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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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



For the quarterly period ended December 31, 2004



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



For the transition period from  to



Commission file number 0-23031



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DYNAMIC HEALTH PRODUCTS, INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 34-1711778                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|6911 Bryan Dairy Road, Suite 210, Largo, Florida               |  | 33777                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Issuers
telephone number (727) 329-1845



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



The number of shares outstanding of the Issuers common stock at $.01
par value as of February 11, 2005 was 13,626,820.



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PART I - FINANCIAL INFORMATION



Item 1. CONSOLIDATED FINANCIAL STATEMENTS.



DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                               |  |                  |            |   |               |   |            |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ---------- | - | ------------- | - | ---------- | -
|                                                                                                                               |  | December 31,2004 |            |   | March 31,2004 |  
|                                                                                                                               |  | (Unaudited)      |            |   | (Audited)     |  
|ASSETS                                                                                                                         |  |                  |            |   |               |   |            |  
|                                                                                                                               |  |                 
|Current assets:                                                                                                                |  |                  |            |   |               |   |            |  
|Cash and cash equivalents                                                                                                      |  | $                | 633,377    |   |               | $ | 219,119    |  
|Cash in escrow                                                                                                                 |  |                  | 550,000    |   |               |   |           |  
|Marketable equity securities, net                                                                                              |  |                  | 1,749,005  |   |               |   | 3,806,324  |  
|Accounts receivable, net                                                                                                       |  |                  | 1,118,935  |   |               |   | 154,230    |  
|Inventories, net                                                                                                               |  |                  | 2,798,316  |   |               |   | 189,193    |  
|Prepaid expenses                                                                                                               |  |                  | 262,093    |   |               |   | 43,468     |  
|Deferred consulting fees                                                                                                       |  |                  | 740,324    |   |               |   |           |  
|Other current assets                                                                                                           |  |                  | 68,052     |   |               |   | 56,345     |  
|Due from affiliates                                                                                                            |  |                  | 1,412      |   |               |   | 10,605     |  
|Note receivable from affiliate                                                                                                 |  |                  | 42,777     |   |               |   | 40,481     |  
|                                                                                                                               |  |                  |            |   |               |   |            |  
|Total current assets                                                                                                           |  |                  | 7,964,291  |   |               |   | 4,519,765  |  
|                                                                                                                               |  |                 
|Property, plant and equipment, net                                                                                             |  |                  | 257,855    |   |               |   | 1,314,399  |  
|                                                                                                                               |  |                 
|Goodwill                                                                                                                       |  |                  | 2,758,278  |   |               |   |           |  
|Intangible assets, net                                                                                                         |  |                  | 294,837    |   |               |   | 25,842     |  
|Other assets                                                                                                                   |  |                  | 34,491     |   |               |   | 5,141      |  
|                                                                                                                               |  |                  |            |   |               |   |            |  
|Total assets                                                                                                                   |  | $                | 11,309,752 |   |               | $ | 5,865,147  |  
|                                                                                                                               |  |                  |            |   |               |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                           |  |                  |            |   |               |   |            |  
|                                                                                                                               |  |                 
|Current liabilities:                                                                                                           |  |                  |            |   |               |   |            |  
|Accounts payable                                                                                                               |  | $                | 1,512,347  |   |               | $ | 126,086    |  
|Other payables                                                                                                                 |  |                  | 200,365    |   |               |   | 95,413     |  
|Current portion of long-term obligations                                                                                       |  |                  | 848,615    |   |               |   | 27,023     |  
|Accrued expenses                                                                                                               |  |                  | 295,894    |   |               |   | 68,411     |  
|Obligations to affiliates                                                                                                      |  |                  | 68,946     |   |               |   | 245,292    |  
|Note payable                                                                                                                   |  |                  | 28,016     |   |               |   | 13,043     |  
|                                                                                                                               |  |                  |            |   |               |   |            |  
|Total current liabilities                                                                                                      |  |                  | 2,954,183  |   |               |   | 575,268    |  
|                                                                                                                               |  |                 
|Deferred income taxes                                                                                                          |  |                  | 639,700    |   |               |   | 1,189,300  |  
|Long-term obligations, less current portion                                                                                    |  |                  | 1,649,286  |   |               |   | 813,491    |  
|                                                                                                                               |  |                  |            |   |               |   |            |  
|Total liabilities                                                                                                              |  |                  | 5,243,169  |   |               |   | 2,578,059  |  
|                                                                                                                               |  |                  |            |   |               |   |            |  
|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; 13,210,614 and 12,774,834 shares issued and outstanding            |  |                  | 132,106    |   |               |   | 127,748    |  
|Additional paid-in capital                                                                                                     |  |                  | 5,971,418  |   |               |   | 2,671,568  |  
|Retained earnings (deficit)                                                                                                    |  |                  | (1,123,878 | ) |               |   | (1,798,719 | )
|Accumulated other comprehensive income:                                                                                        |  |                  |            |   |               |   |            |  
|Unrealized gains (losses) on marketable equity securities, net of tax                                                          |  |                  | 1,086,937  |   |               |   | 2,286,491  |  
|                                                                                                                               |  |                  |            |   |               |   |            |  
|Total shareholders equity                                                                                                     |  |                  | 6,066,583  |   |               |   | 3,287,088  |  
|                                                                                                                               |  |                  |            |   |               |   |            |  
|Total liabilities and shareholders equity                                                                                     |  | $                | 11,309,752 |   |               | $ | 5,865,147  |  
|                                                                                                                               |  |                  |            |   |               |   |            |  



See accompanying notes
to condensed consolidated financial statements.



- 2 -



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------ |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                             |  | Three Months Ended December 31, |            |   | Nine Months Ended December 31, |  
|                                                             |  | 2004                            |            |   | 2003                           |   |            | 2004 |  |   | 2003       |  
|Revenues:                                                    |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Distribution                                                 |  | $                               | 6,868,190  |   |                                | $ | 471,642    |      |  | $ | 7,506,490  |   |  | $ | 984,155    |  
|Prescription services                                        |  |                                 |           |   |                                |   | 35,788     |      |  |   | 70,897     |   |  |   | 134,680    |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                                               |  |                                 | 6,868,190  |   |                                |   | 507,430    |      |  |   | 7,577,387  |   |  |   | 1,118,835  |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Cost of goods sold:                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Distribution                                                 |  |                                 | 6,009,073  |   |                                |   | 244,637    |      |  |   | 6,370,788  |   |  |   | 446,536    |  
|Prescription services                                        |  |                                 |           |   |                                |   | 32,946     |      |  |   | 62,815     |   |  |   | 101,625    |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total cost of goods sold                                     |  |                                 | 6,009,073  |   |                                |   | 277,583    |      |  |   | 6,433,603  |   |  |   | 548,161    |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Gross profit:                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Distribution                                                 |  |                                 | 859,117    |   |                                |   | 227,005    |      |  |   | 1,135,702  |   |  |   | 537,619    |  
|Prescription services                                        |  |                                 |           |   |                                |   | 2,842      |      |  |   | 8,082      |   |  |   | 33,055     |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total gross profit                                           |  |                                 | 859,117    |   |                                |   | 229,847    |      |  |   | 1,143,784  |   |  |   | 570,674    |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Operating expenses:                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Selling, general and administrative expenses                 |  |                                 | 1,106,704  |   |                                |   | 400,216    |      |  |   | 1,868,531  |   |  |   | 870,592    |  
|Amortization expense                                         |  |                                 | 27,471     |   |                                |   | 451        |      |  |   | 36,872     |   |  |   | 1,168      |  
|Depreciation expense                                         |  |                                 | 18,008     |   |                                |   | 21,049     |      |  |   | 54,217     |   |  |   | 65,207     |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                     |  |                                 | 1,152,183  |   |                                |   | 421,716    |      |  |   | 1,959,620  |   |  |   | 936,967    |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Operating loss before other income and expense               |  |                                 | (293,066   | ) |                                |   | (191,869   | )    |  |   | (815,836   | ) |  |   | (366,293   | )
|                                                             |  |                                 |            |  
|Other income (expense):                                      |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Interest income                                              |  |                                 | 2,137      |   |                                |   | 786        |      |  |   | 3,793      |   |  |   | 2,321      |  
|Other income and expenses, net                               |  |                                 | (8,099     | ) |                                |   | 59,881     |      |  |   | 83,101     |   |  |   | 219,547    |  
|Gain on distribution of investment                           |  |                                 |           |   |                                |   |           |      |  |   | 1,349,966  |   |  |   |           |  
|Gain on sale of property                                     |  |                                 | 654,241    |   |                                |   |           |      |  |   | 654,241    |   |  |   |           |  
|Gain on sale of investment                                   |  |                                 |           |   |                                |   | 71,843     |      |  |   |           |   |  |   | 71,843     |  
|Losses on marketable equity securities, net                  |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   | (102,434   | )
|Equity in income (loss) of affiliated companies              |  |                                 |           |   |                                |   | (146       | )    |  |   |           |   |  |   | (5,322     | )
|Interest expense                                             |  |                                 | (402,832   | ) |                                |   | (42,904    | )    |  |   | (438,617   | ) |  |   | (74,786    | )
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total other income (expense)                                 |  |                                 | 245,447    |   |                                |   | 89,460     |      |  |   | 1,652,484  |   |  |   | 111,169    |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Income (loss) before income taxes                            |  |                                 | (47,619    | ) |                                |   | (102,409   | )    |  |   | 836,648    |   |  |   | (255,124   | )
|                                                             |  |                                 |            |  
|Income tax expense (benefit)                                 |  |                                 | (109,396   | ) |                                |   | 56,924     |      |  |   | 161,807    |   |  |   | 14,797     |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss)                                            |  |                                 | 61,777     |   |                                |   | (159,333   | )    |  |   | 674,841    |   |  |   | (269,921   | )
|                                                             |  |                                 |            |  
|Preferred stock dividends                                    |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) available to common shareholders           |  | $                               | 61,777     |   |                                | $ | (159,333   | )    |  | $ | 674,841    |   |  | $ | (269,921   | )
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic income (loss) per share                                |  | $                               |           |   |                                | $ | (0.01      | )    |  | $ | 0.05       |   |  | $ | (0.02      | )
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic weighted average number of common shares outstanding   |  |                                 | 12,899,294 |   |                                |   | 12,331,500 |      |  |   | 12,816,472 |   |  |   | 12,331,500 |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Diluted income (loss) per share                              |  | $                               |           |   |                                | $ | (0.01      | )    |  | $ | 0.04       |   |  | $ | (0.02      | )
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Diluted weighted average number of common shares outstanding |  |                                 | 14,891,704 |   |                                |   | 12,331,500 |      |  |   | 16,906,473 |   |  |   | 12,331,500 |  
|                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  



See accompanying notes
to condensed consolidated financial statements.



- 3 -



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY



|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |   |                           |            |  |                                        |         |  |                           |            |   |                                       |   |            |   |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------ | ------ | ----------------------- | ------- | ----------------------- | ------ | ------------ | ------- | ------------------------ | ------ | - | ------------------------- | ---------- |  | -------------------------------------- | ------- |  | ------------------------- | ---------- | - | ------------------------------------- | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |   |                           |            |  |                                        |         |  |                           |            |   | Accumulated OtherComprehensive Income |   |            |   | 
|                                                                                                       |        | Series APreferred Stock |         | Series BPreferred Stock |        | Common Stock |         | AdditionalPaid-inCapital |        |   | RetainedEarnings(Deficit) |            |  | Unrealized Gains(Losses) on Securities |         |  | TotalShareholders Equity |           
|                                                                                                       | Shares |                         | Dollars |                         | Shares |              | Dollars |                          | Shares |   | Dollars                   |            |  |                                        |        
|Balances at March 31, 2004 (Audited)                                                                   |        |                        |         | $                       |       |              |        |                          | $      |  |                           | 12,774,834 |  | $                                      | 127,748 |  | $                         | 2,671,568  |   |                                       | $ | (1,798,719 | ) |  | $ | 2,286,491  |   |  | $ | 3,287,088  |  
|COMPREHENSIVE INCOME (LOSS)                                                                            |        |                         |         |                         |        |              |         |                          |        |   |                           |            |  |                                        |         |  |                           |            |   |                                       |   |            |   |  |   |            |   |  |   |            |  
|Net income (loss)                                                                                      |        |                        |         |                         |       |              |        |                          |        |  |                           |           |  |                                        |        |  |                           |           |   |                                       |   | 674,841    |   |  |   |            |   |  |   | 674,841    |  
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |  
|Unrealized gains (losses) on marketable equity securities (net of tax of $674,750)                     |        |                        |         |                         |       |              |        |                          |        |  |                           |           |  |                                        |        |  |                           |           |   |                                       |   |           |   |  |   | (1,199,554 | ) |  |   | (1,199,554 | )
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |   |                           |            |  |                                        |         |  |                           |            |   |                                       |   |            |   |  |   |            |   |  |   |            |  
|Comprehensive income (loss)                                                                            |        |                         |         |                         |        |              |         |                          |        |   |                           |            |  |                                        |         |  |                           |            |   |                                       |   |            |   |  |   |            |   |  |   | (524,713   | )
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |  
|Issuance of 300,000 common stock warrants for consulting services                                      |        |                        |         |                         |       |              |        |                          |        |  |                           |           |  |                                        |        |  |                           | 270,000    |   |                                       |   |           |   |  |   |            |   |  |   | 270,000    |  
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |  
|Dividend distribution of 1,277,483 shares of Vertical Health Solutions, Inc.                           |        |                        |         |                         |       |              |        |                          |        |  |                           |           |  |                                        |        |  |                           | (1,532,979 | ) |                                       |   |           |   |  |   |            |   |  |   | (1,532,979 | )
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |  
|Issuance of 1,375,000 common stock warrants associated with $6 million funding                         |        |                        |         |                         |       |              |        |                          |        |  |                           |           |  |                                        |        |  |                           | 3,480,025  |   |                                       |   |           |   |  |   |            |   |  |   | 3,480,025  |  
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |  
|Issuance of 500,000 common stock options for guarantee of long-term debt                               |        |                        |         |                         |       |              |        |                          |        |  |                           |           |  |                                        |        |  |                           | 498,763    |   |                                       |   |           |   |  |   |            |   |  |   | 498,763    |  
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |  
|Issuance of 200,000 common stock warrants for consulting services                                      |        |                        |         |                         |       |              |        |                          |        |  |                           |           |  |                                        |        |  |                           | 195,000    |   |                                       |   |           |   |  |   |            |   |  |   | 195,000    |  
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |  
|Issuance of 35,000 shares of common stock for consulting services                                      |        |                        |         |                         |       |              |        |                          |        |  |                           | 35,000     |  |                                        | 350     |  |                           | 35,000     |   |                                       |   |           |   |  |   |            |   |  |   | 35,350     |  
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |  
|Conversion of long-term debt and interest to common stock at $.90 per share, net of registration costs |        |                        |         |                         |       |              |        |                          |        |  |                           | 400,780    |  |                                        | 4,008   |  |                           | 354,041    |   |                                       |   |           |   |  |   |            |   |  |   | 358,049    |  
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |   |                           |            |  |                                        |         |  |                           |            |   |                                       |   |            |   |  |   |            |   |  |   |            |  
|Balances at December 31, 2004 (Unaudited)                                                              |        |                        |         | $                       |       |              |        |                          | $      |  |                           | 13,210,614 |  | $                                      | 132,106 |  | $                         | 5,971,418  |   |                                       | $ | (1,123,878 | ) |  | $ | 1,086,937  |   |  | $ | 6,066,583  |  
|                                                                                                       |        |                         |         |                         |        |              |         |                          |        |   |                           |            |  |                                        |         |  |                           |            |   |                                       |   |            |   |  |   |            |   |  |   |            |  



See accompanying notes
to condensed consolidated financial statements.



- 4 -



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                                        |  |                               |            |   |      |   |          |  
|--------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | - | ---- | - | -------- | -
|                                                                                        |  | Nine Months EndedDecember 31, |           
|                                                                                        |  | 2004                          |            |   | 2003 |  
|Cash flows from operating activities:                                                   |  |                               |            |   |      |   |          |  
|Net income (loss)                                                                       |  | $                             | 674,841    |   |      | $ | (269,921 | )
|                                                                                        |  |                              
|Adjustments to reconcile net income (loss) to net cash used in operating activities:    |  |                               |            |   |      |   |          |  
|Depreciation and amortization                                                           |  |                               | 91,089     |   |      |   | 66,375   |  
|Common stock issued for consulting fees                                                 |  |                               | 35,350     |   |      |   |         |  
|Amortization of deferred consulting fees                                                |  |                               | 223,439    |   |      |   |         |  
|Amortization of debt discount to interest expense                                       |  |                               | 295,554    |   |      |   |         |  
|Common stock issued in payment of interest expense                                      |  |                               | 34,452     |   |      |   |         |  
|Equity in (income) loss of affiliated companies                                         |  |                               |           |   |      |   | 5,322    |  
|Gain on sale of property                                                                |  |                               | (654,241   | ) |      |   |         |  
|Gain on distribution of marketable equity securities                                    |  |                               | (1,349,966 | ) |      |   |         |  
|Gain on sale of investment                                                              |  |                               |           |   |      |   | (71,843  | )
|Losses on sales of marketable equity securities, net of effect of deferred income taxes |  |                               |           |   |      |   | 65,389   |  
|Changes in operating assets and liabilities:                                            |  |                               |            |   |      |   |          |  
|Accounts receivable                                                                     |  |                               | (6,673     | ) |      |   | (28,481  | )
|Inventories                                                                             |  |                               | (132,810   | ) |      |   | (100,886 | )
|Due to/from affiliates, net                                                             |  |                               | (169,448   | ) |      |   | 121,713  |  
|Prepaid expenses                                                                        |  |                               | (63,065    | ) |      |   | (10,501  | )
|Other current assets                                                                    |  |                               | 30,988     |   |      |   | 45       |  
|Other assets                                                                            |  |                               | 2,627      |   |      |   | 7,310    |  
|Accounts payable                                                                        |  |                               | 440,992    |   |      |   | 24,635   |  
|Other payables                                                                          |  |                               | 79,079     |   |      |   | 53,907   |  
|Accrued expenses                                                                        |  |                               | (292,083   | ) |      |   | 130,546  |  
|Accrued income taxes                                                                    |  |                               |           |   |      |   | 1,178    |  
|Deferred income taxes                                                                   |  |                               | 125,151    |   |      |   |         |  
|                                                                                        |  |                               |            |   |      |   |          |  
|Net cash used in operating activities                                                   |  |                               | (634,724   | ) |      |   | (5,212   | )
|                                                                                        |  |                               |            |   |      |   |          |  
|Cash flows from investing activities:                                                   |  |                               |            |   |      |   |          |  
|Purchases of property and equipment                                                     |  |                               | (6,151     | ) |      |   | (4,034   | )
|Proceeds from sale of property                                                          |  |                               | 1,911,014  |   |      |   |         |  
|Purchase of Bob OLeary Health Food Distributor Co., Inc., net of cash acquired         |  |                               | (4,889,763 | ) |      |   |         |  
|Purchase of investment                                                                  |  |                               |           |   |      |   | (6,500   | )
|Proceeds from sale of investment                                                        |  |                               |           |   |      |   | 250,000  |  
|Proceeds from sale of marketable equity securities                                      |  |                               |           |   |      |   | 4,781    |  
|Redemption of certificate of deposit                                                    |  |                               |           |   |      |   | 45,917   |  
|Purchase of trademark                                                                   |  |                               | (1,977     | ) |      |   | (2,856   | )
|                                                                                        |  |                               |            |   |      |   |          |  
|Net cash provided by (used in) investing activities                                     |  |                               | (2,986,877 | ) |      |   | 287,308  |  
|                                                                                        |  |                               |            |   |      |   |          |  
|Cash flows from financing activities:                                                   |  |                               |            |   |      |   |          |  
|Proceeds from issuance of long-term obligations                                         |  |                               | 5,734,500  |   |      |   |         |  
|Payments of long-term obligations                                                       |  |                               | (831,891   | ) |      |   | (24,577  | )
|Proceeds from issuance of short-term obligations                                        |  |                               |           |   |      |   | 38,207   |  
|Payments of short-term obligations                                                      |  |                               | (260,974   | ) |      |   | (24,260  | )
|Payments of loan costs                                                                  |  |                               | (53,123    | ) |      |   |         |  
|Payment of common stock registration costs                                              |  |                               | (2,653     | ) |      |   |         |  
|Proceeds from issuance of related party obligations                                     |  |                               | 150,000    |   |      |   | 47,819   |  
|Payments of related party obligations                                                   |  |                               | (150,000   | ) |      |   |         |  
|                                                                                        |  |                               |            |   |      |   |          |  
|Net cash provided by financing activities                                               |  |                               | 4,585,859  |   |      |   | 37,189   |  
|                                                                                        |  |                               |            |   |      |   |          |  
|Net increase in cash                                                                    |  |                               | 964,258    |   |      |   | 319,285  |  
|                                                                                        |  |                              
|Cash at beginning of period                                                             |  |                               | 219,119    |   |      |   | 23,914   |  
|                                                                                        |  |                               |            |   |      |   |          |  
|Cash at end of period                                                                   |  | $                             | 1,183,377  |   |      | $ | 343,199  |  
|                                                                                        |  |                               |            |   |      |   |          |  



See accompanying notes
to condensed consolidated financial statements.



- 5 -



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - Continued



|                                                                                                  |  |                               |           |      |   |        
|------------------------------------------------------------------------------------------------- |  | ----------------------------- | --------- | ---- | - | -------
|                                                                                                  |  | Nine Months EndedDecember 31,
|                                                                                                  |  | 2004                          |           | 2003
|Supplemental disclosure of cash flow information:                                                 |  |                               |           |      |   |        
|Cash paid during the period for interest                                                          |  | $                             | 76,530    |      | $ | 47,851 
|                                                                                                  |  |                               |           |      |   |        
|Cash paid during the period for income taxes                                                      |  | $                             |          |      | $ | 50,664 
|                                                                                                  |  |                               |           |      |   |        
|Supplemental schedule of non-cash investing activities:                                           |  |                               |           |      |   |        
|Exchange of investment in preferred stock of affiliate to investment in common stock of affiliate |  | $                             |          |      | $ | 179,846
|                                                                                                  |  |                               |           |      |   |        
|Exchange of dividends receivable from affiliate to investment in common stock of affiliate        |  | $                             |          |      | $ | 53,936 
|                                                                                                  |  |                               |           |      |   |        
|Supplemental schedule of non-cash financing activities:                                           |  |                               |           |      |   |        
|Dividend distribution of 1,277,483 shares of Vertical Health Solutions, Inc.                      |  | $                             | 1,532,979 |      | $ |       
|                                                                                                  |  |                               |           |      |   |        
|Issuance of common stock warrants for funding                                                     |  | $                             | 3,480,025 |      | $ |       
|                                                                                                  |  |                               |           |      |   |        
|Payment of loan costs for the issuance of long-term obligation                                    |  | $                             | 265,500   |      | $ |       
|                                                                                                  |  |                               |           |      |   |        
|Issuance of common stock options for guarantee of long-term obligation                            |  | $                             | 498,763   |      | $ |       
|                                                                                                  |  |                               |           |      |   |        
|Issuance of common stock for payment of long-term obligation                                      |  | $                             | 326,250   |      | $ |       
|                                                                                                  |  |                               |           |      |   |        
|Issuance of common stock warrants for consulting services                                         |  | $                             | 465,000   |      | $ |       
|                                                                                                  |  |                               |           |      |   |        
|Issuance of common stock for consulting services                                                  |  | $                             | 35,350    |      | $ |       
|                                                                                                  |  |                               |           |      |   |        
|Issuance of short-term obligation for prepaid expenses                                            |  | $                             | 41,446    |      | $ |       
|                                                                                                  |  |                               |           |      |   |        



See accompanying notes
to condensed consolidated financial statements.



- 6 -



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED

DECEMBER 31, 2004 AND 2003 (UNAUDITED)



NOTE A-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-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. Generally Accepted Accounting Principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine months ended December 31, 2004 and 2003 are not necessarily indicative of the results that may be expected for the year ending March 31, 2005. 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, 2004.



Reclassifications



Certain reclassifications have been made to the financial statements as of and for the three and nine months ended December 31, 2003 to conform to the
presentation as of and for the three and nine months ended December 31, 2004.



NOTE B-PRINCIPLES OF CONSOLIDATION



The
condensed consolidated financial statements as of and for the three and nine months ended December 31, 2004 include the accounts of Dynamic Health Products, Inc. and its principally wholly-owned subsidiaries, Pharma Labs Rx, Inc. (Pharma
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. (Pharma NV) and Bob OLeary
Health Food Distributor Co., Inc. (BOSS). Effective October 1, 2004, BOSS was acquired by the Company. Significant intercompany balances and transactions have been eliminated in consolidation.



The condensed consolidated financial statements as of and for the three and
nine months ended December 31, 2003 include the accounts of Dynamic Health Products, Inc. and its principally wholly-owned subsidiaries (collectively the Company), Pharma Labs Rx, Inc., Dynamic Life Products, Inc., Herbal Health
Products, Inc. (Herbal), Online Meds Rx, Inc. (Online) and its subsidiary Dynamic Financial Consultants, LLC, and Dynamic Financials Corporation and its subsidiary Bryan Capital Limited Partnership, and Todays Drug,
Inc. Significant intercompany balances and transactions have been eliminated in consolidation.



NOTE C-INVESTMENTS IN UNCONSOLIDATED AFFILIATES



Investments in companies in which the Company has a 20% to 50% interest are accounted for using the equity method. Accordingly, the investments are carried at cost, adjusted for the Companys proportionate share
of their undistributed earnings and losses.



- 7 -



---

The Company owns 30%, or 300,000 shares of common stock of Tribeca Beverage Company
(Tribeca), an affiliate of Jugal K. Taneja, Chairman of the Board of the Company and Mandeep K. Taneja, Chief Executive Officer and President of the Company. The investment was accounted for under the equity method until March 31, 2003,
at which time, as a result of managements analysis, it was determined that the investment was worthless and the Company recognized an impairment loss on the investment.



On April 30, 2003, the Company entered into a joint venture agreement with a company to form a Florida limited liability
company, Generilean Health Systems, LLC (Generilean), to market various products. Under the terms of the agreement, the Company had a 50% ownership and shared profits and losses equally. The Company was required to contribute half of the
costs incurred in the initial marketing of the products. The Company accounted for the investment under the equity method of accounting until March 31, 2004, at which time, the investment amounted to zero and the operations of the joint venture were
discontinued. As of December 31, 2003, the investment on the records of the Company and the operations of the joint venture were not material.



NOTE D-ACQUISITION AND DISPOSITION OF ASSETS



Acquisition Of Bob OLeary Health Food Distributor Co., Inc.



Effective October 1, 2004, the Company acquired 100% of the common stock of Bob OLeary Health Food Distributor Co., Inc., a Pennsylvania
corporation. BOSS is engaged in developing, wholesaling and distributing a wide variety of non-prescription dietary supplements, vitamins, health food and nutritional products, soft goods and other related products. It was determined by management
and the Board of Directors of the Company that it would be in the best interest of the Company to acquire BOSS to further certain of its business objectives, including without limitation, providing additional sales and expanded marketing and
distribution channels for the Company.



The above was
accomplished pursuant to a Stock Purchase Agreement dated September 10, 2004. At the closing, the Company acquired all of the issued and outstanding shares of common stock of BOSS (the Shares). The consideration paid by the Company for
the Shares and the sellers execution of a Non-Competition, Non-Solicitation and Confidentiality Agreement was $5,500,000 in cash, subject to a dollar for dollar adjustment, equal to the increase or decrease in net book value of BOSS from June
30, 2004 to September 30, 2004. In December 2004, the Company paid an additional $159,420 for the purchase, due to a dollar for dollar increase in the net book value of BOSS as of September 30, 2004, as compared to June 30, 2004. Of the cash paid,
$550,000 was placed in escrow and is to be disbursed to the sellers six months subsequent to closing. In addition, at closing, the Company paid an aggregate of $234,500 in cash to the former shareholders of BOSS in consideration of outstanding debt.
The transaction was accounted for as a purchase. The results of operations of BOSS have been included in the Companys results of operations since the date of acquisition, October 1, 2004.



The aggregate cost of this acquisition was as follows:



|                          |  |   |          
|------------------------- |  | - | ---------
|Assumption of liabilities |  | $ | 1,725,210
|Cash paid                 |  |   | 4,889,763
|                          |  |   |          
|                          |  | $ | 6,614,973
|                          |  |   |          



- 8 -



---

The aggregate purchase price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 958,033  
|Inventory              |  |   | 2,476,313
|Property and equipment |  |   | 225,500  
|Other assets           |  |   | 196,849  
|Goodwill               |  |   | 2,758,278
|                       |  |   |          
|                       |  | $ | 6,614,973
|                       |  |   |          



The unaudited pro
forma effect of the acquisition of BOSS on the Companys revenues, net income and net income per share, had the acquisition occurred on April 1, 2004 and 2003, respectively, is as follows:



|                         |  |                                    |            |                                   |   |           
|------------------------ |  | ---------------------------------- | ---------- | --------------------------------- | - | ----------
|                         |  | Nine Months EndedDecember 31, 2004 |            | Nine MonthsEndedDecember 31, 2003
|                         |  | (Unaudited)                        |            | (Unaudited)                      
|Revenues                 |  | $                                  | 29,386,897 |                                   | $ | 23,257,474
|                         |  |                                    |            |                                   |   |           
|Net income               |  | $                                  | 1,135,813  |                                   | $ | 243,584   
|                         |  |                                    |            |                                   |   |           
|Basic income per share   |  | $                                  | 0.09       |                                   | $ | 0.02      
|                         |  |                                    |            |                                   |   |           
|Diluted income per share |  | $                                  | 0.07       |                                   | $ | 0.02      
|                         |  |                                    |            |                                   |   |           



Disposition Of Real Property



On October 25, 2004, the Company sold its 33,222 square
foot building located at 6950 Bryan Dairy Road, Largo, Florida to GeoPharma, Inc. (GeoPharma) for $1,925,000 in cash. This resulted in a gain of $654,241 to the Company. The purchase price was determined by an independent, third-party
appraisal. The Company was previously leasing the facility to GeoPharma pursuant to a ten year triple-net lease that would have expired in September 2009.



NOTE E-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



- 9 -



---

- 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).



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 December 31, 2004, the outstanding principal balance on the
convertible note was $5,673,750.



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.



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 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 are 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 are exercisable on a cashless basis. In the event that the warrants are exercised on a cashless basis, then the
Company will not receive any proceeds. In addition, the exercise price of the warrants will 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.



- 10 -



---

Due to the convertible nature of the note, the Company recorded a charge of $2,066,667 due to the
beneficial conversion feature, in accordance with EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF Issue No. 00-27, Application of EITF
Issue No. 98-5 to Certain Convertible Instruments. The value of the beneficial conversion feature was measured using the intrinsic value and is being amortized to interest expense over the life of the note. The Company allocated $1,413,358 of
the aggregate proceeds from the note to the warrants as original issuance discount, which represented the relative fair value of the warrants at the date of issuance, and is amortizing the discount to interest expense over the life of the note. The
amount of discount amortized to interest expense in for the three and nine months ended December 31, 2004 was $292,376 and $295,554, respectively.



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 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.



NOTE
FSHAREHOLDERS EQUITY



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.



Comprehensive Income



The Company utilizes the guidance provided by
Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income, which became effective for the Company for the fiscal year ended March 31, 1999. SFAS 130 establishes standards for reporting and display of
comprehensive income within the general purpose financial statements and requires reclassification of applicable financial statement components for any prior period comparative financial statement components. The Company implemented SFAS 130 as of
and for the three months ended June 30, 2000 based on comprehensive income transactions being present.



- 11 -



---

The Company has elected to present the comprehensive income items within the shareholders equity
section of the balance sheet in addition to presenting a condensed consolidated statement of changes in shareholders equity statement. The following presents comprehensive income as of December 31, 2004:



|                                                                        |  |                  |           |                      |   |          |                  |  |   |          
|----------------------------------------------------------------------- |  | ---------------- | --------- | -------------------- | - | -------- | ---------------- |  | - | ---------
|                                                                        |  | Before-TaxAmount |           | Tax (Expense)Benefit |   |          | Net-of-TaxAmount
|Unrealized losses (gains) on marketable equity securities held for sale |  | $                | 1,874,304 |                      | $ | (674,750 | )                |  | $ | 1,199,554
|                                                                        |  |                  |           |                      |   |          |                  |  |   |          
|Other comprehensive income                                              |  | $                | 1,874,304 |                      | $ | (674,750 | )                |  | $ | 1,199,554
|                                                                        |  |                  |           |                      |   |          |                  |  |   |          



Stock Warrants



In June 2004, pursuant to a Financial Consulting
Agreement, the Company issued 300,000 warrants to purchase common stock, for consulting services. In September 2004, pursuant to a Securities Purchase Agreement, the Company issued 1,375,000 warrants to purchase common stock, in connection with the
Companys sale of a secured convertible note (see Note E). On October 1, 2004, pursuant to a Financial Consulting Agreement, the Company issued 200,000 4-year life warrants to purchase common stock, for consulting services. At December 31, 2004
and 2003, the Company had outstanding warrants to purchase 1,875,000 and zero shares of the Companys common stock, respectively. The exercise prices range from $1.50 to $2.50 per share on the 300,000 warrants and they become exercisable in
June 2005 and expire at various dates through June 2008. For the 1,375,000 warrants, the exercise price is $1.04 per share, subject to certain adjustments pursuant to the Securities Purchase Agreement, and they expire in September 2009. For the
200,000 warrants, the exercise prices range from $1.25 to $1.50 per share, with 25% vesting on October 1, 2004 and then subsequent vesting is at 25% per quarter, expiring on October 1, 2008. For the financial consulting agreements, the balance of
deferred consulting fees as of December 31, 2004 was $283,125. The initial valuation of these warrants was $442,500, with $159,375 being expensed during the nine months ended December 31, 2004.



Stock Options



The Company has adopted only the disclosure provision of SFAS No. 123, Accounting for Stock Based Compensation,
as it relates to employee awards. Accounting Principles Board Opinion No. 25 is applied in accounting for the plan. Accordingly, no compensation expense is recognized related to the stock based compensation plans. The pro forma net earnings (loss)
per common share, if the Company had elected to account for its plan consistent with the methodology prescribed by SFAS No. 123, are shown in the following:



- 12 -



---

|                                    |  |                                  |         |                                  |   |          |  
|----------------------------------- |  | -------------------------------- | ------- | -------------------------------- | - | -------- | -
|                                    |  | Nine MonthsEndedDecember 31,2004 |         | Nine MonthsEndedDecember 31,2003 |  
|                                    |  | (Unaudited)                      |         | (Unaudited)                      |  
|Net income (loss):                  |  |                                  |         |                                  |   |          |  
|As reported                         |  | $                                | 674,841 |                                  | $ | (269,921 | )
|                                    |  |                                  |         |                                  |   |          |  
|Pro forma                           |  | $                                | 558,037 |                                  | $ | (321,229 | )
|                                    |  |                                  |         |                                  |   |          |  
|Net income (loss) per common share: |  |                                  |         |                                  |   |          |  
|Basic income (loss) per share:      |  |                                  |         |                                  |   |          |  
|As reported                         |  | $                                | 0.05    |                                  | $ | (0.02    | )
|                                    |  |                                  |         |                                  |   |          |  
|Pro forma                           |  | $                                | 0.04    |                                  | $ | (0.03    | )
|                                    |  |                                  |         |                                  |   |          |  
|Diluted income (loss) per share:    |  |                                  |         |                                  |   |          |  
|As reported                         |  | $                                | 0.05    |                                  | $ | (0.02    | )
|                                    |  |                                  |         |                                  |   |          |  
|Pro forma                           |  | $                                | 0.03    |                                  | $ | (0.03    | )
|                                    |  |                                  |         |                                  |   |          |  



On October 17, 2004, a
meeting of the Compensation Committee of the Board of Directors of the Company was held at the Companys corporate headquarters at 6911 Bryan Dairy Road, Suite 210, Largo, Florida 33777. 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 December 31, 2004 was $457,199. The initial valuation of these options was $498,763, with $41,564
being expensed during the nine months ended December 31, 2004.



NOTE
G-SEGMENT INFORMATION



In accordance with the provisions
of Statement of Financial Accounting Standards No. 131 (SFAS 131), Disclosures About Segments of an Enterprise and Related Information, a company is required to disclose selected financial and other related information about its
operating segments. Operating segments are components of an enterprise about which separate financial information is available and is utilized by the chief operating decision maker related to the allocation of resources and in the resulting
assessment of the segments overall performance. As of and for the three and nine months ended December 31, 2004 and 2003, the Company had two industry segments: Distribution and Prescription Services.



In addition to being presented separately, intersegment financial data is
included in the gross segment amounts disclosed below in order to present accurate segment information, whereas on the condensed consolidated balance sheets and statements of operations, all intercompany transactions have been eliminated in
consolidation.



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Presented below is condensed segment information as of and for the three and nine months ended December
31, 2004 and 2003:



|                         |  |                                   |           |                                   |   |                                  |  |   |                                  |   |  |   |         |  
|------------------------ |  | --------------------------------- | --------- | --------------------------------- | - | -------------------------------- |  | - | -------------------------------- | - |  | - | ------- | -
|                         |  | Three MonthsEndedDecember 31,2004 |           | Three MonthsEndedDecember 31,2003 |   | Nine MonthsEndedDecember 31,2004 |  |   | Nine MonthsEndedDecember 31,2003 |  
|                         |  | (Unaudited)                       |           | (Unaudited)                       |   | (Unaudited)                      |  |   | (Unaudited)                      |  
|Revenues:                |  |                                   |           |                                   |   |                                  |  |   |                                  |   |  |   |         |  
|Distribution             |  | $                                 | 6,868,190 |                                   | $ | 471,642                          |  | $ | 7,506,490                        |   |  | $ | 984,155 |  
|Prescription services    |  |                                   |          |                                   |   | 35,788                           |  |   | 70,897                           |   |  |   | 134,680 |  
|Intersegment sales       |  |                                   | 4,032     |                                   |   |                                 |  |   | 4,032                            |   |  |   |        |  
|                         |  |                                   |           |                                  
|Gross profit:            |  |                                   |           |                                   |   |                                  |  |   |                                  |   |  |   |         |  
|Distribution             |  |                                   | 859,117   |                                   |   | 227,005                          |  |   | 1,135,702                        |   |  |   | 537,619 |  
|Prescription services    |  |                                   |          |                                   |   | 2,842                            |  |   | 8,082                            |   |  |   | 33,055  |  
|                         |  |                                   |           |                                  
|Operating income (loss): |  |                                   |           |                                   |   |                                  |  |   |                                  |   |  |   |         |  
|Distribution             |  |                                   | 155,687   |                                   |   | 55,654                           |  |   | 25,665                           |   |  |   | 120,417 |  
|Prescription services    |  |                                   |          |                                   |   | 553                              |  |   | (47,636                          | ) |  |   | (5,425  | )



|                      |  |                        |           |                        |   |          
|--------------------- |  | ---------------------- | --------- | ---------------------- | - | ---------
|                      |  | As ofDecember 31, 2004 |           | As ofDecember 31, 2003
|                      |  | (Unaudited)            |           | (Unaudited)           
|Assets:               |  |                        |           |                        |   |          
|Distribution          |  | $                      | 4,645,904 |                        | $ | 497,256  
|Prescription services |  |                        |          |                        |   | 16,644   
|Corporate             |  |                        | 6,663,848 |                        |   | 3,485,473



NOTE H-INCOME TAXES



The Company utilizes the guidance provided by Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. Under SFAS 109, the Company uses the asset and liability method which recognizes the amount of current and deferred taxes payable or refundable based on transactions
recorded as of and for the periods presented in the consolidated financial statements as determined by the enacted tax laws and tax rates. The Company has a deferred tax liability recorded as of December 31, 2004 of $639,700 and no current tax
liability. The deferred tax liability is primarily a result of the differences arising between book and tax basis of unrealized gains and losses, net, on marketable equity securities.



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NOTE I-EARNINGS (LOSS) PER SHARE



The following sets forth the computation of basic and diluted net earnings per common share:



|                                                   |  |                                   |            |                                   |   |            |                                   |  |                                  |            |  |   |            |  
|-------------------------------------------------- |  | --------------------------------- | ---------- | --------------------------------- | - | ---------- | --------------------------------- |  | -------------------------------- | ---------- |  | - | ---------- | -
|                                                   |  | Three MonthsEndedDecember 31,2004 |            | Three MonthsEndedDecember 31,2003 |   |            | Nine MonthsEnded December 31,2004 |  | Nine MonthsEndedDecember 31,2003 |           
|                                                   |  | (Unaudited)                       |            | (Unaudited)                       |   |            | (Unaudited)                       |  | (Unaudited)                      |           
|Numerator:                                         |  |                                   |            |                                   |   |            |                                   |  |                                  |            |  |   |            |  
|Net income (loss)                                  |  | $                                 | 61,777     |                                   | $ | (159,333   | )                                 |  | $                                | 674,841    |  | $ | (269,921   | )
|Less preferred stock dividends                     |  |                                   |           |                                   |   |           |                                   |  |                                  |           |  |   |           |  
|                                                   |  |                                   |            |                                   |   |            |                                   |  |                                  |            |  |   |            |  
|Net income (loss) available to common shareholders |  | $                                 | 61,777     |                                   | $ | (159,333   | )                                 |  | $                                | 674,841    |  | $ | (269,921   | )
|                                                   |  |                                   |            |                                   |   |            |                                   |  |                                  |            |  |   |            |  
|Denominator:                                       |  |                                   |            |                                   |   |            |                                   |  |                                  |            |  |   |            |  
|Weighted average basic shares outstanding          |  |                                   | 12,899,294 |                                   |   | 12,331,500 |                                   |  |                                  | 12,816,472 |  |   | 12,331,500 |  
|Stock options                                      |  |                                   | 1,405,000  |                                   |   |           |                                   |  |                                  | 1,072,273  |  |   |           |  
|Warrants                                           |  |                                   | 514,946    |                                   |   |           |                                   |  |                                  | 763,182    |  |   |           |  
|Convertible note                                   |  |                                   | 72,464     |                                   |   |           |                                   |  |                                  | 2,254,546  |  |   |           |  
|                                                   |  |                                   |            |                                   |   |            |                                   |  |                                  |            |  |   |            |  
|Weighted average fully diluted shares outstanding  |  |                                   | 14,891,704 |                                   |   | 12,331,500 |                                   |  |                                  | 16,906,473 |  |   | 12,331,500 |  
|                                                   |  |                                   |            |                                   |   |            |                                   |  |                                  |            |  |   |            |  



NOTE J-RELATED PARTY TRANSACTIONS



On October 1, 1999, the Company entered into a triple-net
lease agreement with GeoPharma, Inc., formerly Innovative Companies, Inc., an affiliate of the Company, whereby GeoPharma agreed to lease the Companys land and 33,222 square foot building in Largo, Florida for a term of ten years. The initial
rental under the lease was approximately $192,000 annually. The lease provides for an annual cost-of-living increase. This facility serves as GeoPharmas corporate headquarters and also serves as part of GeoPharmas offices, manufacturing,
warehousing and shipping operations. 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. On October 25, 2004, the lease was subsequently terminated upon the Companys sale of the building to GeoPharma for $1,925,000 in
cash. The purchase price was determined by an independent, third-party appraisal. As of December 31, 2004, the Companys investment in GeoPharma, consisting of 347,938 shares of its common stock, is included in marketable equity securities,
net.



For the three and nine months ended December 31, 2004 and
2003, the Company charged Vertical Health Solutions, Inc. (Vertical), an affiliate of the Company, consulting fees totaling zero and $5,213, and $1,613 and $4,588, respectively, for accounting and administrative services. The charge is
on an hourly basis for services rendered. As of December 31, 2004 and 2003, $325 and $8,735, respectively, were due from Vertical and are included in amounts due from affiliates. Jugal K. Taneja, a principal shareholder and Chairman of the Board of
the



- 15 -



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Company is also a principal shareholder and a Director of Vertical. As of December 31, 2004, the Companys
investment in Vertical is included in marketable equity securities, net.



The Company owns 30%, or 300,000 shares of common stock of Tribeca Beverage Company, an affiliate of Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company, and Mandeep K. Taneja, a
Director, Chief Executive Officer and President of the Company. The investment was accounted for under the equity method until March 31, 2003, at which time, as a result of managements analysis, it was determined that the investment was
worthless and the Company recognized an impairment loss in the investment. As of December 31, 2004 and 2003, zero and $1,524 was due to Tribeca and is included in obligations to affiliates.



On January 1, 2004, the Company entered into a verbal agreement with
GeoPharma, whereby the Company agreed to sublease approximately 5,131 square feet of office and warehouse space for its executive offices and its operations in Largo, Florida. This facility serves as the Companys corporate headquarters and is
also used for its offices, warehousing and shipping operations. The facility is sublet on a month-to-month basis for a term of up to two years ending on December 31, 2005. The sublease contains an option to continue the sublease subsequent to
December 31, 2005 and a provision for an annual cost-of-living increase. The initial rental under the sublease is $41,066 annually.



On June 14, 2004, the Board of Directors of the Company, approved the declaration of a pro rata dividend distribution to holders of record of its issued
and outstanding common shares as of July 1, 2004, in the form of approximately 1.3 million shares of Vertical Health Solutions, Inc., a Florida corporation, which the Company owned. On July 7, 2004, the Board of Directors of the Company amended the
record date to July 16, 2004 and the distribution date to July 26, 2004. The payment rate was one (1) share of Vertical common stock for each ten (10) shares of the Companys common stock held on July 16, 2004. The Company only distributed
whole shares and any fractional shares to which shareholders would otherwise be entitled were rounded down to the nearest whole share.



On July 26, 2004, the Company distributed approximately 1.3 million shares of Vertical Health Solutions, Inc. common stock to its shareholders. This
resulted in a gain of $1,359,966 to the Company.



On July 28,
2004, the Company issued a promissory note payable to an affiliate of the Chairman of the Company, in the principal amount of $50,000. The principal together with interest at the rate of 7% per annum is payable on demand. Proceeds were used for
placement of funds in escrow in connection with the acquisition of Bob OLeary Health Food Distributor Co., Inc., effective October 1, 2004. The note was subsequently repaid on October 5, 2004.



On September 7, 2004, the Company issued a promissory note payable to the
Companys Chairman, in the principal amount of $100,000. The principal together with interest at the rate of 7% per annum is payable on demand. Proceeds were used for placement of funds in escrow in connection with the acquisition of Bob
OLeary Health Food Distributor Co., Inc., effective October 1, 2004. The note was subsequently repaid on October 5, 2004.



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On October 17, 2004, a meeting of the Compensation Committee of the Board of Directors of the Company was
held at the Companys corporate headquarters at 6911 Bryan Dairy Road, Suite 210, Largo, Florida 33777. 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.



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 and nine months ended December 31, 2004 and 2003, purchases of
products from subsidiaries of GeoPharma were $81,744 and $352,502, and $239,442 and $405,145, respectively. There were no sales of products to subsidiaries of GeoPharma for the three and nine months ended December 31, 2004. For the three and nine
months ended December 31, 2003, sales of products to subsidiaries of GeoPharma were $2,400 and $2,900, respectively. As of December 31, 2004 and 2003, $753 and zero, respectively, were due from GeoPharma and are included in amounts due from
affiliates, and $66,474 and $220,948, respectively, were due to subsidiaries of GeoPharma and are included in obligations to affiliates.



Research and development is primarily contracted through GeoPharma, and product nutritional information, as well as product label requirements, are
prepared by GeoPharmas regulatory staff personnel. Research and development costs have been immaterial to the operations of the Company, and are charged to expense as incurred.



For the three and nine months ended December 31, 2003, purchases of products from T & L, Inc. (T&L), an
affiliate of Mandeep K. Taneja, a Director, Chief Executive Officer and President of the Company, were zero and $28,884, respectively. There were no sales to or purchases of products from T&L for the three and nine months ended December 31,
2004. As of December 31, 2004 and 2003, $2,471 and $1,675, respectively, were due to T&L and are included in obligations to affiliates.



NOTE K-SUBSEQUENT EVENTS



In February 2005, the Company entered into a lease agreement whereby the Company agreed to lease approximately 10,000 square feet of office and warehouse
space for its executive offices and its operations in Largo, Florida. This facility will serve as the Companys corporate headquarters and will also used for its offices, warehousing and shipping operations. The facility is leased for a term of
62 months commencing May 1, 2005 and ending June 30, 2010. The lease contains a provision for an annual increase. The initial rental under the lease is $85,000 annually.



On February 14, 2005, the Company entered into an agreement to acquire certain assets of Protech Distributing, Inc., a
California corporation. The total consideration being paid for the assets, consisting of inventory and a customer list, is approximately $260,000.



- 17 -



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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.



The following management discussion and analysis should be read in
conjunction with the Condensed Consolidated Financial Statements and Notes thereto presented elsewhere in this Form 10-QSB. The discussion is based upon such condensed consolidated financial statements that have been prepared in accordance with U.S.
Generally Accepted Accounting Principles.



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 condensed consolidated financial statements, which
have been prepared in accordance with U.S. Generally Accepted Accounting Principles.



Overview



The Company derives its revenues
from developing, wholesaling and distributing a wide variety of non-prescription dietary supplements, and health and beauty care products. We also derive revenues from services provided in connection with prescription services.



Revenues are billed and recognized as product is shipped, net of discounts,
allowances, returns and credits. The Company has a no return policy. However, with certain large customers, industry practice mandates the acceptance of certain returns, which have thus far been immaterial to the Company.



Cost of goods sold is comprised of direct product costs, contracted service
fees, direct personnel compensation and other statutory benefits and indirect costs relating to labor to support the warehousing of product and other warehousing overhead. Research and development expenses are charged against cost of goods sold as
incurred and are not material to the Companys operations. Selling, general and administrative costs include management and general office salaries, advertising and promotional expenses, sales and marketing and other indirect operating costs.
Interest and other income (expense) consist primarily of interest income associated with notes receivable, and interest expense associated with borrowings to finance capital and other working capital needs.



Effective October 1, 2004, the Company acquired Bob OLeary Health Food
Distributor Co., Inc., a Pennsylvania corporation. This was accomplished pursuant to a Stock Purchase Agreement dated September 10, 2004, for a total purchase price of $5,659,420. At the closing, the Company acquired all of the issued and
outstanding shares of common stock of BOSS.



- 18 -



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BOSS is engaged in developing, wholesaling and distributing a wide variety of non-prescription dietary
supplements, vitamins, health food and nutritional products, soft goods and other related products.



Results of Operations



Three And
Nine Months Ended December 31, 2004 Compared To Three And Nine Months Ended December 31, 2003



Revenues. The Company generated total revenues of $6,868,190 and $7,577,387, respectively, for the three and nine months ended December 31, 2004,
an increase of $6,360,760 or 1253.5% and $6,458,552 or 577.3%, compared to $507,430 and $1,118,835, respectively, for the three and nine months ended December 31, 2003. Distribution revenues increased $6,396,548 or 1356.2% and $6,522,335 or 662.7%,
to $6,868,190 and $7,506,490, respectively, for the three and nine months ended December 31, 2004, compared to $471,642 and $984,155, respectively, for the three and nine months ended December 31, 2003. The increase was primarily attributable to
revenues associated with the October 2004 acquisition of BOSS. Prescription services revenues decreased to zero and $70,897, respectively, for the three and nine months ended December 31, 2004, from $35,788 and $134,680, respectively, for the three
and nine months ended December 31, 2003. The Company discontinued its prescription services operations on September 30, 2004. The decrease in prescription services revenues for the nine months ended December 31, 2004 was primarily attributable to a
change in the mix of prescription services provided during the first six months, due to an increase in governmental regulations.



Gross profit. The Company achieved total gross profit of $859,117 and $1,143,784, respectively, for the three and nine months ended December 31,
2004, an increase of $629,270 or 273.8% and $573,110 or 100.4%, respectively, compared to $229,847 and $570,674, respectively, for the three and nine months ended December 31, 2003. Total gross margins, as a percentage of revenues, decreased from
45.3% and 51.0%, respectively, for the three and nine months ended December 31, 2003, to 12.5% and 15.1%, respectively, for the three and nine months ended December 31, 2004. The decrease in gross margins, as a percentage of revenues, was primarily
attributable to a change in the Companys mix of sales, due to increased sales of products that yield a lower gross margin, with the October 2004 acquisition of BOSS. Distribution gross profit increased $632,112 or 278.5% and $598,083 or 111.3%
respectively, from $227,005 and $537,619, respectively, for the three and nine months ended December 31, 2003, to $859,117 and $1,135,702, respectively, for the three and nine months ended December 31, 2004. The increase was primarily attributable
to an increase in the Companys customer base with the acquisition of BOSS. Prescription services gross profit decreased to zero and $8,082, respectively, for the three and nine months ended December 31, 2004, from $2,842 and $33,055,
respectively, for the three and nine months ended December 31, 2003. The decrease was primarily attributable to the termination of prescription services as of September 30, 2004.



Operating expenses. The Company incurred operating expenses of $1,152,183 and $1,959,620, respectively, for the three
and nine months ended December 31, 2004, compared to $421,716 and $936,967, respectively, for the three and nine months ended December 31, 2003. For the three months ended December 31, 2004, these expenses include various administrative, sales,
marketing and other direct operating expenses of $1,106,704, and depreciation and amortization expenses of $45,479, compared to $400,216 of various administrative, sales,



- 19 -



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marketing and other direct operating expenses, and depreciation and amortization expenses of $21,500 for the three months ended December 31, 2003. For the
nine months ended December 31, 2004, these expenses include various administrative, sales, marketing and other direct operating expenses of $1,868,531, and depreciation and amortization expenses of $91,089, compared to $870,592 of various
administrative, sales, marketing and other direct operating expenses, and depreciation and amortization expenses of $66,375 for the nine months ended December 31, 2003.



Operating expenses, excluding amortization expense and depreciation expense decreased from 78.9% and 77.8%, respectively, of
revenues for the three and nine months ended December 31, 2003, to 16.1% and 24.7%, respectively, of revenues for the three and nine months ended December 31, 2004. The decrease in operating expenses as a percentage of revenues was primarily
attributable to the increase in revenues associated with BOSS, and was partially offset by expenses associated with BOSS, as well as an increase in amortization of deferred consulting fees, an increase in insurance expense, an increase in legal fees
and an increase in public relations fees.



Interest
income. Interest income was $2,137 and $3,793, respectively, for the three and nine months ended December 31, 2004, compared to $786 and $2,321, respectively, for the three and nine months ended December 31, 2003. The increase in interest income
was primarily associated with the increase in cash.



Interest expense. Interest expense was $402,832 and $438,617, respectively, for the three and nine months ended December 31, 2004, compared to $42,904 and $74,786, respectively, for the three and nine months ended December 31, 2003.
The increase in interest expense was primarily a result of an increase in the Companys outstanding obligation, associated with the funding for the acquisition of BOSS, as well as the amortization debt discount.



Income taxes. As of December 31, 2004, the Company had no accrued
income tax liability and an estimated deferred income tax liability of $639,700, which primarily represented the potential future tax expense associated with the unrealized gains on marketable equity securities. As of December 31, 2003, the Company
had an accrued income tax liability of $6,924 and a deferred income tax liability of $631,299. The deferred income tax liability was primarily associated with unrealized gains on marketable equity securities. During the three months ended December
31, 2004, the Company recorded an income tax benefit of $109,396, primarily associated with the reversal of unrealized losses on marketable equity securities. During the nine months ended December 31, 2004, the Company recorded income tax expense of
$161,807, primarily associated with the gain on the dividend distribution. For the three and nine months ended December 31, 2003, the Company recorded income tax expense of $56,924 and $14,797, respectively, primarily associated with unrealized
gains on marketable equity securities.



Net income (loss)
per share.Net income per share was zero for the three months ended December 31, 2004, compared to net loss per share of $0.01 for the three months ended December 31, 2003. This increase in net income per share was primarily a result of an
increase in the Companys gain on distribution of investment of $1,349,966, the gain on the sale of property of $654,241 and the absence of losses on marketable equity securities, net, of $102,434,



- 20 -



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and was partially offset by an increase in the Companys operating loss before other income and expense of $101,197, a decrease in other income and
expenses, net, of $67,980, and the absence of the gain on the sale of an investment of $71,843.



Net income per share was $0.05 for the nine months ended December 31, 2004, compared to net loss per share of $0.02 for the nine months ended December 31,
2004. This increase in net income per share was primarily a result of an increase in the Companys gain on distribution of investment of $1,349,966, the gain on the sale of property of $654,241 and the absence of losses on marketable equity
securities, net, of $102,434, and was partially offset by an increase in the Companys operating loss before other income and expense of $449,543, a decrease in other income and expenses, net, of $136,446, and the absence of the gain on the
sale of an investment of $71,843.



Inflation; Seasonality.Management believes that there was no material effect on operations or the financial condition of the Company as a result of inflation for the three and nine months ended December 31, 2004 and 2003. Management also believes that its business is
not seasonal; however, significant promotional activities can have a direct impact on sales volume in any given quarter.



Financial Condition, Liquidity and Capital Resources



The Company has financed its operations through the usage of available cash reserves. The Company had working capital of $5,010,108 and $3,944,497,
respectively, at December 31, 2004 and March 31, 2004.



Net
cash used in operating activities was $634,724 for the nine months ended December 31, 2004, as compared to net cash used in operating activities of $5,212 for the nine months ended December 31, 2003. The usage of cash was primarily attributable to
an increase in accounts receivable of $6,673, an increase in inventories of $132,810, a decrease in amounts due to/from affiliates, net, of $169,448, an increase in prepaid expenses of $63,065 and a decrease in accrued expenses of $292,083,
partially offset by a decrease in other current assets of $30,988, a decrease in other assets of $2,627, an increase in accounts payable of $440,992, an increase in other payables of $79,079 and an increase in deferred income taxes of $125,151.



Net cash used in investing activities was $2,986,877,
representing the purchase of property and equipment of $6,151, the purchase of BOSS, net of cash acquired, of $4,889,763 and the purchase of a trademark of $1,977, and was partially offset by proceeds form the sale of property of $1,911,014.



Net cash provided by financing activities was $4,585,859,
representing proceeds from the issuance of long-term obligations of $5,734,500 and proceeds from the issuance of a related party obligation of $150,000, partially offset by payments of long-term obligations of $831,891, payments of short-term
obligations of $260,974, payments of loan costs of $53,123, payment of common stock registration costs of $2,653 and payments of related party obligations of $150,000.



At December 31, 2004, the Company had $1,183,377 in cash, as compared to $343,199 at December 31, 2003.



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Management believes that cash expected to be generated from operations and current cash reserves will be
sufficient for the Company to meet its capital expenditures and working capital needs, for its operations as presently conducted. The Companys future liquidity and cash requirements will depend on a wide range of factors, including the level
of business in existing operations, expansion of facilities and possible acquisitions. In particular, if cash flows from operations are not sufficient, it will be necessary for the Company to seek additional financing. While there can be no
assurance that such financing would be available in amounts and on terms acceptable to the Company, management believes that such financing would likely be available on acceptable terms.



In June 2004, pursuant to a Financial Consulting Agreement, the Company issued 300,000 warrants to purchase common stock,
for consulting services. In September 2004, pursuant to a Securities Purchase Agreement, the Company issued 1,375,000 warrants to purchase common stock, in connection with the Companys sale of a secured convertible note. On October 1, 2004,
pursuant to a Financial Consulting Agreement, the Company issued 200,000 4-year life warrants to purchase common stock, for consulting services. At December 31, 2004 and 2003, the Company had outstanding warrants to purchase 1,875,000 and zero
shares of the Companys common stock, respectively. The exercise prices range from $1.50 to $2.50 per share on the 300,000 warrants and they become exercisable in June 2005 and expire at various dates through June 2008. For the 1,375,000
warrants, the exercise price is $1.04 per share, subject to certain adjustments pursuant to the Securities Purchase Agreement, and they expire in September 2009. For the 200,000 warrants, the exercise prices range from $1.25 to $1.50 per share, with
25% vesting on October 1, 2004 and then subsequent vesting is at 25% per quarter, expiring on October 1, 2008.



On June 14, 2004, the Board of Directors of the Company, approved the declaration of a pro rata dividend distribution to holders of record of its issued
and outstanding common shares as of July 1, 2004, in the form of approximately 1.3 million shares of Vertical Health Solutions, Inc., a Florida corporation, which the Company owned. On July 7, 2004, the Board of Directors of the Company amended the
record date to July 16, 2004 and the distribution date to July 26, 2004. The payment rate was one (1) share of Vertical common stock for each ten (10) shares of the Companys common stock held on July 16, 2004. The Company only distributed
whole shares and any fractional shares to which shareholders would otherwise be entitled were rounded down to the nearest whole share.



On July 26, 2004, the Company distributed approximately 1.3 million shares of Vertical Health Solutions, Inc. common stock to its shareholders. This
resulted in a gain of $1,349,966 to the Company.



On July 28,
2004, the Company issued a promissory note payable to an affiliate of the Chairman of the Company, in the principal amount of $50,000. The principal together with interest at the rate of 7% per annum is payable on demand. Proceeds were used for
placement of funds in escrow in connection with the acquisition of Bob OLeary Health Food Distributor Co., Inc., effective October 1, 2004. The note was subsequently repaid on October 5, 2004.



On September 7, 2004, the Company issued a promissory note payable to the
Companys Chairman, in the principal amount of $100,000. The principal together with interest at the rate of 7% per annum is payable on demand. Proceeds were used for placement of funds in escrow in connection with the acquisition of Bob
OLeary Health Food Distributor Co., Inc., effective October 1, 2004. The note was subsequently repaid on October 5, 2004.



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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).



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. s of December 31, 2004, the outstanding principal balance on the convertible
note was $5,673,750.



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.



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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 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 are 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 are exercisable on a cashless basis. In the event that the warrants are exercised on a cashless basis, then the
Company will not receive any proceeds. In addition, the exercise price of the warrants will 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. These warrants are being treated by the Company as a discount on the convertible note and are being amortized over the life of the loan.



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 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 September 10, 2004, the Company entered into a Stock Purchase Agreement to purchase all of the issued and outstanding common stock of Bob OLeary
Health Food Distributor Co., Inc., a Pennsylvania corporation. Effective October 1, 2004, the Company acquired BOSSary Health Food Distributor Co., Inc., a Pennsylvania corporation. This was accomplished pursuant to a Stock Purchase Agreement dated
September 10, 2004. At the closing, the Company acquired all of the issued and outstanding shares of common stock of BOSS (the Shares). The consideration paid by the Company for the Shares and the sellers execution of a
Non-Competition, Non-Solicitation and Confidentiality Agreement was $5,500,000.00 in cash, subject to a dollar for dollar adjustment, equal to the increase or decrease in net book value of BOSS from June 30, 2004 to September 30, 2004. In addition,
at closing, the Company paid an aggregate of $234,500 in cash to the former shareholders of BOSS in consideration of outstanding debt. In December 2004, the Company paid an additional $159,420 for the purchase, due to a dollar for dollar increase in
the net book value of BOSS as of September 30, 2004.



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.



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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.



Item 3. CONTROLS AND PROCEDURES.



As of December 31, 2004, the Companys management carried out an evaluation, under the supervision and with the participation of the Companys
Disclosure Committee, 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 controls and procedures. Based upon that evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective as of December 31, 2004 to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Companys management, including its principal executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosure and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. There were no significant
changes in the Companys internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.



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PART II - OTHER INFORMATION



Item 1. LEGAL PROCEEDINGS.



The Company is involved in litigation in Georgia from Hi-Tech Pharmaceuticals, Inc. (Hi-Tech) over claims regarding intellectual property
matters. Plaintiff seeks unspecified monetary damages as well as non-monetary relief. Management of the Company does not believe that it has any material exposure with regard to the allegations of the claims. The Company is vigorously defending this
action. In addition, the Company has instituted counterclaims against Hi-Tech and Jared Wheat, the President of Hi-Tech. We are seeking relief for libel, slander and tortious interference in amounts in excess of $75,000, exclusive of interest and
costs.



In February 2004, the Company was served with a
complaint involving litigation in Maryland from Beyond Systems, Inc. over claims regarding commercial electronic mail matters. Management believes that such claim was without merit and denied all allegations. On January 13, 2005, the parties elected
to settle their differences in full as to all matters in dispute and upon receipt of full payment of $25,000 by the Company to Beyond Systems, Inc. and Stephen H. Ring, the lawsuit was dismissed.



In May 2004, the Company was served with a complaint involving litigation in
Ohio from 40 Js, LLC over claims regarding patent infringement. Management believes that such claim was without merit and denied all allegations. On October 25, 2004, the parties elected to settle their differences in full as to all matters in
dispute and upon receipt of full payment of $20,000 by the Company to 40 Js, LLC, the lawsuit was dismissed.



From time to time the Company is subject to litigation incidental to its business including possible product liability claims. Such claims, if successful,
could exceed applicable insurance coverage. The Company is not currently a party to any legal proceedings which it believes will have a material adverse affect on its results of operations.



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



On October 1, 2004, pursuant to a Securities Purchase Agreement, the Company
issued 200,000 4-year life warrants to purchase common stock, for consulting services. The exercise prices range from $1.25 to $1.50 per share, with vesting on October 1, 2004 and then subsequent vesting is at 25% per quarter, expiring on October 1,
2008. Such warrants 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.



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



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.



Item 5. OTHER INFORMATION.



None.



Item 6. EXHIBITS AND REPORTS ON FORM 8-K.



(a) Exhibits.



The following exhibits are filed with this report:



|     |  |                                                                                                                                                                                       
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Stock Purchase Agreement, dated September 10, 2004, by and among Dynamic Health Products, Inc., Robert T. OLeary, Linda OLeary, and Bob OLeary Health Food Distributor Co.,
Inc.(1)
|     | 
|3.1  |  | Articles of Amendment to Articles of Incorporation of Dynamic Health Products, Inc., filed July 30, 2003.(2)                                                                          
|     | 
|3.2  |  | Certificate of Amendment to Restated Articles of Incorporation of Dynamic Health Products, Inc., filed October 25, 2004.(3)                                                           
|     | 
|10.1 |  | Securities Purchase Agreement, dated as of September 30, 2004, by and among Dynamic Health Products, Inc. and Laurus Master Fund, Ltd.(4)                                             
|     | 
|10.2 |  | Master Security Agreement, dated as of September 30, 2004, by Dynamic Health Products, Inc. and certain of its subsidiaries to Laurus Master Fund, Ltd.(4)                            
|     | 
|10.3 |  | Registration Rights Agreement, dated as of September 30, 2004, by and among Dynamic Health Products, Inc. and Laurus Master Fund, Ltd.(4)                                             
|     | 
|10.4 |  | Guaranty, dated as of September 30, 2004, by Jugal K. Taneja to Laurus Master Fund, Ltd.(4)                                                                                           



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|      |  |                                                                                                                                                                                 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5  |  | Subsidiary Guaranty, dated as of September 30, 2004, by subsidiaries of Dynamic Health Products, Inc. to Laurus Master Fund, Ltd.(4)                                            
|      | 
|10.6  |  | Supplemental Stock Pledge Agreement, dated as of September 30, 2004, by and among Dynamic Health Products, Inc. and certain of its subsidiaries, and Laurus Master Fund,
Ltd.(4)
|      | 
|10.7  |  | Subsidiary Stock Pledge Agreement, dated as of September 30, 2004, by and among Dynamic Health Products, Inc. and certain of its subsidiaries, and Laurus Master Fund, Ltd.(4)  
|      | 
|10.8  |  | Secured Convertible Term Note, dated as of September 30, 2004, by Dynamic Health Products, Inc. to Laurus Master Fund, Ltd.(4)                                                  
|      | 
|10.9  |  | Common Stock Purchase Warrant, dated as of September 30, 2004, by Dynamic Health Products, Inc. to Laurus Master Fund, Ltd.(4)                                                  
|      | 
|10.10 |  | Commercial Contract dated October 25, 2004, by and among Dynamic Health Products, Inc. and GeoPharma, Inc.(5)                                                                   
|      | 
|31.1  |  | Certification Of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                         
|      | 
|31.2  |  | Certification Of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                         
|      | 
|32.1  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                         
|      | 
|32.2  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                         

---

|(1) | Incorporated by reference to the Companys Current Report on Form 8-K, dated September 10, 2004, file number 0-23031, filed in Washington, D.C. on September 10, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Companys Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003, file number 0-23031, filed in Washington, D.C. on November 5,
2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Companys Current Report on Form 8-K, dated September 30, 2004, file number 0-23031, filed in Washington, D.C. on October 6, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Quarterly Report on Form 10-QSB for the quarter ended September 30, 2004, file number 0-23031, filed in Washington, D.C. on November
15, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(b) | Reports on Form 8-K.
|--- | --------------------



During the three month period ending December 31, 2004, the Company filed five reports on Form 8-K.



Form 8-K/A dated July 26, 2004, with respect to the Companys dividend
distribution of shares of Vertical Health Solutions, Inc.



Form
8-K dated September 30, 2004, with respect to the Companys completion of the sale to Laurus Master Fund, Ltd. of a material secured convertible note and warrants to purchase shares of the Companys common stock.



Form 8-K dated October 1, 2004, with respect to the Companys completion
of the acquisition of Bob OLeary Health Food Distributor Co., Inc.



Form 8-K/A dated October 1, 2004, with respect to the Companys completion of the acquisition of Bob OLeary Health Food Distributor Co., Inc.



Form 8-K dated October 25, 2004, with respect to the Companys Amendment to its Restated Articles of Incorporation.



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SIGNATURES



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



|                        |  |                               |  |                                                        
|----------------------- |  | ----------------------------- |  | -------------------------------------------------------
|                        |  | Dynamic Health Products, Inc.
|                        |  |                              
|Date: February 14, 2005 |  | By:                           |  | /s/ Mandeep K. Taneja                                  
|                        |  |                               |  | Mandeep K. Taneja, Chief ExecutiveOfficer and President
|                        |  |                              
|Date: February 14, 2005 |  | By:                           |  | /s/ Cani I. Shuman                                     
|                        |  |                               |  | Cani I. Shuman, Chief Financial Officer                



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