326,585 shares of common stock underlying the September 2004
secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. Such Registration Statement was
subsequently withdrawn by the Company on October 4, 2006.



21



---

On October 4, 2006, the Company entered into an agreement with Laurus pursuant to which the Company
modified the earlier agreements among the parties (the Amendment Agreement). The Amendment Agreement (i) eliminated the obligation of the Company to register for resale the shares of common stock underlying the securities sold in
September 2004, and (ii) removed Laurus right to waive 9.99% ownership limitations contained in their convertible debentures.

In connection with the Amendment Agreement, the Company also executed second amended and restated promissory notes in favor of Laurus. Pursuant to the Amendment Agreement, the Company agreed to file a registration statement by
October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. The Company was obligated to have such registration statement declared effective by November 30, 2006, but there were no stated penalties for failure
to meet such deadline. Laurus could have declared the obligations in default and sought immediate repayment, but it gave no indication of doing so. If immediate repayment had been required, we would not have had sufficient funds and Laurus could
have taken legal action to recover amounts due from our assets.

On October 20, 2006, the Company filed a Registration Statement on
Form SB-2 for the registration of up to 2,761,335 shares of the Companys common stock, including up to 2,061,335 shares of common stock underlying the March 2005 secured convertible notes, 275,000 shares of common stock underlying the July
2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. On December 14, 2006, March 8, 2007 and March 27, 2007, the Company filed amendments to this
Registration Statement on Form SB-2. On April 9, 2007, the Securities and Exchange Commission declared the Registration Statement to be effective.

On April 11, 2007, the Company entered into a Postponement and Amendment Agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties. The agreement provides for the
following:



| |  |  | Principal payments under the September 2004 note are reduced to $75,000 per month for each of the months commencing January 2007 through the maturity date of the
note, at which time all deferred payments become due and owing;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys obligation to repay overadvances of up to $1,721,000 under the March 2005 revolving note shall be due and payable on December 31, 2007;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 275,000 restricted shares of our common stock to Laurus, for postponement of the portion of principal payments
in connection with the September 2004 note;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 75,000 restricted shares of our common stock to Laurus, for postponement of the obligation to repay the
overadvances in connection with the March 2005 note.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the 350,000 shares issued in connection with the
April 11, 2007 Postponement and Amendment Agreement was $164,500, based upon the closing price of our common stock on that date. This financing cost was recorded as a discount in the amount of $129,250 on the September 2004 note and a discount
in the amount of $35,250 on the March 2005 note, and the discounts are being amortized to interest expense over the lives of the respective notes, in accordance with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt
Instruments.

In June 2007, approximately $288,000 of the September 2004 note was assigned by Laurus to Valens U.S. SPV I, LLC.



22



---

Long-term obligations consist of the following at June 30, 2007 and March 31, 2007:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               |            |   |                |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | -------------- | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | June 30, 2007 |            |   | March 31, 2007 |  
|Convertible note payable collateralized by all assets, due in monthly principal payments (see above), plus interest at prime (8.25% at
June 30, 2007 and March 31, 2007) plus 2%, through September 2007.                                                                                                                                                                                                                                                                                       |  | $             | 3,462,500  |   |                | $ | 3,687,500  |  
|Less face value of convertible note payable, accounted for as a derivative financial instrument liability, convertible into shares of the
Companys common stock at a conversion price of $0.90 per share. Proceeds from the convertible debenture were allocated first to the warrants and to the embedded conversion feature and the residual to the debenture. The resulting discount is
being amortized through period charges to interest expense using the effective interest method. (a) |  |               | (6,000,000 | ) |                |   | (6,000,000 | )
|Plus amortization of discount recorded as derivative instrument interest expense using an effective interest rate of 300%. (a)                                                                                                                                                                                                                                                                                                                                                                  |  |               | 6,748,709  |   |                |   | 6,135,190  |  
|Less discount recorded for July 19, 2005 postponement agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               | (189,750   | ) |                |   | (189,750   | )
|Less discount recorded for April 28, 2006 postponement agreement.                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               | (82,500    | ) |                |   | (82,500    | )
|Less discount recorded for April 11, 2007 postponement agreement.                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               | (129,250   | ) |                |   |           |  
|Plus amortization of discount as interest expense, related to postponement agreements.                                                                                                                                                                                                                                                                                                                                                                                                          |  |               | 296,822    |   |                |   | 200,366    |  
|Capitalized lease obligation for certain equipment, due in monthly payments of $499, including interest at 11.33%, through July
2010.                                                                                                                                                                                                                                                                                                                                                           |  |               | 15,160     |   |                |   | 16,207     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               |            |   |                |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               | 4,121,691  |   |                |   | 3,767,013  |  
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |               | 4,111,026  |   |                |   | 3,755,176  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               |            |   |                |   |            |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $             | 10,665     |   |                | $ | 11,837     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               |            |   |                |   |            |  

---

|(a) | See Note 11 for information on the derivative instrument assets or liabilities related to the warrants issued to Laurus and the bifurcated embedded derivative instruments related to
the convertible note.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 11  DERIVATIVE FINANCIAL INSTRUMENTS

The captions derivative financial instruments consist of (a) the embedded conversion feature bifurcated from the September 2004 and the March 2005
convertible debentures, (b) the Warrants issued in connection with the September 2004 and March 2005 convertible debts and (c) interest rate index. These derivative financial instruments are indexed to an aggregate of 5,773,568 and
6,160,908 shares, respectively, at June 30, 2007 and March 31, 2007, and are carried at fair value.

We use the Black-Scholes
option price model to value embedded conversion feature components of any bifurcated embedded derivative instruments that are recorded as derivative assets or derivative liabilities. See Note 8 and Note 10 related to embedded derivative instruments
that have been bifurcated from our notes payable to Laurus. We use the discounted present value of future cash flows to value derivative financial assets.

In valuing the embedded conversion feature components of the bifurcated embedded derivative instruments and the detachable warrants, at the time they were issued and at June 30, 2007 and March 31, 2007, we



23



---

used the market price of our common stock on the date of valuation, an expected dividend yield of zero and the remaining period or maturity date of the
convertible debt instruments. Even though the warrants issued in September 2004 were to expire in five years and the warrants issued March 2005 were to expire in seven years, we assumed they would be exercised in three years, the life of the
convertible debt instruments, based on normal practices by the lender. All convertible instruments and warrants can be exercised by the holder at any time.

Because of the limited trading history of our common stock prior to the acquisition of BOSS on October 1, 2004, the expected volatility of our common stock over the remaining life of the warrants has been
estimated at 126% based on not only the history of our stock price but also a review of the volatility of entities considered by management as comparable.

The embedded conversion features in the convertible notes issued to Laurus are subject to the requirements of EITF 00-19 and SFAS 133. The Company is required by EITF 00-19 and SFAS 133 to bifurcate the embedded
conversion features and warrants, and account for them as derivative instrument liabilities. These derivative instrument liabilities were initially recorded at their fair values and are then adjusted to fair value at the end of each subsequent
reporting period, with any changes in the fair value recognized as income or expense in the period of change. The most significant component of this compound derivative instrument is the embedded conversion feature, which is revalued using the
Black-Scholes option pricing model. The interest rate index derivative has been accounted for as a standalone financial derivative asset.

The proceeds received from Laurus were first allocated to the fair value of the freestanding warrants and then to the fair value of the bifurcated embedded derivative instruments included in the convertible notes. The remaining proceeds
were then allocated to the convertible notes, resulting in those notes being recorded at a significant discount from their face amounts. For the $6,000,000 term note, that discount, is being accreted into its face amount using the effective interest
method over the term of the note. For the $2,000,000 minimum borrowing note, that discount, is also being accreted to its face amount using the effective interest method over the term of the note.

The effective interest rate used to amortize the debt discount on the September 2004 6.75% convertible debenture and the March 2005 7.75% convertible
debenture, amounted to 300% and 300%, respectively. Amortization of the discounts, which are included in derivative interest expense, amounted to $613,519 and $214,419, respectively, for the three months ended June 30, 2007, and $531,386 and
$214,419, respectively, for the three months ended June 30, 2006.

The initial fair value for derivative financial instrument
liabilities was determined using the Black-Scholes option pricing model. Significant assumptions used in the determination of fair value of the September 2004 and March 2005 embedded conversion features and detachable warrants were: volatility of
126%, a dividend rate of zero and a risk free interest rated of 4.20%. At each reporting period, the remaining term and risk free rate used varies depending on the factors existing at those dates.

Interest Rate Index Derivative

The September 2004
and March 2005 convertible debt financings included provisions to potentially lower the stated interest rates on the instruments in the event the price of the Companys common stock was to increase by over 25% of the stated conversion price
relating to the financing. For the September 2004 financing, the stated interest rate of 6.75% could be reduced by 200 basis points for every 25% increase in the Companys common stock price above the conversion price. This provision could
potentially reduce the interest rate, but not below zero, and would not result in an increase in the interest rate. The provision only took effect upon the effectiveness of a registration statement. The registration statement became effective on
November 15, 2004 for the September 2004 financing and thus triggered the interest rate index (IRI) provision. On April 9, 2007, the registration statement filed for the March 2005 financing became effective thus triggering the
IRI provision, however the fair value of the IRI was zero, based on the undiscounted cash flow of the reduction in interest.

Since the IRI
is directly affected by the price of the Companys common stock and has a value dependent on the price of the stock, it was determined to be a derivative asset. The fair value of the asset was determined using the present value of the projected
cash flow benefit of the potential reduction in the interest rate over the term of the loan. The initial fair value of the present value of discounted future cash flows from the projected reduction in the interest on the September 2004 convertible
debt was $335,126. Since the price of the Companys stock has decreased, the fair value of the IRI decreased to zero as of June 30, 2007 and March 31, 2007.



24



---

The initial fair value for derivative financial assets was determined using a discounted present value of
projected future cash flows. The significant assumptions in the determination of fair value of the September 2004 interest rate index (IRI) were: normal borrowing rate of 6.75% and a projected price of the Companys common stock using a
historical weighted average price of the common stock over a period equivalent to the projected life of the instrument. At each reporting period, the remaining term and a newly computed weighted average price of the Companys common stock is
determined based upon updated historical activity.



25



---

At June 30, 2007 and March 31, 2007, the following derivative asset and liabilities related to
common stock warrants and embedded derivative instruments were outstanding:

Derivative Financial Asset



|                                                                           |  |                |   |                             |   |                        |      |                     |   |                      |  |                       |   |  |   |  
|-------------------------------------------------------------------------- |  | -------------- | - | --------------------------- | - | ---------------------- | ---- | ------------------- | - | -------------------- |  | --------------------- | - |  | - | -
|Issue Date                                                                 |  | ExpirationDate |   | Instrument                  |   | ExercisePrice PerShare |      | Value At Issue Date |   | Value AtJune 30,2007 |  | Value AtMarch 31,2007
|9/30/2004                                                                  |  | 9/30/2007      |   | Laurus $6,000,000 term note |   | $                      | 0.90 |                     | $ | 335,126              |  | $                     |  |  | $ | 
|                                                                           |  |                |   |                             |   |                        |      |                     |   |                      |  |                       |   |  |   |  
|                                                                           |  |               
|Fair value of freestanding interest rate index derivative instrument asset |  | $              |  |                             | $ |                      
|                                                                           |  |                |   |                             |   |                        |      |                     |   |                      |  |                       |   |  |   |  

Derivative Financial Liabilities



|                                                                          |  |                |   |                                     |   |                        |      |                    |   |                      |  |                       |   |  |   |  
|------------------------------------------------------------------------- |  | -------------- | - | ----------------------------------- | - | ---------------------- | ---- | ------------------ | - | -------------------- |  | --------------------- | - |  | - | -
|Issue Date                                                                |  | ExpirationDate |   | Instrument                          |   | ExercisePrice PerShare |      | Value At IssueDate |   | Value AtJune 30,2007 |  | Value AtMarch 31,2007
|9/30/2004                                                                 |  | 9/30/2007      |   | 1,375,000 warrants issued to Laurus |   | $                      | 1.04 |                    | $ | 1,357,125            |  | $                     |  |  | $ | 
|3/29/2005                                                                 |  | 3/29/2008      |   | 750,000 warrants issued to Laurus   |   | $                      | 1.37 |                    | $ | 937,500              |  | $                     |  |  | $ | 
|                                                                          |  |                |   |                                     |   |                        |      |                    |   |                      |  |                       |   |  |   |  
|                                                                          |  |               
|Fair value of freestanding derivative instrument liabilities for warrants |  | $              |  |                                     | $ |                      
|                                                                          |  |                |   |                                     |   |                        |      |                    |   |                      |  |                       |   |  |   |  



|                                                                                                                    |  |                |         |                                       |   |                |      |              |   |              |  |               |         |  |   |        
|------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ------------------------------------- | - | -------------- | ---- | ------------ | - | ------------ |  | ------------- | ------- |  | - | -------
|                                                                                                                    |  |                |         |                                       |   | Exercise       |      | Value        |   | Value At     |  | Value At     
|Issue Date                                                                                                          |  | ExpirationDate |         | Instrument                            |   | Price PerShare |      | At IssueDate |   | June 30,2007 |  | March 31,2007
|9/30/2004                                                                                                           |  | 9/30/2007      |         | Laurus $6,000,000 term note           |   | $              | 0.90 |              | $ | 6,579,999    |  | $             | 230,833 |  | $ | 368,750
|3/29/2005                                                                                                           |  | 3/29/2008      |         | Laurus $2,000,000 revolving term note |   | $              | 1.13 |              | $ | 2,530,973    |  | $             | 247,788 |  | $ | 247,788
|                                                                                                                    |  |                |         |                                       |   |                |      |              |   |              |  |               |         |  |   |        
|                                                                                                                    |  |               
|Fair value of bifurcated embedded derivative instrument liabilities associated with the above mentioned
instruments |  | $              | 478,621 |                                       | $ | 616,538       
|                                                                                                                    |  |                |         |                                       |   |                |      |              |   |              |  |               |         |  |   |        



|                                                                                                                                        |  |                |         |                                       |   |                        |      |                    |   |                      |  |                       |        |  |   |       
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ------------------------------------- | - | ---------------------- | ---- | ------------------ | - | -------------------- |  | --------------------- | ------ |  | - | ------
|Issue Date                                                                                                                              |  | ExpirationDate |         | Instrument                            |   | ExercisePrice PerShare |      | Value At IssueDate |   | Value AtJune 30,2007 |  | Value AtMarch 31,2007
|9/30/2004                                                                                                                               |  | 9/30/2007      |         | Laurus $6,000,000 term note           |   | $                      | 0.90 |                    | $ | 748,187              |  | $                     | 3,898  |  | $ | 17,916
|3/29/2005                                                                                                                               |  | 3/29/2008      |         | Laurus $2,000,000 revolving term note |   | $                      | 1.13 |                    | $ | 273,968              |  | $                     | 12,806 |  | $ | 16,075
|                                                                                                                                        |  |                |         |                                       |   |                        |      |                    |   |                      |  |                       |        |  |   |       
|                                                                                                                                        |  |               
|Fair value of interest portion of bifurcated embedded derivative instrument liabilities associated with the above mentioned
instruments |  | $              | 16,704  |                                       | $ | 33,991                
|                                                                                                                                        |  |                |         |                                       |   |                        |      |                    |   |                      |  |                       |        |  |   |       
|                                                                                                                                        |  |               
|Total derivative financial instrument liabilities                                                                                       |  | $              | 495,325 |                                       | $ | 650,529               
|                                                                                                                                        |  |                |         |                                       |   |                        |      |                    |   |                      |  |                       |        |  |   |       

NOTE 12  STOCK OPTIONS

The Companys Stock Option Plan (SOP) was adopted in March 1999 to provide for the grant to employees up to 6,000,000 incentive stock options within the meaning of Section 422 of the Internal
Revenue Code. The SOP, which is administered by the Companys Board of Directors, is intended to provide incentives to directors, officers, and other key employees and enhance the Companys ability to attract and retain qualified
employees. Stock options are granted for the purchase of common stock at a price not less than the 100% of fair market value of the Companys common stock on the date of the grant (110% for holders of more than 10% of the total combined voting
power of all classes of capital stock then outstanding).

On April 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
Share-Based Payment (FAS 123(R)), that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are
based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. The statement eliminated the ability to account for share-based compensation transactions, as the Company formerly
did, using the intrinsic value method as prescribed by APB Opinion No. 25, and generally requires that such transactions be accounted for using a fair-value-based method and recognized as expenses in the Companys consolidated statement of
operations.



26



---

The Company adopted FAS 123(R) using the modified prospective method which requires the application of
the accounting standard as of April 1, 2006. The Companys consolidated financial statements as of and for the year ended March 31, 2007 reflects the impact of adopting FAS 123(R). In accordance with the modified prospective method,
the consolidated financial statements for the prior periods have not been restated to reflect, and do not include, the impact of FAS 123(R).

Share-based compensation expense recognized during the year is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the consolidated statement of
operations during the year ended March 31, 2007 included compensation expense for the share-based payment awards granted prior to March 31, 2006 and thereafter, based on the grant date fair value estimated in accordance with FAS 123(R). As
share-based compensation expense recognized in the statement of operations is based on awards ultimately expected to vest, it will be reduced for estimated forfeitures. FAS 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

As a result of adopting FAS 123(R), zero
and $77,375, respectively, of share-based compensation was charged against income for the three months ended June 30, 2007 and 2006.

On October 17, 2004, a meeting of the Compensation Committee of the Board of Directors of the Company was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of the Companys common stock,
effective October 1, 2004, to Jugal Taneja, the Companys Chairman and a principal shareholder of the Company, as compensation for Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6
million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair value of the Companys common stock on September 30, 2004). The options vest approximately equally over a three year period, commencing
October 1, 2005. For the options granted, the balance of deferred consulting fees as of June 30, 2007 and March 31, 2007 was $41,564 and $83,127, respectively. The initial valuation of these options was $498,763. For the three months
ended June 30, 2007 and 2006, the Company included compensation expense in the amount of $41,563 in selling, general and administrative expenses in the statements of operations, for these options.

On December 1, 2005, the Company granted options to purchase 2,500 shares of the Companys common stock to an employee, in accordance with the
Companys 1999 Stock Option Plan. The exercise price of the options is $0.39 (100% of the fair value of the Companys common stock on November 30, 2005). The options vest on December 1, 2006. The fair value of the options granted
was estimated on the grant date using the Black-Scholes option pricing model with a volatility factor of 110.35% and a risk free interest rate of 4.47%.

On March 1, 2006, the Company granted options to purchase 2,500 shares of the Companys common stock to an employee, in accordance with the Companys 1999 Stock Option Plan. The exercise price of the
options is $0.43 (100% of the fair value of the Companys common stock on February 28, 2006). The options vest on March 1, 2007. The fair value of the options granted was estimated on the grant date using the Black-Scholes option
pricing model with a volatility factor of 110.35% and a risk free interest rate of 4.77%.

On July 17, 2006, the Company granted
options to purchase 650,000 shares of the Companys common stock to employees, in accordance with the Companys 1999 Stock Option Plan. The exercise price of the options is $0.37 (100% of the fair value of the Companys common stock
on July 16, 2006). The options vest approximately equally over a three year period, commencing July 17, 2007. The fair value of the options granted was estimated on the grant date using the Black-Scholes option pricing model with a
volatility factor of 114.74% and a risk free interest rate of 5.07%.

On July 17, 2006, the Company granted options to purchase
250,000 shares of the Companys common stock to Jugal Taneja, the Companys Chairman and a principal shareholder of the Company, and options to purchase 250,000 shares of the Companys common stock to Mandeep Taneja, the
Companys Chief Executive Officer and a principal shareholder of the Company, in accordance with the Companys 1999 Stock Option Plan. The exercise price of the options is $0.407 (110% of the fair value of the Companys common stock
on July 16,



27



---

2006). The options vest approximately equally over a three year period, commencing July 17, 2007. The fair value of the options granted was estimated on
the grant date using the Black-Scholes option pricing model with a volatility factor of 114.74% and a risk free interest rate of 3.56%.

On
July 24, 2006, the Compensation Committee of the Companys Board of Directors granted options to purchase 500,000 shares of the Companys common stock to Mandeep Taneja, as compensation for Mr. Tanejas personal guarantee to
First Community Bank, on July 24, 2006, of the Standby Letter Of Credit and Security Agreement issued by the Company to First Community Bank. The exercise price of the options is $0.44 (110% of the fair value of the Companys common stock
on July 23, 2006). The options vest approximately equally over a three year period, commencing July 24, 2007. The fair value of the options granted was estimated on the grant date using the Black-Scholes option pricing model with a
volatility factor of 114.74% and a risk free interest rate of 3.69%.

On March 28, 2007, the Company offered all persons who held
outstanding vested and unvested options to purchase common stock, which were issued pursuant to the terms of the Companys stock option plan, to replace all of his or her outstanding vested and unvested options into a new number of restricted
common shares. As a result, the Company issued an aggregate of 1,186,825 restricted shares of common stock in exchange for the cancellation of 2,905,000 outstanding options to purchase common stock. The options had exercise prices ranging from
$0.1625 to $1.14. All persons who received shares in exchange for cancellation of options entered into lock up agreements, pursuant to which they are not permitted to sell, assign, encumber, grant an option with respect to, or transfer and/or
dispose of such shares for a period of three years, except with prior written consent of the Company. As a result of the exchanges, the compensation expense recorded by the Company in excess of the Black-Scholes grant date fair value was $143,907,
for the year ended March 31, 2007.

As of June 30, 2007 and March 31, 2007, there were no options outstanding. Any options
which are forfeited or cancelled before expiration become available for future grants.

NOTE 13  SHAREHOLDERS EQUITY

In August 1998, upon the filing by the Company of Articles of Amendment to its Articles of Incorporation, the Company established Series A Convertible
Preferred Stock. The Series A Preferred Stock was issued in conjunction with the Companys acquisition of Energy Factors. Terms associated with the issuance of the Series A Preferred are: (1) Shareholders are not entitled to receive
dividends, (2) Liquidation preference of $5 per share over any junior stock, including common stock, (3) Automatic conversion to one share of common stock if the average closing price of the common stock for any five consecutive trading
day period is $5 per share or more, and (4) Holders of Series A Preferred are entitled to the same voting rights as shareholders of common stock as a single class.

In September 1998, upon the filing by the Company of Articles of Amendment to its Articles of Incorporation, the Company established Series B 6% Cumulative Convertible Preferred Stock. The Series B Cumulative
Convertible Preferred Stock was issued for cash used in the operations of the Company. Terms associated with the issuance of Series B Preferred are: (1) Shareholders are entitled to receive dividends on each outstanding share at an annual rate
of 6%, (2) Liquidation preference of $2.50 per share over any junior stock, including common stock, (3) Automatic conversion to one share of common stock if the average closing price of the common stock for any five consecutive trading day
period is $5 per share or more, and (4) Holders of Series B Preferred have no voting rights.

On July 29, 2003, the Board of
Directors of the Company approved a forward split of its outstanding shares of common stock on a four-for-one basis effective August 12, 2003, such that for each share of Company common stock held as of August 1, 2003, each shareholder was
entitled to receive three additional shares of Company common stock.

Effective August 1, 2003, upon the filing by the Company of
Articles of Amendment to its Articles of Incorporation on July 30, 2003, the four-for-one forward stock split was effected, with a record date of August 1, 2003. The payment date for the additional shares of Company common stock was
August 12, 2003.



28



---

On October 22, 2004 a Special Meeting of Stockholders of the Company was held at the Companys
corporate headquarters. At the meeting, a minimum of 81% of all of the shareholders of record of the Companys common stock, at the close of business on September 20, 2004, voted to approve the amendment to the Companys articles of
incorporation to (a) increase the authorized number of shares of common stock from 20,000,000 shares to 45,000,000 shares, and (b) to change the quorum requirements for various stockholder actions from 75% of the holders of outstanding
shares of the Companys common stock to the affirmative vote of the holders of a majority of the outstanding shares of the Companys common stock then entitled to vote.

On October 25, 2004, the Company filed the Certificate of Amendment to Restated Articles of Incorporation of Dynamic Health Products, Inc. to
accomplish the above.

On October 29, 2004, the Company filed a Registration Statement on Form S-2 for the registration of up to
8,701,585 shares of the Companys common stock, including up to 7,326,585 shares of common stock underlying the Secured Convertible Note in the principal amount of $6,000,000 and up to 1,375,000 shares issuable upon the exercise of common stock
purchase warrants. On November 15, 2004, the Securities and Exchange Commission declared the Registration Statement to be effective. Such Registration Statement is no longer current.

On April 22, 2005, the Company filed a Registration Statement on Form S-2 for the registration of up to 2,944,690 shares of the Companys
common stock, including up to 2,194,690 shares of common stock underlying the Secured Convertible Notes in the principal amount of $4,000,000 and up to 750,000 shares issuable upon the exercise of common stock purchase warrants. The Company
subsequently withdrew such Registration Statement on August 19, 2005.

On August 19, 2005, the Company filed a Registration
Statement on Form S-2 for the registration of up to 3,219,690 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the March 2005 secured convertible notes in the principal amount of $4,000,000, up
to 750,000 shares issuable upon the exercise of common stock purchase warrants and 275,000 shares of common stock underlying the July 2005 postponement agreement. The Company subsequently withdrew such Registration Statement on May 11, 2006.

On July 19, 2005, the Company entered into a Postponement Agreement with Laurus Master Fund, Ltd., whereby Laurus agreed to postpone
the Companys obligation to make certain amortization payments on its secured convertible note and, in consideration therefore, the Company issued to Laurus 275,000 shares of restricted common stock of the Company. Pursuant to the agreement,
the principal portion of the monthly amount that is due on the first business day of each of the months from August 2005 through March 2006, in the amount of $187,500 per month, shall not be required to be paid until the first business day of each
of the months from February 2007 through September 2007, respectively, in each case, in addition to the regular monthly principal payments due in each of the months. In connection with the agreement, Laurus agreed to amend the Registration Rights
Agreement with the Company to extend the dates for the filing requirements of the Companys Registration Statement.

On
August 31, 2005, the Company issued 14,038 restricted shares of common stock to Dynamic Health Products, Inc. 401(k) Plan for the Companys contribution to the employees 401(k) benefit plan.

On September 12, 2005, 150,000 shares of restricted common stock of the Company were sold to a non-affiliated third party investor at $.50 per new
share, for gross proceeds of $75,000. Proceeds were used to provide additional working capital for the Company.

On April 28, 2006,
the Company entered into a Postponement and Amendment Agreement with Laurus Master Fund, Ltd., pursuant to which the Company modified the September 30, 2004 and the March 29, 2005 earlier agreements among the parties. Pursuant to the
agreement, the principal portion of the monthly amount that is due under the September 30, 2004 convertible note on the first business day of each of the months from May 2006 through December 2006, in the amount of $187,500 per month, shall be
reduced by $137,500 per month. and, in consideration therefore, the Company issued to Laurus 275,000 shares of restricted common stock of the Company. In addition, Laurus agreed to the cancellation of all of the common stock purchase warrants issued
to Laurus in connection with the September 30, 2004 and March 29, 2005 agreements and, in consideration therefore, the Company issued to Laurus 150,000 shares of restricted common stock of the Company. In connection with the agreement,
Laurus agreed to amend the Registration Rights Agreement with the Company to extend the dates for the filing requirements of the Companys Registration Statement.



29



---

In connection with the Postponement and Amendment Agreement, the Company also executed restated
promissory notes in favor of Laurus and an amended and restated registration rights agreement (the Restated Registration Rights Agreement). Pursuant to the Restated Registration Rights Agreement, we agreed to file a registration
statement by June 30, 2006, covering the resale of the securities issued or issuable to Laurus. The Company was obligated to have such registration statement declared effective by September 30, 2006, but there were no stated penalties for
failure to meet such deadline.

On June 7, 2006, the Company issued 166,405 restricted shares of its common stock to Dynamic Health
Products, Inc. 401(k) Plan for the Companys contribution to the employees 401(k) benefit plan.

On July 3, 2006, the Company
filed a Registration Statement on Form SB-2 for the registration of up to 10,221,275 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the March 2005 secured convertible notes, up to 7,326,585
shares of common stock underlying the September 2004 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement
agreement. Such Registration Statement was subsequently withdrawn by the Company on October 4, 2006.

On October 4, 2006, the
Company entered into an agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties (the Amendment Agreement). The Amendment Agreement (i) eliminated the obligation of the Company to
register for resale the shares of common stock underlying the securities sold in September 2004, and (ii) removed Laurus right to waive 9.99% ownership limitations contained in their convertible debentures.

In connection with the Amendment Agreement, the Company also executed second amended and restated promissory notes in favor of Laurus. Pursuant to the
Amendment Agreement, the Company agreed to file a registration statement by October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. The Company was obligated to have such registration statement declared
effective by November 30, 2006, but there were no stated penalties for failure to meet such deadline. Laurus could have declared the obligations in default and sought immediate repayment, but it had given no indication of doing so. If immediate
repayment had been required, we would not have had sufficient funds and Laurus could have taken legal action to recover amounts due from our assets.

On October 20, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 2,761,335 shares of the Companys common stock, including up to 2,061,335 shares of common stock
underlying the March 2005 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. On
December 14, 2006, March 8, 2007 and March 27, 2007, the Company filed amendments to this Registration Statement on Form SB-2. On April 9, 2007, the Securities and Exchange Commission declared the Registration Statement to
be effective.

On March 28, 2007, the Company issued an aggregate of 1,186,825 restricted shares of common stock in exchange for the
cancellation of 2,905,000 outstanding options to purchase common stock. The options had exercise prices ranging from $0.1625 to $1.14. All persons who received shares in exchange for cancellation of options entered into lock up agreements, pursuant
to which they are not permitted to sell, assign, encumber, grant an option with respect to, or transfer and/or dispose of such shares for a period of three years, except with prior written consent of the Company.

On April 11, 2007, the Company entered into a Postponement and Amendment Agreement with Laurus, whereby Laurus agreed to a reduction in the
principal payments under the September 2004 note to $75,000 per month for each of the months commencing January 2007 through the maturity date of the note, at which time all deferred payments become due and owing and to postpone the Companys
obligation to repay overadvances of up to $1,721,000 under the March 2005 revolving note whereby such overadvances shall be due and payable on December 31, 2007. In consideration therefore, the Company issued to Laurus 350,000 shares of
restricted common stock of the Company.



30



---

NOTE 14  EARNINGS (LOSS) PER SHARE

The following sets forth the computation of basic and diluted net earnings (loss) per common share for the three months ended June 30, 2007 and 2006:



|                                                                                                   |  |      |            |   |      |   |           
|-------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ----------
|                                                                                                   |  | 2007 |            |   | 2006
|Numerator:                                                                                         |  |      |            |   |      |   |           
|Net income (loss)                                                                                  |  | $    | (1,108,999 | ) |      | $ | 441,702   
|Less preferred stock dividends                                                                     |  |      |           |   |      |   |          
|                                                                                                   |  |      |            |   |      |   |           
|Net income (loss) available to common shareholders                                                 |  |      | (1,108,999 | ) |      |   | 441,702   
|                                                                                                   |  |      |            |   |      |   |           
|Less derivative instrument income and interest expense, net , from convertible notes               |  |      |           |   |      |   |          
|                                                                                                   |  |      |            |   |      |   |           
|Net income (loss) available to common shareholders after assumed conversion of dilutive securities |  | $    | (1,108,999 | ) |      | $ | 441,702   
|                                                                                                   |  |      |            |   |      |   |           
|Denominator:                                                                                       |  |      |            |   |      |   |           
|Weighted average shares outstanding                                                                |  |      | 16,636,915 |   |      |   | 14,806,418
|Effect of dilutive securities:                                                                     |  |      |            |   |      |   |           
|Convertible notes                                                                                  |  |      |           |   |      |   |          
|Warrants                                                                                           |  |      |           |   |      |   |          
|Stock options                                                                                      |  |      |           |   |      |   | 700,000   
|                                                                                                   |  |      |            |   |      |   |           
|Weighted average fully diluted shares outstanding                                                  |  |      | 16,636,915 |   |      |   | 15,506,418
|                                                                                                   |  |      |            |   |      |   |           
|Net earnings (loss) per common share                                                              |  |      |            |   |      |   |           
|Basic                                                                                              |  | $    | (0.07      | ) |      | $ | 0.03      
|                                                                                                   |  |      |            |   |      |   |           
|Diluted                                                                                            |  | $    | (0.07      | ) |      | $ | 0.03      
|                                                                                                   |  |      |            |   |      |   |           

For the three months ended June 30, 2007, warrants on 200,000 shares of common stock and
5,617,135 shares issuable upon conversion of convertible notes were not included in the computation of diluted earnings (loss) per share because their effects were anti-dilutive. For the three months ended June 30, 2006, options on 1,255,000
shares of common stock and warrants on 500,000 shares of common stock were not included in the computation of diluted earnings per share because their effects were anti-dilutive.

NOTE 15  CONCENTRATION OF CREDIT RISK

Concentrations of credit risk with respect to trade
accounts receivable are limited due to the distribution of sales over a large customer base.For the three months ended June 30, 2007 and 2006, DPS Nutrition Inc. accounted for 7.1% and 10.4%, respectively, in relation to total
consolidated revenues. The Company has no concentration of customers within specific geographic areas outside of the United States that would give rise to significant geographic credit risk.

Financial instruments that potentially subject the Company to concentrations of credit risk include cash deposits with commercial banks and brokerage
firms. At June 30, 2007 and March 31, 2007, the Company maintained cash balances in excess of the Federal Deposit Insurance Companys $100,000 insurance limit.

NOTE 16 - SUBSEQUENT EVENTS

As previously reported, on May 14, 2007, the Company and GeoPharma, Inc.
entered into a definitive agreement (the Merger Agreement) under which the Company will merge with and into a wholly-owned subsidiary of GeoPharma in a stock transaction (the Merger). The Board of Directors of the Company
determined that the Merger would further the Companys long-term business objectives, including without limitation, providing additional capital to support continued growth.

Under the terms of the Merger Agreement, GeoPharma will exchange approximately 0.1429 shares of its common stock for each share of Company common stock
and fractional shares will be rounded up to the nearest whole share. Based on an average 10-day market closing price of GeoPharmas common stock from May 1-14, 2007 of $4.24 per share, the transaction would be valued at $14 million, based on an
estimated 3.3 million shares of GeoPharma common stock to be issued to the shareholders of the Company in the Merger. The actual value at consummation of the Merger will be based on GeoPharmas share price at that time.

Completion of the Merger of the Company into a wholly-owned subsidiary of GeoPharma and the issuance of the GeoPharma common shares to the shareholders
of the Company is subject to the approval of the transaction by the shareholders of both companies, the conversion of the Companys convertible notes prior to the closing of the Merger, the receipt of required regulatory approvals, and the
satisfaction of usual and customary closing conditions. The Merger Agreement contains certain termination rights for both the Company and GeoPharma.

Directors and executive officers of GeoPharma beneficially own and are entitled to vote approximately 43% of the shares of GeoPharma common stock outstanding. Directors and executive officers of the Company
beneficially own and are entitled to vote approximately 47% of the shares of Company common stock outstanding.

On May 15, 2007, the
Company and GeoPharma filed with the Securities and Exchange Commission (the SEC) a joint proxy statement/prospectus on Form S-4, in connection with the proposed acquisition of the Company by GeoPharma, pursuant to the terms of the
definitive Merger Agreement. The SEC declared the S-4 Registration Statement, as amended, effective on July 5, 2007. On August 10, 2007, the Merger Agreement was approved by shareholders of the Company and GeoPharma. The merger will be effected once
all of the conditions to the merger have been completed or waived.



31



---

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

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

Overview

The
Company derives its revenues from developing, marketing and distributing a wide variety of sports nutrition products, performance drinks, non-prescription dietary supplements, over-the-counter drugs, health and beauty care products, health food and
nutritional products, soft goods and other related products.

Revenues are recognized by the Company upon passage of title and risk of loss
to customers when product is delivered to common carrier for shipment to customers. Provisions for discounts and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales
incentives to customers and returns have thus far been immaterial to the Company. All shipping and handling costs invoiced to customers are included in revenues.

Cost of goods sold is comprised of direct product costs, plus the cost of transportation necessary to bring the products to our distribution facilities, net of consideration received from suppliers in connection with
the purchase or promotion of the suppliers products. Research and development expenses are charged against cost of goods sold as incurred and are not material to the Companys operations.

Operating expenses include salaries and wages, employee benefits, warehousing and delivery, selling, occupancy, insurance, administrative, depreciation
and amortization expense. We include outbound transportation expenses within our operating expenses rather than in our cost of goods sold.

Other expenses (income) includes interest earned on notes receivable and on cash balances maintained in interest bearing accounts with banks, interest on our outstanding indebtedness, the change in fair value of derivative financial
instruments and miscellaneous income and expenses.

Results of Operations

Three Months Ended June 30, 2007 Compared To Three Months Ended June 30, 2006

Revenues

We generated revenues of $15,339,492 for the three months ended June 30, 2007, an increase of $1,521,471 or
11.0%, compared to $13,818,021 for the three months ended June 30, 2006. The increase was primarily attributable to organic growth resulting from expansion of our distribution channels with the opening of a distribution center in Dallas, Texas
in January 2007 and the expansion of our in-house sales force. We expect organic growth of up to 15% in the future, based on expansion of marketing efforts through our in-house sales force.



32



---

Gross Profit

We achieved a gross profit of $2,773,518 for the three months ended June 30, 2007, an increase of $67,470 or 2.5%, compared to $2,706,048 for the three months ended June 30, 2006. Gross margin, as a
percentage of revenues, was 18.1% and 19.6%, respectively, for the three months ended June 30, 2007 and 2006. We expect gross margins of 18% to 20% in the future.

Operating Expenses

We incurred operating expenses of $2,926,690 for the three months ended
June 30, 2007, compared to $2,695,786 for the three months ended June 30, 2006. For the three months ended June 30, 2007, these expenses include various selling, general and administrative expenses of $2,795,188, and amortization and
depreciation expenses of $131,502, compared to $2,573,854 in various selling, general and administrative expenses, and amortization and depreciation expenses of $121,932 for the three months ended June 30, 2006.

For the three months ended June 30, 2007 and 2006, selling, general and administrative expenses included non-cash amortization of deferred
consulting fees of $41,563 and $65,938, respectively.

Outbound transportation expenses, which are included in selling, general and
administrative expenses, were $596,525 and $507,132, respectively, for the three months ended June 30, 2007 and 2006.

Operating
expenses, excluding amortization and depreciation expenses decreased to 18.2% of revenues for the three months ended June 30, 2007, from 18.6% of revenues for the three months ended June 30, 2006. The decrease in operating expenses as a
percentage of revenues was attributable to a decrease in commissions paid to brokers and outside sales representatives, the absence of stock-based compensation costs, a decrease in tradeshow and travel expenses, and was partially offset by an
increase in accounting fees, an increase in our allowance for bad debts related to accounts and notes receivable, an increase in credit card fees, an increase in outbound transportation costs, an increase in compensation related expenses, an
increase in insurance expenses, an increase in profit sharing plan expenses and an increase in rent expense.

The Company now recognizes
stock-based compensation costs in operating expenses, due to the adoption of FAS 123(R), on April 1, 2006. Share-based compensation expense was zero and $77,375, respectively, for the three months ended June 30, 2007 and 2006.

Operating Income (Loss)

Operating
loss was $153,172 for the three months ended June 30, 2007, compared to operating income of $10,262 for the three months ended June 30, 2006. As a percentage of revenues, operating loss was 1.0% for the three months ended June 30,
2007. As a percentage of revenues, operating income was 0.1% for the three months ended June 30, 2006.

Other Income (Expense)

Other income (expense) was $(1,019,724) for the three months ended June 30, 2007, compared to $601,928 for the three months ended
June 30, 2006. Below is a discussion of each of the various line items of other income (expense).

Derivative instrument income
(expense), net, was $155,204 for the three months ended June 30, 2007, compared to $731,503 for the three months ended June 30, 2006. Derivative instrument interest expense was $827,938 for the three months ended June 30, 2007,
compared to $745,805 for the three months ended June 30, 2006. The accounting for derivative financial instruments is very complex and has had a material non-cash effect on our net income (loss) for the three months ended June 30, 2007 and
2006. We expect the accounting for these derivative financial instruments to have a material non-cash effect on our net income (loss) in any given reporting period during the life of the derivative financial instruments. The effect on our future
earnings (losses) cannot be predicted since various factors effect both the valuation and corresponding charges or credits to income at each reporting period, as further discussed below under Derivative Instruments.

Interest income was $2,092 for the three months ended June 30, 2007, compared to $6,119 for the three months ended June 30, 2006. The decrease
in interest income was a result of the reduction in interest received on notes receivable due to smaller principal balances and was partially offset by higher cash amounts held in interest bearing accounts in banks.



33



---

For the three months ended June 30, 2007, other income and expenses, net, of $(65,013) consisted
primarily of expenses incurred in connection with our planned merger with GeoPharma, Inc. For the three months ended June 30, 2006, other income and expenses, net, of $93,180 consisted primarily of proceeds from an insurance claim, proceeds
from a disputed escrow balance, and income from negotiated allowances on prior years.

For the three months ended June 30, 2006, we
realized a gain from the sale of marketable equity securities of $572,096. Proceeds were used for payment of a portion of the principal balance on our revolving note payable.

For the three months ended June 30, 2006, we realized a gain from debt extinguishment of $153,750, resulting from the cancellation of all common
stock warrants issued to Laurus Master Fund, Ltd., associated with our September 2004 and March 2005 financings, in exchange for 150,000 shares of our common stock.

Interest expense was $280,288 for the three months ended June 30, 2007, compared to $209,690 for the three months ended June 30, 2006. Interest expense increased for the three months ended June 30,
2007, primarily as a result of interest rate increases and an increase in short-term obligations issued for insurance policy premiums. In addition, $107,231 and $31,657, respectively, of the interest expense for the three months ended June 30,
2007 and 2006 relates to the non-cash amortization of the debt discounts based on the Black-Scholes option pricing model, applied to the postponement agreements entered into in July 2005, April 2006 and April 2007, in connection with the
September 2004 and the March 2005 convertible notes.

Income Taxes

As of June 30, 2007 and March 31, 2007, we had a current income tax liability of zero and $115, respectively, and an accrued income tax
liability of $231 and $925, respectively. We had an estimated deferred income tax asset of $148,500 and $49,400, respectively, as of June 30, 2007 and March 31, 2007, which primarily represent the potential future tax expense associated
with unrealized gains on marketable equity securities, and are partially offset due to potential utilization of net operating losses not previously recognized. The net operating losses may be carried forward for up to up to 20 years.

Net Income (Loss) Per Share

We had a
net loss of $1,108,999 or $0.07 per basic and diluted share for the three months ended June 30, 2007, compared to net income of $441,702 or $0.03 per basic and diluted share for the three months ended June 30, 2006.

Derivative Instruments

Derivative
instrument income (expense), net, represents the net unrealized (non-cash) change, during the three months ended June 30, 2007 and 2006, in the fair value of our derivative financial instrument assets or liabilities related to certain warrants
and embedded derivatives in our debt instruments that have been bifurcated and accounted for separately.

Derivative instrument interest
expense, with a corresponding increase in the face amount of the debts, for the three months ended June 30, 2007 and 2006, represents the (non-cash) accretion of debt discount as a result of the bifurcation of the embedded conversion features
and related warrants. We calculated the accretion using the effective interest rate method over the term of the debts. Due to the effect of the payment streams associated with the debts, the straight-line amount of the accretion is substantially
equivalent to the effective interest rate method and therefore is the resulting method we used for our calculations.

We sold debt
convertible into shares of our common stock. The debt had detachable warrants to purchase shares of our common stock. These warrants have been classified as derivative liabilities, rather than as equity. Additionally, the debt instruments contain
embedded derivative features, such as conversion rights, which are required to be bifurcated from the associated host instrument and are accounted for separately as derivative instrument liabilities.



34



---

The identification of, and accounting for, derivative instruments is complex. Our derivative instrument
liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liabilities recorded as charges or credits to income, in the period in which the changes occur. For warrants and bifurcated conversion
features that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes option pricing model. That model requires us to make assumptions related to the remaining term of the
instruments and risk-free rates of return, our current common stock price, expected dividend yield, and the expected volatility of our common stock price over the life of the instruments. Because of the limited trading history of our common stock
prior to the acquisition of BOSS on October 1, 2004, we have estimated the future volatility of our common stock price based on not only the history of our stock price but also the experience of other entities considered comparable to us.

The accounting for derivative instruments and the assumptions used to value them have materially affected our financial statements and are
expected to do so in the future. Factors that would have an affect on the fair value of derivative instruments and related derivative expense or income include, but are not limited to, the price of our common stock and risk free interest rates. For
example, if the price of our common stock increases, generally the fair value of the derivative instrument liabilities will increase and this will result in a corresponding increase in the derivative instrument expense recorded in our statement of
operations. Alternatively, if the price of our common stock decreases, it generally will cause the fair value of the derivative instrument liabilities to decrease and this will result in a corresponding increase in derivative instrument income to be
recorded in our statement of operations. The above changes could be mitigated by the change in the remaining term of the instruments over time and possible principal payments made during the life of the instruments. We currently do not pay dividends
and as such, the payment of dividends would not have an impact on the fair value of the derivative instrument liabilities.

In connection
with the September 30, 2004 convertible debt, we executed an interest rate index (IRI) whereby if the price of our common stock had increased by a specified amount, there would have been a reduction in the stated interest rate
payable on that instrument. This initially created a derivative instrument asset. The IRI agreement provided for a potential reduction but not an increase in the stated interest rate. The fair value of the derivative instrument asset so created
would increase if we projected a potential increase in the price of our common stock. This resulted in derivative instrument income for the year ended March 31, 2005. Since the price of our common stock decreased during the three months ended
June 30, 2007 and 2006, the resulting fair value of the IRI was zero at June 30, 2007 and 2006, and March 31, 2007. For a full discussion on Derivative Instruments, see Note 11 to our condensed consolidated financial statements as of
June 30, 2007, and for the three months ended June 30, 2007.

Inflation And Seasonality

We believe that there was no material effect on our operations or our financial condition as a result of inflation for the three months ended June 301,
2007 and 2006. We also believe that our business is not seasonal; however, significant promotional activities can have a direct impact on our sales volume in any given quarter.

Economic And Industry Conditions

We
believe that there was no material effect on our operations or our financial condition a result of general economic and industry conditions for the three months ended June 30, 2007 and 2006. However, should there be a material deterioration of
general economic or industry conditions, our results of operations could be impacted in any given quarter.



35



---

Financial Condition, Liquidity and Capital Resources

We finance our operations and growth primarily through cash flows from operations, borrowing under our revolving credit facilities, operating leases,
trade payables, and the sale of equity and debt securities. We had a working capital deficit of $4,669,041 at June 30, 2007, compared to a working capital deficit of $3,688,369 at March 31, 2007.

Net cash used in operating activities was $988,290 for the three months ended June 30, 2007, as compared to net cash used in operating activities of
$32,465 for the three months ended June 30, 2006. The usage of cash was primarily attributable to an increase in amounts due to/from affiliates, net, of $4,472, an increase in prepaid expenses of $34,357 primarily due to the timing of insurance
policy renewals, an increase in other current assets of $5,099 primarily based on an increase in refunds due from vendors, a decrease in accounts payable of $1,408,435 based on payments made on accounts, a decrease in other payables of $147,279
primarily based on a decrease in prepayments received from customers, a decrease in income tax payable of $115, a decrease in accrued income taxes of $694, a decrease in net deferred income taxes of $69,069 as a result of an increase in available
net operating loss carry forwards, partially offset by a decrease in accounts receivable of $386,610 based on decreases in credit sales, a decrease in inventories of $214,815 due to decreased restocking levels and an increase in accrued expenses of
$216,993.

Net cash used in investing activities was $15,449, representing purchases of property and equipment of $22,056 and the purchase
of a certificate of deposit of $301, partially offset by proceeds from the sale of property of $2,000, proceeds from repayments on notes receivable of $1,000, and proceeds from redemption of certificates of deposit of $3,908.

Net cash provided by financing activities was $702,296, representing the excess of advances received versus payments made of $990,946 on our short-term
revolving notes, partially offset by payments of long-term obligations of $226,047, the payment of short-term obligations of $49,863 and the payment of loan costs of $12,740.

At June 30, 2007, we had $803,402 in cash and cash equivalents, as compared to $1,104,845 at March 31, 2007.

We believe that cash expected to be generated from operations and current cash reserves will be sufficient for us to meet our capital expenditures and
working capital needs, for our operations as presently conducted, together with funds we received in April 2007, as a result of an agreement we entered into on April 26, 2007, for an additional revolving credit facility in the amount of $1
million. Our future liquidity and cash requirements will depend on a wide range of factors, including the level of business in existing operations, expansion of facilities and possible acquisitions. In particular, if cash flows from operations are
not sufficient, it will be necessary for us to seek additional financing. While there can be no assurance that such financing would be available in amounts and on terms acceptable to us, we believe that such financing would likely be available on
acceptable terms. With respect to Laurus Master Fund, Ltd. (Laurus), although we do not have a definitive agreement, it is anticipated that all obligations due to Laurus will be converted into shares of GeoPharma, Inc. common stock at
the time of the merger.

On September 30, 2004, we entered into a Securities Purchase Agreement with Laurus, whereby we completed the
sale to Laurus of a secured convertible note in the principal amount of $6,000,000 and warrants to purchase 1,375,000 shares of our common stock. Net proceeds from the offering were used to pay the purchase price for the acquisition of Bob
OLeary Health Food Distributor Co., Inc., effective on October 1, 2004.

The convertible note has a three year term and accrues
interest at a rate per annum equal to the prime rate published in The Wall Street Journal plus 2%, subject to a floor of 6%. The interest rate is subject to possible downward adjustments. The fixed conversion rate is equal to $.90 (103% of
the average closing price for the ten days prior to the execution of the securities purchase agreement).

Upon an issuance of shares of
common stock below the fixed conversion price, the fixed conversion price of the note will be reduced accordingly. In connection with the September 12, 2005 and the April 16, 2007 stock issuances, the lender waived this provision. The
conversion price of the note may be adjusted proportionately in certain circumstances such as if the Company pays a stock dividend, subdivides or combines outstanding shares of common stock into a greater or lesser number of shares, or takes such
other actions as would otherwise result in dilution.



36



---

In accordance with the convertible note, commencing December 1, 2004, and each month thereafter, we
were to pay $187,500 of the outstanding principal, together with accrued interest on the convertible note, in cash or registered stock. In July 2005, we entered into a Postponement Agreement with Laurus, whereby the required principal payments under
the convertible note were modified. In April 2006, we entered into a Postponement and Amendment Agreement with Laurus, whereby the required principal payments under the convertible note were again modified and the note was amended and restated.

The monthly payments shall be payable in registered stock if: (i) we have an effective registration statement under which the stock
can be sold; (ii) the average closing price of our common stock as reported by Bloomberg, L.P. on our principal trading market for the five trading days immediately preceding such repayment date shall be greater than or equal to 110% of the
fixed conversion rate; and (iii) the amount of such conversion does not exceed 25% of the aggregate dollar trading volume of our common stock for the twenty 22 day trading period immediately preceding the applicable repayment date. If the
conversion criteria are not met, the investor shall convert only such part of the monthly payment that meets the conversion criteria. Any part of the monthly payment due on a repayment date that the investor has not been able to convert into shares
of common stock due to failure to meet the conversion criteria, shall be paid by us in cash at the rate of 102% of the principal portion of the monthly payment otherwise due on such repayment date.

The convertible note may be prepaid by us in cash by paying to the holder 115% of the principal and related accrued and unpaid interest thereon being
prepaid. 115% of the full principal amount of the convertible note is due upon default under the terms of the convertible note. In addition, we have granted the investor a security interest in substantially all of our assets and intellectual
property, as well as registration rights.

As of June 30, 2007 and March 31, 2007, the outstanding principal balance on the
convertible note was $3,462,500 and $3,687,500, respectively. As of June 30, 2007 and March 31, 2007, 989,758 shares of our common stock have been issued to Laurus in payment of $750,000 of principal and $140,782 of interest on the note.

Initially, Laurus was not entitled to be issued shares of common stock in repayment of any portion of the convertible note if and to the
extent such issuance would result in Laurus and its affiliates beneficially owning more than 4.99% of our issued and outstanding common stock upon such issuance, unless Laurus shall have provided at least 75 days prior written notice to us of its
revocation of such restriction. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, this provision was modified from 4.99% to 9.99%. In addition, this restriction would not apply in the event of default or if we
sought to redeem the outstanding balance of the convertible debentures.

The warrants were exercisable until five years from the date of
the Securities Purchase Agreement at a purchase price equal to $1.04 per share (115% of the average closing price of our common stock for the 10 trading days immediately prior to the execution date). The warrants were exercisable on a cashless
basis. In the event that the warrants were exercised on a cashless basis, then we would not receive any proceeds. In addition, the exercise price of the warrants would have been adjusted in the event we issued common stock at a price below market,
with the exception of any securities issued as of the date of this warrant or issued in connection with the convertible notes issued pursuant to the Securities Purchase Agreement. In September 2005, we sold 150,000 restricted shares of our common
stock at a price below market. In connection therewith, Laurus waived their anti-dilution provisions related to all convertible notes and warrants issued to Laurus. In connection with the April 2006 Postponement and Amendment Agreement with Laurus,
we issued 97,059 restricted shares of our common stock to Laurus, in exchange for cancellation of the 1,375,000 warrants.

Our obligations
under the Security Agreement, Securities Purchase Agreement and the Note are secured by a first priority lien on all of our assets and all future assets acquired, including a pledge by us of shares representing 100% of our share capital of
GeoPharma, Inc. and DrugMax, Inc., and a put option on the pledged shares of GeoPharma, Inc. and DrugMax, Inc. at $6.00 and $4.00 per share, respectively.

On March 29, 2005, we entered into agreements with Laurus, whereby we completed the sale to Laurus of convertible debt and a warrant to purchase our common stock in a private offering pursuant to exemption from



37



---

registration under Section 4(2) of the Securities Act of 1933. The $3,000,000 proceeds of the funding were used for the acquisition of Dynamic
Marketing, Inc. on March 31, 2005, costs associated with the acquisition and for working capital.

The securities sold to Laurus
included a secured convertible minimum borrowing note with a principal amount of $2,000,000, a secured revolving note with a principal amount note to exceed $4,000,000, and a common stock purchase warrant to purchase 750,000 shares of our common
stock, at a purchase price of $1.37 per shares, exercisable for a period of seven years. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, we issued 52,941 restricted shares of our common stock to Laurus, in
exchange for cancellation of the 750,000 warrants.

The combined principal amount that may be outstanding under the $2,000,000 minimum
borrowing note and the $4,000,000 revolving note at any point in time cannot exceed $4,000,000.

We are permitted to borrow an amount based
upon its eligible accounts receivable and inventory, as defined in the agreements with Laurus. We must pay certain fees for any unused portion of the credit facility or in the event the facility is terminated prior to expiration. Our obligations
under the notes are secured by all of our assets, including but not limited to inventory and accounts receivable. The notes mature on March 29, 2008. Annual interest on the Notes is equal to the prime rate published in The Wall
Street Journal from time to time, plus 2.0%, provided, that, such annual rate of interest may not be less than 6%, subject to certain downward adjustments resulting from certain increases in the market price of our common stock. Interest on the
notes is payable monthly in arrears on the first day of each month, commencing on April 1, 2005.

The principal amount of the secured
convertible minimum borrowing note, together with accrued interest thereon is payable on March 29, 2008. The secured convertible minimum borrowing note may be redeemed by us in cash by paying the holder 115% of the principal amount, plus
accrued interest. The holder of the term note may require us to convert all or a portion of the term note, together with interest and fees thereon at any time. The number of shares to be issued shall equal the total amount to be converted, divided
by $1.13.

Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the notes will be
reduced accordingly. The conversion price of the secured convertible notes may be adjusted proportionately in certain circumstances such as if we pay a stock dividend, subdivide or combine outstanding shares of our common stock into a greater or
lesser number of shares, or if we take such other actions as would otherwise result in dilution. In September 2005, we sold 150,000 restricted shares of our common stock at a price below market. In connection therewith, Laurus waived their
anti-dilution provisions related to all convertible notes and warrants issued to Laurus. In connection with the April 16, 2007 stock issuance, Laurus also waived this provision.

115% of the full principal amount of the convertible notes is due upon default under the terms of convertible notes. Laurus had contractually agreed to
restrict its ability to convert if the convertible notes would exceed the difference between the number of shares of common stock beneficially owned by the holder or issuable upon exercise of the warrant and the option held by such holder and 4.99%
of the outstanding shares of our common stock. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, this provision was modified from 4.99% to 9.99%. In addition, this restriction would not apply in the event there was
an event of default or if we sought to redeem the outstanding balance of the convertible deventures.

On April 22, 2005, we filed such
Registration Statement on Form S-2 for the registration of up to 2,944,690 shares of our common stock, including up to 2,194,690 shares of common stock underlying the March 29, 2005 Secured Convertible Notes issued to Laurus, in the principal
amount of $4,000,000 and up to 750,000 shares issuable upon the exercise of common stock purchase warrants. Such Registration Statement was subsequently withdrawn by us on August 19, 2005.

On July 19, 2005, we entered into a Postponement Agreement with Laurus, whereby Laurus agreed to postpone our obligation to make certain
amortization payments on its secured convertible note and, in consideration therefore, we issued to Laurus 275,000 shares of our restricted common stock. Pursuant to the agreement, the principal portion of the monthly amount that is due in
connection with the September 30, 2004 note, on the first business day of each of the months from August 2005 through March 2006 in the amount of $187,500 per month, shall not be required to be paid until the first business day of each of the
months from February 2007 through



38



---

September 2007, respectively, in each case, in addition to the regular monthly principal payments due in each of the months. In connection with the
agreement, Laurus agreed to amend the Registration Rights Agreement with us, to extend the dates for the filing requirements of our Registration Statement.

On August 19, 2005, we filed a Registration Statement on Form S-2 for the registration of up to 3,219,690 shares of our common stock, including up to 2,194,690 shares of common stock underlying the March 29,
2005 Secured Convertible Notes issued to Laurus, in the principal amount of $4,000,000, up to 750,000 shares issuable upon the exercise of common stock purchase warrants, and up to 275,000 shares issued in connection with the July 19, 2005
Postponement Agreement. Such Registration Statement was subsequently withdrawn by us on May 11, 2006.

In November 2005, we reached an
agreement with Laurus in principle pursuant to which we will be obligated to pay Laurus $48,000 as payment in full for all late effectiveness fees. The agreement was subject to negotiation and execution of a definitive agreement.

On April 28, 2006, we entered into a Postponement and Amendment Agreement with Laurus, pursuant to which we modified the September 30, 2004 and
the March 29, 2005 earlier agreements among the parties. The Postponement and Amendment Agreement provides for the following:



| |  |  | Principal payments under the September 30, 2004 note are reduced by $137,500 per month for the eight months commencing May 2006, all of which shall be paid on
the maturity date of the convertible note;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys obligation to repay overadvances of up to $1,721,000 under the March 29, 2005 notes shall be suspended for a period of eight months;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All of the common stock purchase warrants issued to Laurus in connection with the September 30, 2004 and March 29, 2005 agreements are cancelled in their entirety;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 150,000 restricted shares of our common stock to Laurus, for cancellation of the warrants issued to Laurus;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 275,000 restricted share of our common stock to Laurus, for postponement of the portion of principal payments
in connection with the September 30, 2004 note.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the 275,000 shares issued in connection with the
April 28, 2006 Postponement and Amendment Agreement was $45,000, based upon the closing price of our common stock on that date. This financing cost was recorded as a discount on the September 2004 note and the discount is being amortized to
interest expense over the life of the note, in accordance with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.

In connection with the Postponement and Amendment Agreement, we also executed restated promissory notes in favor of Laurus and an amended and restated registration rights agreement (the Restated Registration
Rights Agreement). Pursuant to the Restated Registration Rights Agreement, we agreed to file a registration statement by June 30, 2006, covering the resale of the securities issued or issuable to Laurus. We were obligated to have such
registration statement declared effective by September 30, 2006, but there were no stated penalties for failure to meet such deadline.

On July 3, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 10,221,275 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the March 2005
secured convertible notes, up to 7,326,585 shares of common stock underlying the September 2004 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying
the April 2006 amendment and postponement agreement. Such Registration Statement was subsequently withdrawn by the Company on October 4, 2006.



39



---

On October 4, 2006, the Company entered into an agreement with Laurus pursuant to which the Company
modified the earlier agreements among the parties (the Amendment Agreement). The Amendment Agreement (i) eliminated the obligation of the Company to register for resale the shares of common stock underlying the securities sold in
September 2004, and (ii) removed Laurus right to waive 9.99% ownership limitations contained in their convertible debentures.

In connection with the Amendment Agreement, the Company also executed second amended and restated promissory notes in favor of Laurus. Pursuant to the Amendment Agreement, the Company agreed to file a registration statement by
October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. The Company was obligated to have such registration statement declared effective by November 30, 2006, but there were no stated penalties for failure
to meet such deadline. Laurus could have declared the obligations in default and sought immediate repayment, but it gave no indication of doing so. If immediate repayment had been required, we would not have had sufficient funds and Laurus could
have taken legal action to recover amounts due from our assets.

On October 20, 2006, the Company filed a Registration Statement on
Form SB-2 for the registration of up to 2,761,335 shares of the Companys common stock, including up to 2,061,335 shares of common stock underlying the March 2005 secured convertible notes, 275,000 shares of common stock underlying the July
2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. On December 14, 2006, March 8, 2007 and March 27, 2007, the Company filed amendments to this
Registration Statement on Form SB-2. On April 9, 2007, the Securities and Exchange Commission declared the Registration Statement to be effective.

On May 24, 2006, we entered into an Amendment Agreement with Laurus, pursuant to which we modified earlier agreements among the parties. In connection with the March 29, 2005 financing, we received certain
overadvances of funds in the aggregate amount of $572,094, as of May 24, 2006. In accordance with the Amendment Agreement, Laurus permitted us to sell a sufficient number of shares of GeoPharma, pledged by us to Laurus, in connection with the
September 30, 2004 financing, by June 5, 2006 in satisfaction of the overadvances, with the proceeds being paid to Laurus. Any remaining unsold shares of GeoPharma were delivered to Laurus to be held pursuant to the original pledge
agreement. In June 2006, we sold 143,024 shares of GeoPharma at $4.00 per share. Proceeds from the sale were paid to Laurus in satisfaction of the overadvances. This resulted in our recognizing a gain on the sale of marketable equity securities of
$572,096 for the three months ended June 30, 2006.

On April 11, 2007, the Company entered into a Postponement and Amendment
Agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties. The agreement provides for the following:



| |  |  | Principal payments under the September 2004 note are reduced to $75,000 per month for each of the months commencing January 2007 through the maturity date of the
note, at which time all deferred payments become due and owing;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys obligation to repay overadvances of up to $1,721,000 under the March 2005 revolving note shall be due and payable on December 31, 2007;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 275,000 restricted shares of our common stock to Laurus, for postponement of the portion of principal payments
in connection with the September 2004 note;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the foregoing, the Company issued 75,000 restricted shares of our common stock to Laurus, for postponement of the obligation to repay the
overadvances in connection with the March 2005 note.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the 350,000 shares issued in connection with the
April 11, 2007 Postponement and Amendment Agreement was $164,500, based upon the closing price of our common stock on that date. This financing cost was recorded as a discount in the amount of $129,250 on the September 2004 note and a discount
in



40



---

the amount of $35,250 on the March 2005 note, and the discounts are being amortized to interest expense over the lives of the respective notes, in accordance
with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.

On April 26, 2007, the Company entered into a Business Loan Agreement with First Community Bank of America (FCB), whereby the Company issued a secured Promissory Note to FCB in the maximum principal
amount of $1,000,000, or so much as may be outstanding, together with interest on the unpaid outstanding principal balance from time to time. Loan advances will be made from time to time upon the request of the Company. The note matures on
October 15, 2007. Annual interest on the note is equal to the U.S. Prime Rate as published in The Wall Street Journal, plus 1%. Interest shall be calculated from the date of each advance until repayment of each advance. Interest on the
note is payable monthly on the 26thday of each month, commencing May 26, 2007. There is no prepayment penalty on the note. The note is guaranteed by
Jugal K. Taneja, the Companys Chairman and Mandeep K. Taneja, the Companys Chief Executive Officer and President. In addition, Jugal Taneja and his spouse, and Mandeep Taneja have pledged certain shares of the Companys common stock
as collateral for the note. Proceeds of the note will be used for short-term working capital needs. As of June 30, 2007, the principal balance on the note was $1,000,000.

On May 14, 2007, the Company and GeoPharma entered into a definitive agreement (the Merger Agreement) under which the Company will merge
with and into a wholly-owned subsidiary of GeoPharma in a stock transaction (the Merger). The Board of Directors of the Company determined that the Merger would further the Companys long-term business objectives, including without
limitation, providing additional capital to support continued growth.

Under the terms of the Merger Agreement, GeoPharma will exchange
approximately 0.1429 shares of its common stock for each share of Company common stock and fractional shares will be rounded up to the nearest whole share. Based on an average 10-day market closing price of GeoPharmas common stock from
May 1-14, 2007 of $4.24 per share, the transaction would be valued at $14 million, based on an estimated 3.3 million shares of GeoPharma common stock to be issued to the shareholders of the Company in the Merger. The actual value at
consummation of the Merger will be based on GeoPharmas share price at that time.

Completion of the Merger of the Company into a
wholly-owned subsidiary of GeoPharma and the issuance of the GeoPharma common shares to the shareholders of the Company is subject to the approval of the transaction by the shareholders of both companies, the conversion of the Companys
convertible notes prior to the closing of the Merger, the receipt of required regulatory approvals, and the satisfaction of usual and customary closing conditions. The Merger Agreement contains certain termination rights for both the Company and
GeoPharma.

Directors and executive officers of GeoPharma beneficially own and are entitled to vote approximately 43% of the shares of
GeoPharma common stock outstanding. Directors and executive officers of the Company beneficially own and are entitled to vote approximately 47% of the shares of Company common stock outstanding.

On May 15, 2007, the Company and GeoPharma filed with the Securities and Exchange Commission (the SEC) a joint proxy
statement/prospectus on Form S-4, in connection with the proposed acquisition of the Company by GeoPharma pursuant to the terms of the definitive Merger Agreement. The SEC declared the S-4 Registration Statement, as amended, effective on July 5,
2007. On August 10, 2007, the Merger Agreement was approved by the shareholders of the Company and GeoPharma. The merger will be effected once all of the conditions of the merger have been completed or waived.



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

Not applicable.



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

Evaluation of disclosure
controls and procedures. An evaluation was performed under the supervision and with the participation of our management, including the Companys chief executive officer and its chief financial officer, of the effectiveness of the design and
operation of the Companys disclosure procedures. Based on managements evaluation as of the end of the period covered by this Quarterly Report, our chief executive officer and chief financial officer have concluded that the Companys
disclosure controls and procedures (as defined in



41



---

Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective to ensure that the
information required to be disclosed by us in the reports that we filed under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness and to ensure that such information is accumulated and
communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Changes in internal controls. There have been no changes in the Companys internal controls or in other factors that materially affected or were reasonably likely to materially affect these controls during the
period covered by this report, nor were there any material weaknesses in our internal controls. Accordingly, no corrective actions were required or undertaken.



42



---

PART II  OTHER INFORMATION



|Item 1. | LEGAL PROCEEDINGS.
|------- | ------------------

From time to time we are
subject to litigation incidental to our business including possible product liability claims. Such claims, if successful, could exceed applicable insurance coverage. We are not currently a party to any legal proceedings which we believe will have a
material adverse affect on our results of operations.



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

Not applicable.



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

On April 16, 2007, we issued 100,000 restricted shares of our common stock to a consultant in payment of consulting services provided to us. Such shares were issued based upon the exemption provided by
Section 4(2) under the Securities Act of 1933.



|Item 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------

Not applicable.



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

Not applicable.



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

Not applicable.



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



|     |  |                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Agreement and Plan of Reorganization, dated as of May 14, 2007, by and among GeoPharma, Inc., Florida Merger Subsidiary Corp. and Dynamic Health Products, Inc. (7)     
|     | 
|3.1  |  | Articles of Incorporation of Direct Rx Healthcare, Inc., filed January 27, 1998. (1)                                                                                    
|     | 
|3.2  |  | Articles of Amendment to Articles of Incorporation of Nu-Wave Health Products, Inc., dated August 11, 1998. (2)                                                         
|     | 
|3.3  |  | Articles of Amendment to Articles of Incorporation of Dynamic Health Products, Inc., filed September 1, 1998. (3)                                                       
|     | 
|3.4  |  | Articles of Restatement of the Articles of Incorporation of Dynamic Health Products, Inc., filed April 16, 1999. (3)                                                    
|     | 
|3.5  |  | Certificate of Amendment to Restated Articles of Incorporation of Dynamic Health Products, Inc., filed October 25, 2004. (4)                                            
|     | 
|10.1 |  | Postponement and Amendment Agreement, dated as of April 11, 2007, by and among Laurus master fund, Ltd., Dynamic Health Products, Inc. and Dynamic Marketing I, Inc. (5)
|     | 
|10.2 |  | Business Loan Agreement, dated as of April 26, 2007, by and between Dynamic Health Products, Inc. and First Community Bank of America. (6)                              
|     | 
|10.3 |  | Promissory Note issued by Dynamic Health Products, Inc. to First Community Bank of America, dated April 26, 2007. (6)                                                   



43



---

|     |  |                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4 |  | Commercial Security Agreement, dated as of April 26, 2007, by and between Dynamic Health Products, Inc. and First Community Bank of America. (6)               
|     | 
|31.1 |  | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
|     | 
|31.2 |  | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).              
|     | 
|32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).              

---

|(1) | Incorporated by reference to the Companys Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998, file number 0-23031, filed in Washington, D.C. on
June 16, 1998.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Companys Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998, file number 0-23031, filed in Washington, D.C. on
August 14, 1998.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Companys Annual Report on Form 10-KSB for the fiscal year ended March 31, 1999, file number 0-23031, filed in Washington, D.C. on
July 9, 1999.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Companys Current Report on Form 8-K, dated October 25, 2004, file number 0-23031, filed in Washington, D.C. on October 26, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Current Report on Form 8-K, dated April 11, 2007, file number 0-23031, filed in Washington, D.C. on April 11, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Companys Current Report on Form 8-K, dated April 26, 2007, file number 0-23031, filed in Washington, D.C. on April 26, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Companys Current Report on Form 8-K, dated May 14, 2007, file number 0-23031, filed in Washington, D.C. on May 17, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



44



---

SIGNATURES

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



|                      |  |                               |  |                                   
|--------------------- |  | ----------------------------- |  | ----------------------------------
|                      |  | Dynamic Health Products, Inc.
|                      |  |                              
|Date: August 14, 2007 |  | By:                           |  | /s/ Mandeep K. Taneja             
|                      |  |                               |  | Mandeep K. Taneja, Chief Executive
|                      |  |                               |  | Officer and President             
|                      |  |                              
|Date: August 14, 2007 |  | By:                           |  | /s/ Cani I. Shuman                
|                      |  |                               |  | Cani I. Shuman,                   
|                      |  |                               |  | Chief Financial Officer           



45