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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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

| |  | ACT OF 1934
| |  | -----------



| |  | For the fiscal year ended March 31, 2003
| |  | ----------------------------------------



| ̈ |  | 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.

(Name of small business issuer in its charter)



|Florida                                                           |  | 34-1711778                          
|----------------------------------------------------------------- |  | ------------------------------------
|(State of or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|12399 Belcher Road South, Suite 160, Largo, Florida |  | 33773     
|--------------------------------------------------- |  | ----------
|(Address of principal executive offices)            |  | (Zip Code)



Issuers
telephone number (727) 324-6667



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



None



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



Common Capital Stock



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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.  Yes  x  No ̈



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ̈



Issuers revenues for its most recent fiscal
year were $830,436.



The aggregate market value of the voting
common stock held by non-affiliates of the Registrant was $1,043,250, based upon the last reported trade of the stock, which was 200 shares on June 12, 2003, at $0.75 per share.



The number of shares outstanding of the Issuers common stock at $.01 par value as of June 26, 2003 was 3,082,875.



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PART I



|Item 1. |  | BUSINESS.
|------- |  | ---------



The Companys executive offices are located at 12399 Belcher Road South, Suite 160, Largo, Florida 33773 and its telephone number is (727) 324-6667.
References in this Annual Report on Form 10-KSB refer to Dynamic Health Products, Inc. and, as applicable, its subsidiaries as the Company or Dynamic, unless the context otherwise requires.



General



Dynamic Health Products, Inc., was incorporated on January 27, 1998, as a Florida corporation under the name Direct Rx
Healthcare, Inc. In April 1998, its name was changed to Nu-Wave Health Products, Inc. and in August 1998, its name was changed to Dynamic Health Products, Inc.



The Companys predecessor, Direct Rx, Inc., an Ohio corporation (Direct Rx), was formed in 1992. In
September 1995, Direct Rx acquired an 80% interest in Nu-Wave Health Products, Inc., a Florida corporation (Nu-Wave), which manufactured non-prescription medications, nutritional supplements, and health and beauty care products. On July
1, 1997, Direct Rx acquired the remaining shares of Nu-Wave. In January 1998, Direct Rx changed its domicile from Ohio to Florida. After the domicile change, the Company changed its name to Direct Rx Healthcare, Inc., and later to Dynamic Health
Products, Inc., its current name. After the domicile change, Nu-Wave was merged into the Company.



The Company is a small business issuer for purposes of disclosure and filings under the Securities Act of 1933 and the Securities Exchange Act
of 1934.



The Company, through its wholly-owned
subsidiaries, markets and distributes high-quality dietary supplements, over-the-counter drugs, and health and beauty care products, and provides prescription services. The Companys core branded products focus on dietary supplements, and
health and beauty care products that are in high demand, and that have potentially strong margins. The Company markets and distributes approximately 40 products packaged into approximately 76 SKUs.



The Company has grown primarily through acquisitions. In June 1998, the
Company acquired, through a merger with a wholly-owned subsidiary of the Company, Energy Factors, Inc. (Energy Factors), a Florida corporation, which had a 33,222 square foot office, laboratory, manufacturing and warehouse facility
located in Largo, Florida. After the acquisition, the Company changed the name of Energy Factors to Innovative Health Products, Inc. In February 2000, its name was changed to Go2Pharmacy.com, Inc., in September 2000, its name was changed to
Go2Pharmacy, Inc., and in September 2002, its name was changed to Innovative Companies, Inc. (Innovative). Innovative creates, manufacturers, and packages a wide variety of proprietary and non-proprietary dietary supplements,
over-the-counter drugs, and health and beauty care products. On November 7, 2000, the Securities and Exchange Commission declared Innovatives registration of 1,000,000 shares of its common stock to be effective. Prior to the offering, the
Company owned all of the issued and outstanding common stock of Innovative. In March 2001, the Company distributed 2,324,984 shares of Innovative common stock to its shareholders. As of March 31, 2003 and 2002, the Company held 316,307 and 340,016
shares, respectively, of common stock of Innovative.





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In June 1998, the Company acquired all of the issued and outstanding capital stock of Becan Distributors,
Inc. (Becan), incorporated in November 1996, in Ohio. Becan is a wholesale distributor of pharmaceuticals, over-the-counter drugs, and health and beauty care products. In August 1998, the Company, through Becan, formed Discount Rx, Inc.
(Discount), a Louisiana corporation. Discount is a wholesale distributor of pharmaceuticals, over-the-counter drugs, and health and beauty care products. Becan and Discount also provided distribution channels for the Companys
branded products. The Company subsequently sold Becan and its subsidiary, Discount, to DrugMax, Inc. (DrugMax), formerly DrugMax.com, Inc. and formerly Nutriceuticals.com, Inc., on November 26, 1999. As of March 31, 2002, the Company
held 1,933,000 shares of common stock of DrugMax. In November 2002, the Company distributed all of its shares of DrugMax common stock to its shareholders.



In September 1998, the Company acquired J.Labs, Inc. (J.Labs), incorporated in April 1997, as a Florida corporation. The operations of J.Labs
consist of the procurement of trademarks and product rights for the Companys branded products.



In September 1998, the Company formed Incredible Products of Florida, Inc., a Florida corporation, to market dietary supplements through distributors and
radio infomercials. In May 1999, the Company formed Dynamic Life, Inc. (Dynamic Life), as a Florida corporation. In March 2000, Incredible was merged into Dynamic Life. Dynamic Life marketed dietary supplements, over-the-counter drugs,
and health and beauty care products primarily through distributors and through direct marketing to consumers. The operations of Dynamic Life, as previously conducted, are now carried out through Herbal Health Products, Inc. In March 2003, Dynamic
Life began providing prescription services through use of the internet and in April 2003, its name was changed to Online Meds Rx, Inc.



In December 1998, the Company formed Herbal Health Products, Inc. (Herbal), as a Florida corporation. Herbal acquired the Florida operations
of a Colorado company which marketed dietary pet supplements primarily to Veterinarians. In July 2000, Herbal sold substantially all of its assets relating to the distribution of veterinary products, which primarily consisted of its inventory and
its customer base to Vertical Health Solutions, Inc., formerly Labelclick.com, Inc., an affiliate of the Company. Herbal continues to market dietary supplements and over-the-counter drugs for human consumption, and health and beauty care products,
primarily to mass retail outlets by its in-house sales force, through distributors and through direct marketing to consumers.



In February 2000, through Dynamic Life, the Company formed Dynamic Life Asia, LLC (Dynamic Asia), a Florida limited liability company. Also in
February 2000, through Dynamic Asia, the Company formed Dynamic Life Korea Ltd. (Dynamic Korea), a Korean corporation, to market dietary supplements primarily through distributors and through direct marketing to consumers. The Company
subsequently sold Dynamic Korea in November 2001.



Marketing and Sales



The Companys products are marketed directly to its
wholesale and retail customers by the Companys in-house salespeople. The Company distributes wholesale dietary supplements, over-the-counter drugs, and health and beauty care products, to independent pharmacies, regional and national chain
drugstores, mail order facilities, mass merchandisers, deep discounters and brokers. The Companys dietary supplements, over-the-counter drugs, and health and beauty



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care products are also marketed directly to consumers by the Companys in-house salespeople, through distributors,
radio, infomercials and catalog sales.



Competition



The wholesale, retail and distribution industries in which the Company
operates are highly competitive. Numerous companies, many of which have greater size and greater financial, personnel, distribution and other resources than the Company, compete with the Company in its distribution, wholesaling and retailing
businesses.



The Companys branded products face
substantial competition from broad line manufacturers, major private label manufacturers and, more recently, large pharmaceutical companies. Increased competition from such companies could have a material adverse affect on the Company because such
companies have greater financial and other resources available to them and possess marketing and distribution capabilities far greater than those of the Company.



The Company competes on the basis of product quality, competitive pricing, its ability to develop new product lines and
customer service. The Companys ability to compete favorably with its competitors with respect to its branded products will depend primarily upon its development of brand recognition across multiple distribution channels, its ability to quickly
develop new products with market potential, to successfully advertise, market and promote its products, as well as its product quality and the development of a strong and effective distribution network.



Backlog



The Companys revenues are processed through its system from sales orders generated and issued by the Companys
customers. The Company fulfills the sales orders on a turn-around time of between one to three days. As such, at any given point in time, the Company does not experience a backlog of unfilled sales orders. At March 31, 2003, the Company had no
backlog sales orders.



Product Development



Generally, the more novel and unique the Companys products are, the
greater the profit margins. The Company, along with product development teams, works closely with its customers to understand their needs, their strengths and their objectives to be met, thus involving the team to create products with more unique
sales points. The Companys response time in developing its own proprietary products is critical and enables the Company to take advantage of consumer trends and preferences.



Research and Development



The Company contracts research and development primarily through its affiliate, Innovative, where Dr. Kotha S. Sekharam, the President of Innovative and a
Director of the Company, provides guidance and direction for Innovatives research and development team. Nutritional information, as well as label requirements, are prepared by Innovatives regulatory staff personnel. Research and
development costs have been immaterial to the operations of the Company, and are charged directly to expense as incurred.



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Trademarks



The Company has applied for various federally registered trademarks. The Company believes that protecting some of its trademarks is crucial to its
business strategy of building strong brand name recognition and that such trademarks have significant value in the marketing of its products.



The Companys policy is to pursue registrations of all the trademarks associated with its key products. The Company relies on common law trademark
rights to protect its unregistered trademarks. Common law trademark rights generally are limited to the geographic area in which the trademark is actually used, while a United States federal registration of a trademark enables the registrant to stop
the unauthorized use of the trademark by any third party anywhere in the United States. Furthermore, the protection available, if any, in foreign jurisdictions may not be as extensive as the protection available to the Company in the United States.



Although the Company seeks to ensure that it does not infringe
on the intellectual property rights of others, there can be no assurance that third parties will not assert intellectual property infringement claims against the Company. Any infringement claims by third parties against the Company may have a
material adverse effect on the Companys business, financial condition, results of operations and cash flows.



Principal Suppliers and Sources of Supply



The Company obtains all of its products from third party suppliers. Many of the raw materials used in the Companys products are harvested
internationally. The Company does not have contracts with any suppliers committing such suppliers to provide materials required for the production of its products. There can be no assurance that suppliers will provide products needed by the Company
in the quantities requested or at a price the Company is willing to pay. Because the Company does not control the actual production of these products, it is also subject to delays caused by interruption in production of materials based on conditions
not within its control. Such conditions include job actions or strikes by employees of suppliers, weather, crop conditions, transportation interruptions and natural disasters or other catastrophic events. The inability of the Company to obtain
adequate supplies of its products at favorable prices, or at all, could have a material adverse effect on the Companys business, financial condition, results of operations and cash flows.



Quality Control



The Companys products are manufactured in accordance with the Good Manufacturing Practices (GMPs)
prescribed by the FDA, all other applicable regulatory standards, and rigorous quality control procedures used by the manufacturers of the products which the Company purchases. The Company places special emphasis on quality control. See
BusinessGovernment Regulation below.



Government
Regulation



The manufacture, packaging, labeling,
advertising, promotion, distribution and sale of the Companys products are subject to regulation by numerous government agencies, the most active of which are the U.S. Food and Drug Administration (the FDA), which regulates the
Companys products under the Federal Food, Drug and Cosmetic Act (the FFDCA) and



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regulations promulgated thereunder and the U.S. Federal Trade Commission (FTC) which regulates the
advertising of the Companys products under the Federal Trade Commission Act (FTCA). The Companys products are also subject to regulation by, among other regulatory agencies, the Consumer Product Safety Commission, the U.S.
Department of Agriculture (the USDA) and the Environmental Protection Agency (the EPA) and Occupational Safety and Health Act (OSHA). The manufacture, labeling and advertising of the Companys products are
also regulated under the Federal Occupational Safety and Health Act and by various state and local agencies as well as each foreign country to which the Company distributes its products.



The regulation of dietary supplement labeling claims by the FDA is governed by the FFDCA and the Dietary Supplement Health
and Education Act of 1994 (DSHEA). Under Section 6 of the DSHEA, structure/function claims are permitted in dietary supplement labeling without prior authorization by the FDA, provided that the manufacturer has substantiation for the
claims and complies with certain notification and disclaimer requirements. The DSHEA amended the FTCA and set up a new framework for FDA regulation of dietary supplements. It also created an office in the National Institutes of Health to coordinate
research on dietary supplements, and it called on President Clinton to set up an independent dietary supplement commission to report on the use of claims in dietary supplement labeling. In passing the DSHEA, Congress recognized first, that many
people believe that dietary supplements offer health benefits and second, that consumers want a greater opportunity to determine whether supplements may help them. The law essentially gives dietary supplement manufacturers freedom to market more
products as dietary supplements and provide information about their products benefits.



Traditionally, the term dietary supplements referred to products made of one or more essential nutrients, such as vitamins, minerals and protein. But DSHEA broadened the definition to include, with some
exceptions, any product intended for ingestion as a supplement to the diet. This includes vitamins, minerals, herbs, botanicals, and other plant-derived substances, amino acids and concentrates, metabolites, constituents and extracts of these
substances. DSHEA requires manufacturers to include the words dietary supplement on product labels. Also, commencing in March 1999, a Supplement Facts panel is required on the labels of most dietary supplements. The
substantial majority of the products marketed by the Company are regulated as dietary supplements under the FDCA.



The FDA oversees product safety, manufacturing and product information, such as claims in a products labeling, package inserts, and accompanying
literature. One of the most important functions of the FDA relates to drugs. A drug, which sometimes can be derived from plants used as traditional medicine, is an article that, among other things, is intended to diagnose, cure, mitigate, treat, or
prevent diseases. Before marketing, drugs must undergo clinical studies to determine their effectiveness, safety, possible interactions with other substances, and appropriate dosages; the FDA must review this data and authorize the drugs use
before they are marketed.



The FDA does not authorize, endorse,
or test dietary supplements; however, a product sold as a dietary supplement and touted in its labeling as a new treatment or cure for a specific disease or condition would be considered an unauthorizedand thus illegaldrug. Labeling
changes consistent with the provisions in DSHEA would be required to maintain the products status as a dietary supplement.



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As with food, federal law requires manufacturers of dietary supplements to insure that the products they
put on the market are safe. Dietary supplement manufacturers wanting to market a new ingredient (that is, an ingredient not marketed in the United States before 1994) have two options. They can first submit to the FDA, at least 75 days before the
product is expected to go to market, information that supports their conclusion that the new ingredient can reasonably be expected to be safe, meaning that the new ingredient does not present a significant or unreasonable risk of illness or injury
under conditions of use recommended in the products labeling. The information the manufacturer submits becomes publicly available 90 days after the FDA receives it. The second option for manufacturers is that they petition the FDA to establish
the condition under which the new dietary ingredient would reasonably be expected to be safe.



Under DSHEA and previous food labeling laws, supplement manufacturers are permitted to use, when approved by the FDA, three types of claims: nutrient-content claims, disease claims, and nutrition-support claims, which
include structure-function claims. Nutrient-content claims describe the level of a nutrient in a food or dietary supplement. For example, a supplement containing at least 200 mg of calcium per serving could carry the claim high in
calcium. A supplement with at least 12 mg per serving of Vitamin C could state on its label, excellent source of Vitamin C.



Disease claims show a link between a substance and a disease or health-related condition. The FDA authorizes disease claims based on a review of the
scientific evidence. Alternatively, after the FDA is notified, the claims may be based on an authoritative statement from certain scientific bodies, such as the National Academy of Sciences, that shows or describes a well-established diet-to-health
link. For instance, it is permissible to advertise a link between calcium and a lower risk of osteoporosis, if the supplement contains sufficient amounts of calcium.



Nutrition-support claims can describe a link between a nutrient and the deficiency disease that can result if the nutrient
is lacking in the diet. For example, the label of a Vitamin C supplement could state that Vitamin C prevents scurvy. When these types of claims are used, the label must mention the prevalence of the nutrient-deficiency disease in the United States
and must also conform to applicable FDA labeling guidelines.



Claims can also refer to the supplements effect on the bodys structure or function, including its overall effect on a persons well being. These are known as structure-function claims. Examples of structure-function claims
are: calcium builds strong bones, antioxidants maintain cell integrity, fiber maintains bowel regularity.



Under DSHEA, manufacturers are also permitted to use structure-function claims without FDA authorization. These claims are based on the
manufacturers review and interpretation of scientific literature. Like all label claims, structure-function claims must be true and not misleading. Structure-function claims must be accompanied by the disclaimer This statement has not
been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. Manufacturers who plan to use a structure-function claim on a particular product must inform the FDA of the use
of the claim no later than 30 days after the product is first marketed. The manufacturer must be able to substantiate its claim. If the submitted claims promote the product as drugs instead of supplements, the FDA can advise the manufacturer to
change or delete the claim.



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The FDA has identified several problems where manufacturers were buying herbs, plants and other
ingredients without first adequately testing them to determine whether the product they ordered was actually what they received or whether the ingredients were free from contaminants. The FDA has advised consumers to look for ingredients in products
with the U.S.P. notation, which indicates the manufacturer followed standards established by the U.S. Pharmacopoeia, and to consider the name of the manufacturer or distributor, stating that supplements made by a nationally known food and drug
manufacturer have likely been made under tight controls because these companies already have in place manufacturing standards for their other products.



Claims made for the Companys dietary supplement products may include statements of nutritional support and health and nutrient content claims when
authorized by the FDA or otherwise allowed by law. The FDAs interpretation of what constitutes an acceptable statement of nutritional support may change in the future thereby requiring that the Company revise its labeling. The FDA recently
issued a proposed rule on what constitutes permitted structure/function claims as distinguished from prohibited disease claims. Although the Company believes its product claims comply with the law, depending on the content of the final regulation,
it may need to revise its labeling.



The FDA issued final
dietary supplement labeling regulations in 1997 that required a new format for product labels and necessitated revising dietary supplement product labels. All companies in the dietary supplement industry were required to comply with these labeling
regulations in March 1999. The FDA has also announced that it is considering promulgating new GMPs, specific to dietary supplements. Such GMPs, if promulgated, may be significantly more rigorous than currently applicable GMP requirements
and contain quality assurance requirements similar to GMP requirements for drug products. Therefore, the Company may be required to expend additional capital resources on product labeling in the future in order to comply with the law. The failure of
the Company to comply with applicable FDA regulatory requirements could result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and criminal prosecutions.



The Company cannot predict the nature of any future laws, regulations,
interpretations or applications, nor can it determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on its business in the future. They could, however, require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain products not capable of reformulation, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling, and/or
scientific substantiation. Any or all of such requirements could have a material adverse effect on the Companys business, financial condition, results of operations and cash flows.



The Companys advertising of its dietary supplement products is subject to regulation by the FTC under the FTCA. The
FTCA prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. The FTCA provides that the dissemination or the causing to be disseminated of any false advertisement pertaining to drugs or foods,
which would include dietary supplements, is an unfair or deceptive act or practice. Under the FTCs Substantiation Doctrine, an advertiser is required to have a reasonable basis for all objective product claims before the claims are
made. Failure to adequately substantiate claims may be considered either deceptive or unfair practices. Pursuant to this FTC requirement the Company is required to have adequate substantiation for all material advertising claims made for its
products.



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In recent years the FTC has initiated numerous investigations of dietary supplement and weight loss
products. The FTC is reexamining its regulation of advertising for dietary supplements and has announced that it may issue a guidance document to assist supplement marketers in understanding and complying with the substantiation requirement. Upon
release of this guidance document the Company will be required to evaluate its compliance with the guideline and may be required to change its advertising and promotional practices. The Company may be the subject of investigation in the future. The
FTC may impose limitations on the Companys advertising of its products. Any such limitations could materially adversely affect the Companys ability to successfully market its products.



The FTC has a variety of processes and remedies available to it for
enforcement, both administratively and judicially, including compulsory processes, cease and desist orders, and injunctions. FTC enforcement can result in orders requiring, among other things, limits on advertising, corrective advertising, consumer
redress, divestiture of assets, rescission of contracts and such other relief as may be deemed necessary. A violation of such orders could have a material adverse effect on the Companys business, financial condition, results of operations and
cash flows.



Advertising, labeling, sales and manufacturing of
dietary supplements and conventional foods are also regulated by state and local authorities. There can be no assurance that state and local authorities will not commence regulatory action, which could restrict the permissible scope of the
Companys product claims or its ability to sell in that state.



Governmental regulations in foreign countries where the Company may commence or expand sales may prevent or delay entry into the market or prevent or delay the introduction, or require the reformulation, of certain of the Companys
products. Compliance with such foreign governmental regulations is generally the responsibility of the Companys distributors for those countries. These distributors are independent contractors over whom the Company has limited control.



The Company may be subject to additional laws or regulations
by the FDA or other federal, state or foreign regulatory authorities, the repeal of laws or regulations which the Company considers favorable, such as the Dietary Supplement Health and Education Act of 1994, or more stringent interpretations of
current laws or regulations, from time to time in the future. The Company is unable to predict the nature of such future laws, regulations, interpretations or applications, nor can it predict what effect additional governmental regulations or
administrative orders, when and if promulgated, would have on its business in the future. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be
reformulated, imposition of additional record keeping requirements, expanded documentation of the properties of certain products, expanded or different labeling and scientific substantiation. Any or all of such requirements could have a material
adverse effect on the Companys business, financial condition, results of operations and cash flows.



In house training is provided to all applicable employees to ensure compliance with regulations. Thus far, the Company has not incurred additional
expenses in order to comply with FDA requirements. The Company believes that it is substantially in compliance with all FDA record keeping and reporting requirements and all environmental regulations affecting the Company.



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Employees



As of June 26, 2003, the Company had six full-time employees. Of such employees, one was engaged in marketing and sales, one was devoted to warehousing
and distribution, one was devoted to internet and database administration, and three were responsible for management and administration. None of the Companys employees are covered by a collective bargaining agreement. The Company considers its
relations with its employees to be good.



In each case, the
employees are permitted to participate in employee benefit plans of the Company that may be in effect from time to time, to the extent eligible, and each employee may be entitled to receive an annual bonus as determined at the sole discretion of the
Companys Board of Directors based on the Boards evaluation of the employees performance and the financial performance of the Company. Each of the employees is eligible for grant of stock options in accordance with the provisions of
the Companys 1999 Stock Option Plan, as determined by the Administrator of the Plan.



In March 1999, the Companys Board of Directors adopted the Companys 1999 Stock Option Plan, which has been approved by the Companys shareholders. The purpose of the 1999 Plan is to enable the Company
to attract and retain top-quality executive employees, officers, directors and consultants and to provide such executive employees, officers, directors and consultants with an incentive to enhance stockholder return. The 1999 Plan provides for the
grant to officers, directors, or other key employees and consultants of the Company, of options to purchase up to an aggregate of 1,500,000 shares of common stock.



Sale of Subsidiary



Effective November 30, 2001, the Company sold its foreign subsidiary, Dynamic Korea to the General Director of Dynamic Korea, Mr. Y.J. Lee of Seoul, South
Korea, for a total sales price of $1,000,000 U.S. Dollars. The sale was accomplished in accordance with the terms of a Stock Purchase Agreement dated November 16, 2001, by and between Mr. Y.J. Lee and the Company. Payment was in the form of a
promissory note in the principal amount of $1,000,000 U.S. Dollars. The interest rate on the note was 8.5% per annum. Principal and interest were payable monthly in the amount of $27,777.77 per month for 36 months, commencing from the earlier of the
time Dynamic Korea starts making a profit or twelve months from November 16, 2001, with the balance of any unpaid principal and interest being paid in full on or before December 31, 2004. The note was secured by the business assets of Dynamic Korea.
In November 2002, the purchaser defaulted on the note and no payments had been received. As a result of managements analysis, it has been determined that all further amounts due under this note will be uncollectible.



Dividend Distribution of Shares of DrugMax, Inc. Common Stock



On October 10, 2002, the Board of Directors of the Company approved the
declaration of a dividend distribution to holders of record of its issued and outstanding common shares as of October 10, 2002, in the form of approximately 1,933,000 shares of DrugMax, which the Company owned. On November 22, 2002, the Company
distributed 1,933,000 shares of DrugMax to its shareholders. The payment rate was .626882 shares of DrugMax common stock for each share of the Companys common stock held on October 10, 2002. 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.



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Cautionary Statements for Purposes of The Safe Harbor Provisions of The Private Securities Litigation
Reform Act of 1995



The Private Securities Litigation
Reform Act of 1995 (the Act) provides a safe harbor for forward-looking statements to encourage companies to provide prospective information, so long as such information is identified as forward-looking and is
accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statement(s). The Company desires to take advantage of the safe harbor
provisions of the Act.



Except for historical information, the
Companys Annual Report on Form 10-KSB for the year ended March 31, 2003, the Companys quarterly reports on Form 10-QSB, the Companys current reports on Form 8-K, periodic press releases, as well as other public documents and
statements, may contain forward-looking statements within the meaning of the Act.



In addition, representatives of the Company may, from time to time, participate in speeches and calls with market analysts, conferences with investors and potential investors in the Companys securities, and
other meetings and conferences. Some of the information presented in such speeches, calls, meetings and conferences may be forward-looking within the meaning of the Act.



It is not reasonably possible to itemize all of the many factors and specific events that could affect the Company and/or
the Companys industry as a whole. In some cases, information regarding certain important factors that could cause actual results to differ materially from those projected, forecasted, estimated, budgeted or otherwise expressed in
forward-looking statements made by or on behalf of the Company may appear or be otherwise conveyed together with such statements. The following additional factors (in addition to other possible factors not listed) could affect the Companys
actual results and cause such results to differ materially from those projected, forecasted, estimated, budgeted or otherwise expressed in forward-looking statements made by or on behalf of the Company.



Government Regulation.The packaging, labeling, advertising,
promotion, distribution and sale of the Companys products are all subject to extensive regulation by numerous federal, state and other government agencies. Because of the broad language of the laws applicable to the Companys business, it
is difficult for the Company to remain in strict compliance. If the Company fails to or is unable to comply with applicable laws and governmental regulations, the Companys business could be adversely affected. See
BusinessGovernment Regulation.



Possible
Adverse Publicity. The Company is dependent on consumers perceptions and may be adversely affected by publicity associated with illness or other adverse effects from the consumption of its products (or similar products distributed by other
companies) and future reports of research that are perceived as less favorable or that question earlier research. Future scientific research or publicity may not be favorable to the dietary supplement industry or to any particular product, and may
not be consistent with earlier favorable research or publicity. The Company is highly dependent upon consumers perceptions of the safety and quality of its products as well as dietary supplements distributed by other companies. Thus, the mere
publication of reports asserting that those products may be harmful or questioning their efficacy could adversely effect the Company regardless of whether such reports are scientifically



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supported or whether the claimed harmful effects would be present at the dosages recommended for such products.



Exposure to Product Liability. The Company faces an
inherent risk of exposure to product liability claims in the event that the use of its products results in injury. Management believes that the Company has adequate insurance, but if it does not, product liabilities relating to its products could
adversely affect the Company. Although many of the ingredients in the Companys products are vitamins, minerals, herbs and other substances for which there is a long history of human consumption, some of its products contain ingredients for
which no such history exists. In addition, although management believes all of the Companys products are safe when taken as directed, there is little long-term experience with human consumption of certain of these product ingredients in
concentrated form. Accordingly, the Company cannot assure that its products, even when used as directed, will have the effects intended or will not have harmful side effects. Any such unintended effects may result in adverse publicity or product
liability claims that could adversely affect the Company.



Importance of Development of New Products. Products currently experiencing strong popularity and rapid growth may not maintain their sales over time. As a result, it will be important for the Company to be able to develop new
products. The Company cannot assure that its efforts to develop new products will be successful.



Competition.The dietary supplement industry is highly competitive. Numerous companies, many of which have greater size and greater financial,
personnel, distribution, marketing and other resources than the Company, compete with us in the development and marketing of dietary supplements. Competition from such companies could have a material adverse effect on the Company. The Company also
faces competition in both the health food store and mass market distribution channels from private label dietary supplements offered by health and natural food store chains, drugstore chains, mass merchandisers and supermarket chains. See
BusinessCompetition.



Principal Suppliers
and Sources of Supply.The Company depends on third-party suppliers to provide its products. Many of the raw materials used in its products are harvested internationally. The Company cannot assure that suppliers will provide the products needed
in the quantities requested or at a price the Company is willing to pay. Because the Company does not control the actual production of these products, delivery to the Company is also subject to delays caused by interruption in production of products
based on conditions not within the control of the Company. The Companys inability to obtain adequate supplies of products at favorable prices, or at all, could adversely affect the Companys business.



Limited Trademark Protection: No Patents. The Companys policy is
to pursue registrations for all of the trademarks associated with its key proprietary products. The Company relies on common law trademark rights to protect its unregistered trademarks as well as its trade dress rights. Common law trademark rights
generally are limited to the geographic area in which the trademark is actually used, while a United States federal registration of a trademark enables the registrant to stop the unauthorized use of the trademark by any third party anywhere in the
United States. The Company intends to register its trademarks in certain foreign jurisdictions where its products are sold. However, the protection available, if any, in such jurisdictions may not be as extensive as the protection available to the
Company in the United States. Also, because the Company has no patents on its proprietary products, another company may replicate them.



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Infringement on Intellectual Property Rights of Others.Although the Company seeks to ensure that
it does not infringe on the intellectual property rights of others, the Company cannot assure that third parties will not assert intellectual property claims against the Company. Infringement claims by third parties against the Company may have a
material adverse affect on the Company.



Concentration of
Customers. For the year ended March 31, 2003, 26% of consolidated revenues were received from two customers, representing a concentration of credit risk. If the Companys major customers substantially reduced their volume of purchases from
the Company, the Companys business, financial condition, results of operations and cash flows could be materially adversely affected.



General Risks



Key Personnel. As a small company with only six employees, the Companys success depends on the services of its senior management team. If the
Company loses the services of one or more of these employees, the Company could be materially adversely affected.



Growth Management.The Company believes that continued growth may strain its management, operations, sales and administrative personnel and other
resources. In order to serve the needs of its existing and future customers the Company intends to increase its workforce.The Companys ability to manage further growth depends in part upon its ability to expand its operating,
management, information and financial systems, which may significantly increase its future operating expenses. The Company cannot assure that its business will grow in the future or that it will be able to effectively manage its growth.



Possible Future Acquisitions. The Company expects to pursue
additional acquisitions in the future as a part of its business strategy. The Company cannot assure that attractive acquisition opportunities will be available to it or that it will be able to obtain financing for future acquisitions. If the Company
is unable to consummate future acquisitions, its business, financial condition and operating results could be adversely affected.



Acquisitions involve numerous risks, including the risk that the acquired business will not perform in accordance with expectations, difficulties in the
integration of the operations and products of the acquired businesses with the Companys business, the diversion of managements attention from other aspects of the Companys business, the risks associated with entering geographic and
product markets in which the Company has limited or no direct prior experience, and the potential loss of key employees of the acquired business arising out of such acquired business. Future acquisitions would likely require additional financing,
which would likely result in an increase in the Companys indebtedness or the issuance of additional capital stock, which may be dilutive to the Companys shareholders.



Provisions on the Payment of Dividends.The Company has not declared cash dividends on its common stock and the
Company does not anticipate paying cash dividends in the foreseeable future.



Anti-Takeover Provisions.Certain provisions of the Companys Articles of Incorporation (the Articles) and Bylaws (the Bylaws), certain sections of the Florida Business
Corporation Act, and the ability of the Board of Directors to issue shares of preferred



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stock and to establish the voting rights, preferences and other terms may be deemed to have an anti-takeover effect and
may discourage takeover attempts not first approved the Companys Board of Directors, including takeovers which shareholders may deem to be in their best interests.



Control by Certain Stockholders. Directors, executive officers and related family members beneficially own
approximately 54.9% of the outstanding shares of the Companys common stock. Therefore, these stockholders will have significant control over the election of the Companys directors and most of the Companys corporate actions.



Exposure to Natural Disasters. The Companys
facility is located in the greater Tampa Bay, Florida area, which is prone to hurricanes. The Companys business could be adversely affected should its ability to distribute products be impacted by such event.



Future Plans



Management of the Company is considering acquiring distribution and marketing companies. In order to accomplish its future
plans, the Company is considering raising capital either through private placement or an initial public offering.



|Item 2. |  | PROPERTIES.
|------- |  | -----------



Effective March 22, 2002, the Company entered into a Sublease and Consent agreement with Innovative Health Products, Inc., a wholly-owned subsidiary of
Innovative, an affiliate of the Company, whereby the Company agreed to sublease approximately 5,200 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 was sublet for a term of approximately one year, ending on March 31, 2003. The sublease contains an option to continue the sublease subsequent
to March 31, 2003, on a month-to-month basis through January 10, 2004, unless terminated earlier. This option to continue has been exercised. The rental under the sublease is $33,384 annually.



On October 1, 1999, the Company entered into a triple-net lease agreement
with Innovative, an affiliate of the Company, whereby Innovative agreed to lease the Companys land and 33,222 square foot building in Largo, Florida for 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 Innovatives corporate headquarters and also serves as part of Innovatives offices, manufacturing, warehousing and shipping operations.



In the judgment of management, the leases described above reflect rent at
current fair market value.



The Company believes that its
facilities and equipment are generally well maintained and in good operating condition. In the opinion of management of the Company, the properties are adequately covered by insurance.



As of March 31, 2003, the Company had real property, equipment, furniture, and leasehold improvements, net of accumulated
depreciation, in the approximate amount of $1,374,305.



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|Item 3. |  | LEGAL PROCEEDINGS.
|------- |  | ------------------



The Company is involved in litigation in Florida from Gerald Schmoling, a former President of a subsidiary of the Company. However, in the past 11 months
the plaintiff has not taken any action with respect to this matter. Management believes that such claim is frivolous and the litigation is being defended.



The Company is involved in litigation in New Jersey over a claim for commissions. Management believes that such claim is without merit and is defending it
aggressively.



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



There were no matters submitted to a vote of security holders during the fourth quarter of the year ended March 31, 2003.



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PART II



|Item 5. |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
|------- |  | ----------------------------------------------------------------------



Market for Securities



In May 2002, the Company filed Form 211, under the U.S. Securities and Exchange Commission Rule 15c2-11, to apply with NASD Regulation for listing of its
common stock on the OTC Bulletin Board. In July 2002, the Companys common stock began trading on the OTC Bulletin Board under the symbol DYHP. There is a limited trading market for the Companys common stock, therefore
historical price information is limited. High and low sales prices since that time, by quarter-ended date, are as follows:



|                   |  | High |      |  |  | Low
|------------------ |  | ---- | ---- |  |  | ---
|September 30, 2002 |  | $    | 2.00 |  |  |    
|December 31, 2002  |  | $    | 1.50 |  |  |    
|March 31, 2003     |  | $    | 0.45 |  |  |    



As of June 26, 2003,
there were approximately 390 stockholders of record of the Companys common stock.



Dividend Policy



Historically, the Company has
not declared or paid any cash dividends on its common stock. Any future determination to pay dividends on its common stock will depend upon the Companys results of operations, financial condition and capital requirements, applicable
restrictions under any contractual arrangements and such other factors deemed relevant by the Companys Board of Directors.



Recent Sales of Unregistered Securities



In March 2002, pursuant to a Settlement Agreement, the Company agreed to transfer 287,500 shares of its investment in common stock of DrugMax, in exchange
for U.S. Diversified Technologies, Inc.s 310,000 shares of the Companys Series A Convertible Preferred stock. In October 2002, the shares were subsequently transferred and the 310,000 shares of Series A Convertible Preferred stock of the
Company were cancelled.



In May 2002, the Company issued 20,000
shares of common stock of the Company in exchange for 20,000 shares of Series B 6% Cumulative Convertible Preferred stock of the Company, which shares were issued in conjunction with a private placement undertaken in 1998.



In September 2002, the Company issued 10,734 shares of common stock of the
Company in payment of $16,101 of accrued preferred share dividends.



|Item 6. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- |  | --------------------------------------------------------------------------------------



The statements contained in this Report that are not historical are forward-looking statements, including statements
regarding the Companys expectations, intentions, beliefs or strategies regarding the future. Forward-looking statements include the Companys statements



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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 Consolidated Financial Statements and notes thereto appearing elsewhere in this
Report. The discussion is based upon such consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles.



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.



In February 2000, the Company formed Dynamic Life Korea Ltd., as a Korean corporation, to market the Companys products to distributors in Korea. On
November 30, 2001, the Company subsequently sold Dynamic Korea. Dynamic Korea had a year end of December 31. Accordingly, the consolidated financial statements as of and for the year ended March 31, 2002 reflect the loss from discontinued operations
for Dynamic Korea for the period from January 1, 2001 through November 30, 2001, the date of sale.



Results of Operations



Fiscal
Year Ended March 31, 2003 Compared To Fiscal Year Ended March 31, 2002



Revenues. The Company generated total revenues of $830,436 for the year ended March 31, 2003, a decrease of $15,545 or 1.8%, compared to $845,981 for the year ended March 31, 2002. Distribution revenues
decreased $23,904, or 2.8%, to $822,077 for the year ended March 31, 2003, compared to $845,981 for the year ended March 31, 2002. The decrease was primarily attributable to a decrease in sales to a previously significant customer, and was partially
offset by increased revenues from existing customers, with the introduction of new products, as well as increased revenues as a result of expansion of the Companys customer base.



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The Company commenced its prescription services operations in March 2003. Prescription services revenues were $8,359 for
the year ended March 31, 2003.



Gross profit. The
Company achieved total gross profit of $400,917 for the year ended March 31, 2003, a decrease of $177,536 or 30.7%, compared to $578,453 for the year ended March 31, 2002. Total gross margins, as a percentage of revenues, decreased from 68.4% for
the year ended March 31, 2002 to 48.3% for the year ended March 31, 2003. Distribution gross profit decreased $178,582, or 30.9%, to $399,871 for the year ended March 31, 2003, as compared to $578,453 for the year ended March 31, 2002. For the year
ended March 31, 2003, distribution gross margin decreased to 48.6%, from 68.4% for the year ended March 31, 2002. The decrease 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, and was partially offset by an increase in the Companys customer base, as well as increased sales to existing customers. Prescription services gross profit was $1,046 for the year ended March 31, 2003. There was no
prescription services gross profit for the year ended March 31, 2002 since the Company did not commence its prescription service operations until March 2003.



Operating expenses.The Company incurred operating expenses of $2,161,999 for the year ended March 31, 2003, compared
to $2,169,758 for the year ended March 31, 2002. For the year ended March 31, 2003, these expenses include various administrative, sales, marketing and other direct operating expenses of $913,840, depreciation and amortization expenses of $95,551,
and bad debt expense of $1,152,608, compared to $1,149,258 in various administrative, sales, marketing and other direct operating expenses, depreciation and amortization expenses of $85,897, bad debt expense of $839,518 and an impairment of assets
charge of $95,085, net of amortization expenses, for the year ended March 31, 2002. In November 2001, a note was received in conjunction with the sale of Dynamic Korea. In November 2002, the purchaser defaulted on the note. It has been determined by
management of the Company that all further amounts due under this note will be uncollectible. This resulted in an increase in bad debt expenses for the year ended March 31, 2003 of approximately $1 million. Operating expenses, excluding amortization
expense, depreciation expense, bad debt expense and the impairment of intangible assets charge, decreased from 135.8% of revenues for the year ended March 31, 2002, to 110.0% of revenues for the year ended March 31, 2003. The decrease was primarily
attributable to decreased legal and salary expenses, and was partially offset by an increase in accounting, rent and insurance expenses.



Interest income. Interest income was $17,375 for the year ended March 31, 2003, compared to $111,942 for the year ended March 31, 2002. The
decrease in interest income was a result of a decrease in notes receivable, and a decrease in cash and cash equivalents.



Interest expense. Interest expense was $68,263 for the year ended March 31, 2003, compared to $143,632 for the year ended March 31, 2002. The
decrease in interest expense was primarily a result of a decrease in the Companys outstanding obligations, as well as favorable interest rate changes.



Income taxes. The Company had an estimated deferred income tax liability of $2,440,241 as of the year ended March 31, 2002, which primarily
represented the potential future tax expense associated with the gain resulting from the Companys sale of its subsidiary, Becan Distributors, Inc., in November 1999. The distribution of the Companys investment in DrugMax to its
shareholders in November 2002 resulted in a reduction of the estimated future



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tax expense associated with that gain. As of March 31, 2003, the Company had an accrued income tax liability of $5,746
and no net deferred income tax asset or liability.



Discontinued operations.For the year ended March 31, 2002, the Company had a gain on the November 2001 sale of its foreign distribution subsidiary, Dynamic Korea of $985,709, net of income taxes of $594,172, and a loss from the
operations of Dynamic Korea of $473,232 for the period from January 1, 2001 through November 30, 2001.



Net income (loss) per share.Net loss per share for the year ended March 31, 2003 was $1.40, compared to net income per share of $0.35 for the year
ended March 31, 2002. The decrease in net income per share was primarily a result of the loss on distribution of investment of $1,388,088 and the equity in loss of affiliated companies of $3,585,370 for the year ended March 31, 2003, compared to
equity in income of affiliated companies of $627,959 for the year ended March 31, 2002. For the year ended March 31, 2002, net income per share before discontinued operations amounted to $0.18 per share and net income per share from discontinued
operations amounted to $0.17 per share.



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 years ended March 31, 2003 and 2002. 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 a working capital deficit of $124,052 at March 31,
2003 and working capital of $430,074 at March 31, 2002.



Net
cash used in operating activities was $595,212 for the year ended March 31, 2003, as compared to net cash used in operating activities of $302,370 for the year ended March 31, 2002. The usage of cash was primarily attributable an increase in
accounts receivable of $37,009, an increase in other current assets of $129,623, an increase in other assets of $294, a decrease in amounts due to/from affiliates, net, of $125,198, a decrease in accounts payable of $69,665, a decrease in other
payables of $11,559, a decrease in accrued expenses of $962, and a decrease in deferred income taxes of $2,446,556, partially offset by a decrease in inventories of $71,241, a decrease in prepaid expenses of $2,690, and an increase in accrued income
taxes of $5,746.



Net cash used in investing activities was
$19,589, representing purchases of property and equipment of $45,593, and the purchase of a certificate of deposit of $46,455, partially offset by the redemption of a certificate of deposit of $51,999 and proceeds from related party receivables of
$20,460.



Net cash used in financing activities was $27,498,
representing payments of long-term obligations of $62,147 and payments of fractional shares on common stock exchanged of $2, partially offset by proceeds of long-term obligations of $34,651.



At March 31, 2003, the Company had $23,914 in cash and cash equivalents, as
compared to $666,213 at March 31, 2002.



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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, with the Companys recent introduction of new products. 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 October 1999, the Company entered into a triple-net lease
agreement with Innovative, whereby Innovative agreed to lease the Companys land and building in Largo, Florida for a term of ten years at an initial rental amount of approximately $192,000 annually. The lease provides for an annual
cost-of-living increase. Management considers these lease terms to be comparable to those of unrelated third parties.



In July 2000, certain notes receivable totaling $425,000 arose pursuant to Herbals sale of substantially all of its assets relating to the
distribution of veterinary products to Vertical Health Solutions, Inc. (Vertical), an affiliate of the Company. Effective June 30, 2002, the Company entered into a Conversion Agreement with Vertical whereby the parties agreed to convert
the Companys notes receivable from Vertical with a balance of unpaid principal and interest due of $429,846, into 429,846 shares of Series A preferred stock of Vertical.



In July 2001, the Company purchased 20%, or 200,000 shares of common stock, of Tribeca Beverage Company, an affiliate of
Jugal K. Taneja, the Companys Chairman and Mandeep K. Taneja, the Companys Chief Executive Officer and President, for a total purchase price of $200,000. In December 2002, the Company purchased an additional 10%, or 100,000 shares of
common stock of Tribeca from the former President of Tribeca for $1. The investment was accounted for under the equity method. As a result of managements analysis, it has been determined that the investment was worthless as of March 31, 2003
and the Company recognized an impairment loss of $166,939 in the investment. As of March 31, 2002, the investment amounted to $180,863 and was included in investments in unconsolidated affiliates. The balance of the obligation due to Tribeca for the
purchase of the investment as of March 31, 2003 and 2002 was $4,278 and $63,977, respectively, and is included in obligations to affiliates.



Effective November 30, 2001, the Company sold its foreign subsidiary, Dynamic Korea to the General Director of Dynamic Korea, Mr. Y.J. Lee of Seoul, South
Korea, for a total sales price of $1,000,000 U.S. Dollars. The sale was accomplished in accordance with the terms of a Stock Purchase Agreement dated November 16, 2001, by and between Mr. Y.J. Lee and the Company. Payment was in the form of a
promissory note in the principal amount of $1,000,000 U.S. Dollars. The interest rate on the note was 8.5% per annum. Principal and interest were payable monthly in the amount of $27,777.77 per month for 36 months, commencing from the



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earlier of the time Dynamic Korea starts making a profit or twelve months from November 16, 2001, with the balance of any
unpaid principal and interest being paid in full on or before December 31, 2004. The note was secured by the business assets of Dynamic Korea. In November 2002, the purchaser defaulted on the note and no payments had been received. As a result of
managements analysis, it has been determined that all further amounts due under this note will be uncollectible. For the year ended March 31, 2003, this resulted bad debt expense charged to operations of $1,028,411.



In January 2002, the Company issued 10,000 shares of common stock of the
Company and in May 2002, the Company issued 20,000 shares of common stock of the Company. The 30,000 shares of common stock were issued in exchange for 30,000 shares of Series B 6% Cumulative Convertible Preferred Stock of the Company, which shares
were issued in conjunction with a private placement undertaken in 1998.



In March 2002, the Company entered into a Settlement Agreement whereby it resolved all disputes and agreed on dismissal of all pending litigation between the Company and U.S. Diversified Technologies, Inc., the holder of 310,000 shares of
Series A Convertible Preferred stock of the Company and Paul Santostasi, a principal shareholder of USDTI and former Vice Chairman of the Company. Pursuant to the Settlement Agreement, the Company agreed to cause the transfer of $50,000 in cash and
287,500 shares of its investment in DrugMax to USDTI, in exchange for USDTIs 310,000 shares of Series A Convertible Preferred stock of the Company. This exchange resulted in a recorded gain of $83,344 to the Company for the year ended March
31, 2002. The Company also agreed to cause the transfer of 45,000 shares of its investment in DrugMax to Paul Santostasi in satisfaction of $180,000 of its obligation to Mr. Santostasi, which resulted in $71,853 of compensation expense and a
recorded gain of $11,280 to the Company for the year ended March 31, 2002. Upon full execution of a Release And Settlement Agreement on October 2, 2002, the $50,000 in cash and the 332,500 shares were subsequently transferred.



In March 2002, the Company entered into a Sublease and Consent agreement with
Innovative Health Products, Inc., a wholly-owned subsidiary of Innovative, whereby the Company agreed to sublease approximately 5,200 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 offices, warehousing and shipping operations. The facility was sublet for a term of approximately one year, ending on March 31, 2003. The lease contains an option to
continue the lease subsequent to March 31, 2003, on a month-to-month basis through January 10, 2004, unless terminated earlier. This option to continue has been exercised. The rental under the sublease is $2,782 per month.



As of December 31, 2001, there were holders of record of 30,000 shares of
Series B 6% Cumulative Convertible Preferred stock of the Company. In July 2002, the Company declared a dividend distribution in the form of 23,709 shares of its investment in Innovatives common stock, to holders of record as of December 31,
2001, of Company Series B 6% Cumulative Convertible Preferred stock. The payment rate was .790327 shares of Innovative common stock for each share of the Companys common stock held as of July 9, 2002, by these shareholders.



In September 2002, the Company issued 10,734 shares of common stock of the
Company in payment of $16,101 of accrued preferred share dividends.



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In November 2002, the Company distributed 1,933,000 shares of DrugMax as a dividend to its shareholders.
The payment rate was .626882 shares of DrugMax common stock for each share of the Companys common stock held on October 10, 2002.



|Item 7. |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|------- |  | --------------------------------------------



See consolidated financial statements following Item 13 of this Annual Report on Form 10-KSB.



|Item 7a. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
|-------- |  | ----------------------------------------------------------



The Company does not have any material market risk sensitive financial instruments.



|Item 8. |  | CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|------- |  | ------------------------------------------------------------------------------------



None.





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PART III



|Item 9. |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
|------- |  | ----------------------------------------------------------------------------------------------------------------



The following are the names and certain information regarding the current
Directors and Executive Officers of the Company:



|Name                     |  | Age |  | Position                                                   |  | Director Since
|------------------------ |  | --- |  | ---------------------------------------------------------- |  | --------------
|Jugal K. Taneja          |  | 59  |  | Chairman of the Board and Director                         |  | 1992          
|                         |  |     | 
|Mandeep K. Taneja        |  | 29  |  | Chief Executive Officer, President and Director            |  | 2000          
|                         |  |     | 
|Cani I. Shuman           |  | 46  |  | Chief Financial Officer, Secretary, Treasurer and Director |  | 2001          
|                         |  |     | 
|Kotha S. Sekharam, Ph.D. |  | 52  |  | Director                                                   |  | 1995          
|                         |  |     | 
|Rakesh K. Sharma, M.D.   |  | 46  |  | Director                                                   |  | 1999          
|                         |  |     | 
|Morton L. Stone          |  | 72  |  | Director                                                   |  | 2002          



Pursuant to the
Companys bylaws, each director serves for a term of one year and until his successor is duly qualified. Officers are elected annually by the Board of Directors (subject to the terms of any employment agreement), at the Companys annual
meeting, to hold such office until an officers successor has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board. Some of the directors and executive officers of the Company also serve in
various capacities with subsidiaries of the Company. Mandeep K. Taneja is the adult son of Jugal K. Taneja. There are no other family relationships among any of the Companys other directors and executive officer.



Background of Executive Officers and Directors



Jugal K. Taneja has served as the Companys Chairman of the Board since
its inception. Until June 1998 and from November 1999 until February 2002, he also served as the Companys Chief Executive Officer. In addition to his service to the Company, Mr. Taneja operates several other companies. He serves as Chairman of
the Board of DrugMax, Inc., and since October 2000 has served as DrugMaxs Chief Executive Officer. He previously served as DrugMaxs Chief Executive Officer from its inception in October 1993 through April 1995, and again from January
1996 until August 1999. Further, he served at various times over the years as DrugMaxs President and Secretary. DrugMax is a publicly-held company operating as a business to business wholesaler and retailer of pharmaceuticals, over-the counter
drugs, health and beauty care products and private label dietary supplements. Mr. Taneja also serves as a director of Innovative Companies, Inc., a publicly-held company that manufactures and distributes nutritional and health products. Mr. Taneja
holds degrees in Petroleum Engineering, Mechanical Engineering, and a Masters in Business Administration from Rutgers University.



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Mandeep K. Taneja has served as a director of the Company and as the Companys President since
November 2000. He has also served as the Companys Chief Executive Officer since December 2002. Prior to that he served as President of the Companys subsidiary, Dynamic Life, Inc. since June 2000. In addition, he served as Director of
Finance for Dynamic Life Korea Ltd. from April 2000 until November 2000. He was also employed as an associate of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. from July through October 2000. Mr. Taneja holds a Bachelor of Arts degree in
political science from the University of Rochester as well as Management Certificates in marketing and organizational behavior. He also holds a Juris Doctorate from the University of Miami and is an attorney. Mr. Taneja is the son of Jugal K.
Taneja.



Cani I. Shuman has served as a director of the Company
since August 2001 and has served as the Companys Chief Financial Officer since November 2000. Ms. Shuman has served as the Companys Secretary and Treasurer since April 2000, and was Corporate Controller of the Company from February 1999
through November 2000. Prior to that she served as Chief Financial Officer of the Company since January 1998. Prior to her employment with the Company in January 1998, she was employed in public accounting with Hacker, Johnson, Cohen & Grieb,
PA, and Copeland and Company, CPAs since January 1994. Prior to that, she held accounting positions in private industry. Ms. Shuman is a certified public accountant and holds a B.S. degree in Accounting from the University of South Florida.



Dr. Kotha S. Sekharam has served as a director of the Company
since June 1996 and served as the Companys President from June 1996 through November 2000. Dr. Sekharam was a founder and director of Nu-Wave Health Products, Inc., and served as its President from June 1996 through March 1998, and served as
Nu-Waves Vice President from September 1995 until June 1996. The Company acquired 80% of Nu-Wave in September 1995 and the additional 20% of Nu-Wave in July 1997. From 1992 until September 1995, he served as Director of Research and
Development of Energy Factors, acquired by the Company in June 1998. Dr. Sekharam is also President of Innovative Companies, Inc., a public company operating as a private label manufacturer of dietary supplements, over-the-counter drugs, and health
and beauty care products. Dr. Sekharam holds a Ph.D. in food sciences from Central Food Technological Research Institute, Mysore, India, a United Nations university center and has over 15 years of experience in the food and health industry.



Rakesh K. Sharma, M.D. became a director of the Company in
March 1999. Dr. Sharma is a cardiologist and is a member of the medical staff of several hospitals in the Tampa Bay, Florida area and is a director of Eonnet Media, Inc.



Morton L. Stone became a director of the Company in February 2002. He was a partner in Ulmer & Berne, LLP, a Cleveland,
Ohio based law firm, until his retirement in December 1997. Mr. Stones field of concentration was in business and corporate law. Since that time, he has provided business consulting services. He received undergraduate and law degrees from Case
Western Reserve University.



-24-



---

Section 16(a) Beneficial Ownership Reporting Compliance



To the best of the Companys knowledge, the following individuals and
entities are delinquent with filing the following number of Form 3s and Form 4s as required by Section 16(a) of the Securities And Exchange Act of 1934:



|Name                                 |  | Number of Transactionsand Delinquent Reports
|------------------------------------ |  | --------------------------------------------
|Jugal K. Taneja                      |  | 7                                           
|Carnegie Capital, Ltd.               |  | 2                                           
|First Delhi Family Partnership, Ltd. |  | 1                                           
|Manju Taneja                         |  | 6                                           
|Mandeep K. Taneja                    |  | 2                                           
|Mihir K. Taneja                      |  | 2                                           
|Kotha S. Sekharam                    |  | 3                                           
|Morton L. Stone                      |  | 1                                           
|William LaGamba                      |  | 1                                           



Code of Ethics



The Company has adopted its Code of Ethics and Business Conduct for
Officers, Directors and Employees, that applies to all of the officers, directors and employees of the Company. The Code of Ethics is filed as an exhibit to this Report on Form 10-KSB.



|Item 10. |  | EXECUTIVE COMPENSATION
|-------- |  | ----------------------



SUMMARY COMPENSATION TABLE



|                                                            |  | Annual Compensation(1)
|----------------------------------------------------------- |  | ----------------------
|Name and Principal Position                                 |  | Year                  
|Mandeep K. Taneja, Chief Executive Officer and President(2) |  | 2003 2002 2001        
|                                                            |  |                       
|Jugal K. Taneja, Chairman(3)                                |  | 2002 2001             

---

|(1) |  | The compensation described in this table does not include medical and dental insurance benefits received by the named executive officers, if applicable, which are available
generally to all employees of the Company and certain perquisites and other personal benefits received by the named executive officers, the value of which does not exceed the lesser of $50,000 or 10% of any such officers total salary and bonus
disclosed in the table.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Mr. Mandeep Taneja served as the Companys Chief Executive Officer since December 2002.
|--- |  | ---------------------------------------------------------------------------------------

|(3) |  | Mr. Jugal Taneja served as the Companys Chief Executive Officer until June 1998 and from November 1999 until February 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------





-25-



---

During the year ended March 31, 2003, the Company paid each director a fee of $500 for each meeting
attended by such director, but not less than $2,000 per year if they attended at least three meetings during the year. Outside directors who serve on board committees will be paid a fee of $100 for each committee meeting attended by such director.
In addition, directors receive reimbursement for reasonable expenses incurred in attending meetings.



Employment Agreements



On March 15, 1999, the Company entered into an Employment Agreement with Jugal Taneja for a term of three years which renews automatically for successive periods of one year after its expiration unless, not less than 30 days prior to the
end of the initial term or any one-year renewal period, one of the parties sends written notice to the other party of its intent to terminate the agreement. Mr. Tanejas employment agreement was amended in January 2000, subsequent to his
appointment as Chief Executive Officer of the Company. The annual salary payable under the agreement was $240,000 plus an annual bonus at the discretion of the Board of Directors. The employment agreement was terminated effective January 1, 2002, at
which time the Company entered into a Consulting Agreement with Mr. Taneja. In February 2002, Mr. Taneja resigned his position as Chief Executive Officer of the Company and remains Chairman of the Board.



Consulting Agreement



Jugal K. Taneja has been a valuable employee of the Company and management of the Company realized that Mr. Taneja has
demonstrated a keen understanding of the Companys operations, such that it is desirable to retain Mr. Tanejas services under a consulting agreement. On February 14, 2002, the Company entered into a Consulting Agreement with Jugal K.
Taneja, to reflect his current position as a consultant to the Company. During the three year term of the Consulting Agreement, commencing January 1, 2002, Mr. Taneja shall be deemed to be an independent contractor and is free to devote his time,
energy and skill to any such person, firm or company as he deems advisable. The annual compensation payable under the agreement was $240,000, as consideration for the services to be rendered under the agreement. On October 1, 2002, upon mutual
agreement between the parties, the annual base compensation payable under the agreement was reduced to $150,000. The agreement contains confidentiality and non-compete provisions.



|Item 11. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
|-------- |  | ---------------------------------------------------------------



The following table sets forth certain information, as of June 23, 2003 with respect to the beneficial ownership of the outstanding Common Stock by (i)
any holder of more than five (5%) percent; (ii) each of the Companys executive officers and directors; and (iii) the directors and executive officers of the Company as a group. An asterisk indicates beneficial ownership of less than 1% of the
outstanding Common Stock. Except as otherwise indicated, each of the shareholders listed below has sole voting and investment power over the shares beneficially owned.



-26-



---

|Class  |  | Name and Address of Beneficial
Owner(1)                         |  | Amount andNature ofBeneficialOwnership(2) |  | Approximate Title of Percent Of Class |  
|------ |  | --------------------------------------------------------------- |  | ----------------------------------------- |  | ------------------------------------- | -
|Common |  | Jugal K. Taneja(3)                                              |  | 1,172,927                                 |  | 38.0                                  | %
|Common |  | Manju Taneja(4)                                                 |  | 432,851                                   |  | 14.0                                  | %
|Common |  | William L. LaGamba(5)                                           |  | 435,000                                   |  | 14.1                                  | %
|Common |  | Michele LaGamba(6)                                              |  | 435,000                                   |  | 14.1                                  | %
|Common |  | Mandeep K. Taneja                                               |  | 369,999                                   |  | 12.0                                  | %
|Common |  | Mihir K. Taneja                                                 |  | 369,999                                   |  | 12.0                                  | %
|Common |  | Kotha S. Sekharam, Ph.D.(7)                                     |  | 115,616                                   |  | 3.8                                   | %
|Common |  | Morton L. Stone 1080 Peppertree Lane, #302 Sarasota, FL 34242   |  | 33,333                                    |  | 1.1                                   | %
|Common |  | Cani I. Shuman                                                  |  | -0-                                       |  | -0-                                   |  
|Common |  | Rakesh K. Sharma, M.D. 455 Pinellas Street Clearwater, FL 33756 |  | -0-                                       |  | -0-                                   |  
|Common |  | All officers and directors as a group (6
persons)               |  | 1,691,875                                 |  | 54.9                                  | %

---



|(1) |  | Except as otherwise indicated, the address of each beneficial owner is c/o Dynamic Health
|--- |  | -----------------------------------------------------------------------------------------

Products, Inc. at 12399 Belcher Road South, Suite 160, Largo, FL 33773.

|(2) |  | Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to the shares shown. Except where
indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes 413,185 shares beneficially owned by Manju Taneja, Jugal K. Tanejas wife, as to which Mr. Taneja exercises no investment or voting power and disclaims beneficial
ownership. Also includes (i) 670,076 shares owned by Carnegie Capital, Ltd. and (ii) 70,000 shares owned by First Delhi Family Partnership, Ltd. Mr. Taneja is the general partner of Carnegie Capital, Ltd. and First Delhi Family Partnership, Ltd. As
such, Mr. Taneja holds sole voting and investment power with respect to the shares held of record by Carnegie Capital, Ltd. and First Delhi Family Partnership, Ltd.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes 19,666 shares beneficially owned by Jugal K. Taneja, as to which Manju Taneja exercises no investment or voting power and disclaims beneficial ownership. Excludes (i)
670,076 shares owned by Carnegie Capital, Ltd., and (ii) 70,000 shares owned by First Delhi Family Partnership, Ltd., as to which Mrs. Taneja exercises no investment or voting power and disclaims beneficial ownership.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes 196,000 shares owned by Michele LaGamba, Mr. LaGambas wife, as to which Mr. LaGamba exercises no investment or voting power and disclaims beneficial ownership. Also
includes and 126,000 shares held by Mr. LaGamba as custodian for their minor children.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes 113,000 shares owned by William L. LaGamba, and 126,000 shares held by Mr. LaGamba as custodian for their minor children, as to which Mrs. LaGamba exercises no investment
or voting power and disclaims beneficial ownership.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-27-



---

|(7) |  | Includes 10,000 shares owned by Madhavi Sekharam, Dr. Sekharams wife, as to which Dr. Sekharam exercises no investment or voting power and disclaims beneficial ownership.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 12. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
|-------- |  | -----------------------------------------------



On October 1, 1999, the Company entered into a triple-net lease agreement with Innovative, whereby Innovative agreed to lease the Companys land and
33,222 square foot building situated in Largo, Florida for 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.



On November 26, 1999, pursuant to an Agreement and Plan of Reorganization
entered into on September 8, 1999 with DrugMax, the Company sold all of the shares of capital stock of Becan to DrugMax. Jugal K. Taneja, a principal shareholder, and Chairman of the Board of the Company is also a principal shareholder, Chairman of
the Board and Chief Executive Officer of DrugMax. William L. LaGamba, the Chief Operating Officer and President of DrugMax is also a principal shareholder of the Company. The Company received 2,000,000 shares of restricted common stock of Drugmax,
with an estimated fair value of $10.00 per share based on the November 27, 1999 Initial Public Offering price, and $2,000,000 cash in exchange for all of the issued and outstanding shares of stock of Becan. Additional consideration of 500,000
restricted shares of common stock, $.001 par value, of DrugMax were released to the Company in July 2001 because Becan attained certain revenue and gross margin goals. The shares were subsequently received and the estimated fair value of the 500,000
shares of $1,188,751 is included in investments in unconsolidated affiliates as of March 31, 2002. On October 10, 2002, the Board of Directors of the Company approved the declaration of a dividend distribution to holders of record of its issued and
outstanding common shares as of October 10, 2002, in the form of approximately 1,933,000 shares of DrugMax, which the Company owned. On November 22, 2002, the Company distributed 1,933,000 shares of DrugMax to its shareholders. The payment rate was
..626882 shares of DrugMax common stock for each share of the Companys common stock held on October 10, 2002. 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.



In July 2000, certain notes
receivable totaling $425,000 arose pursuant to Herbals sale of substantially all of its assets relating to the distribution of veterinary products to Vertical Health Solutions, Inc. (Vertical), an affiliate of the Company. The
first promissory note was in the principal amount of $75,000, with interest at 10% per annum. Principal and interest were payable monthly commencing November 27, 2000, in the amount of $7,500 per month until the note is paid in full. The second
promissory note was in the principal amount of $350,000, with interest at 10% per annum. Principal and interest were payable (i) upon the completion of an initial public offering of common stock of Vertical which shall be made within 12 months from
July 31, 2000, or (ii) if the note was not paid in full within 12 months from July 31, 2000, then payments were to be made monthly in the amount of $12,372.99 per month until the note is paid in full. The notes were secured by the business assets of
Vertical. On October 1, 2001, the promissory notes were amended to reflect new terms of repayment. Under the new terms, the entire amount of unpaid principal and interest were due and payable on or before one year of the date of the note addendum or
upon the completion of an initial public offering of common stock of Vertical, and interest was due and payable on the last day of each month at the rate of 10% per annum on the remaining principal balances. As of March 31, 2002, the outstanding
principal balance on the notes was $419,248 and was included in notes receivable from affiliate(s).



-28-



---

Effective June 30, 2002, the Company entered into a Conversion Agreement with Vertical whreby the parties agreed to
convert the Companys notes receivable from Vertical, with a balance of unpaid principal and interest due of $429,846, into 429,846 shares of Series A preferred stock of Vertical.



For the year ended March 31, 2003, the Company charged Vertical consulting fees totaling approximately $6,063 for accounting
and administrative services. The charge is on an hourly basis for services rendered. As of March 31, 2003, approximately $6,063 was due from Vertical and is included in amounts due from affiliates.



In July 2001, the Company purchased 20%, or 200,000 shares of common stock,
of Tribeca Beverage Company, an affiliate of Jugal K. Taneja, the Companys Chairman and Mandeep K. Taneja, the Companys Chief Executive Officer and President, for a total purchase price of $200,000. In December 2002, the Company
purchased an additional 10%, or 100,000 shares of common stock of Tribeca from the former President of Tribeca for $1. The investment was accounted for under the equity method. As a result of managements analysis, it has been determined that
the investment was worthless as of March 31, 2003 and the Company recognized an impairment loss of $166,939 in the investment. As of March 31, 2002, the investment amounted to $180,863 and was included in investments in unconsolidated affiliates.
The balance of the obligation due to Tribeca for the purchase of the investment as of March 31, 2003 and 2002 was $4,278 and $63,977, respectively, and is included in obligations to affiliates.



In January 2002, the Company issued 10,000 shares of common stock of the
Company and in May 2002 the Company issued 20,000 shares of its common stock. The 30,000 shares of common stock were issued in exchange for 30,000 shares of Series B 6% Cumulative Convertible Preferred stock of the Company, which shares were issued
in conjunction with a private placement undertaken in 1998.



As
of December 31, 2001, there were holders of record of 30,000 shares of Series B 6% Cumulative Convertible Preferred stock of the Company. In July 2002, the Company declared a dividend distribution in the form of 23,709 shares of its investment in
Innovatives common stock, to holders of record as of December 31, 2001, of Company Series B 6% Cumulative Convertible Preferred stock. The payment rate was .790327 shares of Innovative common stock for each share of the Companys common
stock held as of July 9, 2002, by these shareholders.



On
February 14, 2002, the Company entered into a Consulting Agreement with Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company, to reflect his current position as a consultant to the Company. During the three year term of
the Consulting Agreement, commencing January 1, 2002, Mr. Taneja shall be deemed to be an independent contractor and is free to devote his time, energy and skill to any such person, firm or company as he deems advisable. The annual compensation
payable under the agreement was $240,000, as consideration for the services to be rendered under the agreement. On October 1, 2002, upon mutual agreement between the parties, the annual base compensation payable under the agreement was reduced to
$150,000. The agreement contains confidentiality and non-compete provisions.



On March 20, 2002, the Company entered into a Settlement Agreement whereby it resolved all disputes and agreed on dismissal of all pending litigation between the Company and U.S. Diversified Technologies, Inc., the
holder of 310,000 shares of Series A Convertible Preferred stock of the Company and Paul Santostasi, a principal shareholder of USDTI and



-29-



---

former Vice Chairman of the Company. Pursuant to the Settlement Agreement, the Company agreed to cause the transfer of
$50,000 in cash and 287,500 shares of its investment in DrugMax to USDTI, in exchange for USDTIs 310,000 shares of Series A Convertible Preferred stock of the Company. This exchange resulted in a recorded gain of $83,344 to the Company for the
year ended March 31, 2002. The Company also agreed to cause the transfer of 45,000 shares of its investment in DrugMax to Paul Santostasi in satisfaction of $180,000 of its obligation to Mr. Santostasi, which resulted in $71,853 of compensation
expense and a recorded gain of $11,280 to the Company for the year ended March 31, 2002. Upon full execution of a Release And Settlement Agreement on October 2, 2002, the $50,000 in cash and the 332,500 shares were subsequently transferred.



On March 22, 2002, the Company entered into a Sublease and
Consent agreement with Innovative Health Products, Inc., a wholly-owned subsidiary of Innovative, whereby the Company agreed to sublease approximately 5,200 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 was sublet for a term of approximately one year, ending on March 31, 2003. The
sublease contains an option to continue the lease subsequent to March 31, 2003, on a month-to-month basis through January 10, 2004, unless terminated earlier. This option to continue has been exercised. The rental under the lease is $2,782 per
month.



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. The Company believes that material affiliated transactions and loans, and business relationships entered into by the Company or its subsidiaries with certain of its officers, directors and principal stockholders or their
affiliates were on terms no less favorable than the Company could have obtained from independent third parties. Any future transactions between the Company and its officers, directors or affiliates will be subject to approval by a majority of
disinterested directors or stockholders in accordance with Florida law.



For the years ended March 31, 2003 and 2002, purchases of products from subsidiaries of Innovative were $164,922 and $291,579, respectively, and sales of products to subsidiaries of Innovative were $3,574 and zero, respectively. As of March
31, 2003 and 2002, $91 and zero, respectively, were due from Innovative and are in included in amounts due from affiliates, and $29,140 and $74,792, respectively, were due to subsidiaries of Innovative and are included in obligations to affiliates.



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



For the years ended March 31,
2003 and 2002, sales of products to subsidiaries of DrugMax were approximately $5,760 and zero, respectively.



For the years ended March 31, 2003 and 2002, purchases of products from T & L, Inc., an affiliate of Mandeep K. Taneja, Chief Executive Officer and
President of the Company, were approximately $2,262 and zero, respectively, and sales of products to T & L, Inc. were approximately $37 and zero, respectively.



-30-



---

PART IV



|Item 13. |  | EXHIBITS AND REPORTS ON FORM 8-K.
|-------- |  | ---------------------------------



(a)(1) Consolidated Financial Statements.



See consolidated financial statements commencing on page F-1.



(a)(2) Exhibits.



The following exhibits are filed with this report:



|     | 
|---- | 
|3.1  | 
|     | 
|3.2  | 
|     | 
|3.3  | 
|     | 
|3.4  | 
|     | 
|10.1 | 
|     | 
|10.2 | 
|     | 
|10.3 | 
|     | 
|14.1 | 
|     | 
|21.1 | 
|     | 
|99.1 | 
|     | 
|99.2 | 
|     | 
|99.3 | 
|     | 
|99.4 | 



-31-



---

---

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



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



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



|(4) |  | Incorporated by reference to the Companys Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999, file number 0-23031, filed in Washington, D.C.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | Incorporated by reference to the Companys Annual Report on Form 10-KSB for the fiscal year ended March 31, 2002, file number 0-23031, filed in Washington, D.C.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K.



During the three month period ending March 31, 2003, the Company filed no
reports on Form 8-K.



|Item 14. |  | CONTROLS AND PROCEDURES.
|-------- |  | ------------------------



Within the 90 days prior to the date of filing of this annual report on Form 10-KSB, 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 (as defined in Exchange Act Rules 13a-14 and 15d-14). 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 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.



-32-



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |  |  | DYNAMIC HEALTH PRODUCTS, INC.
|-------------------- |  |  |  | -----------------------------
|                     |  |  | 
|Dated: June 30, 2003 |  |  |  | By:                          
|                     |  |  |  |                              



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.



|Signature |  | Title                                 |  | Date                              
|--------- |  | ------------------------------------- |  | ----------------------------------
|          |  |                                       | 
|By:       |  | /s/    JUGAL K. TANEJAJugal K. Taneja |  | Chairman of the Board and Director



|    |  |                                           | 
|--- |  | ----------------------------------------- | 
|By: |  | /s/    MANDEEP K. TANEJAMandeep K. Taneja | 



|    |  |                                     | 
|--- |  | ----------------------------------- | 
|By: |  | /s/    CANI I.
SHUMANCani I. Shuman | 



|    |  |                                           | 
|--- |  | ----------------------------------------- | 
|By: |  | /s/    KOTHA S.
SEKHARAMKotha S.
Sekharam | 
|    |  |                                           | 
|By: |  | /s/    RAKESH K. SHARMARakesh K. Sharma   | 



-33-



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



|                                                                                                       | 
|------------------------------------------------------------------------------------------------------ | 
|Independent Auditors Report                                                                           | 
|                                                                                                       | 
|Consolidated Balance Sheets as of March 31, 2003 and 2002                                              | 
|                                                                                                       | 
|Consolidated Statements of Operations for the years ended March 31, 2003 and 2002                      | 
|                                                                                                       | 
|Consolidated Statements of Changes in Shareholders Equity for the years ended March 31, 2003 and 2002 | 
|                                                                                                       | 
|Consolidated Statements of Cash Flows for the years ended March 31, 2003 and 2002                      | 
|                                                                                                       | 
|Notes to Consolidated Financial Statements                                                             | 



F-1



---

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors

Dynamic Health Products, Inc. and Subsidiaries



We have audited the accompanying consolidated balance sheets of Dynamic Health Products, Inc. and Subsidiaries as of
March 31, 2003 and 2002 and the related consolidated statements of operations, changes in shareholders equity, and cash flows for the years ended March 31, 2003 and 2002. These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



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



In our opinion, the
consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dynamic Health Products, Inc. and Subsidiaries as of March 31, 2003 and 2002 and the consolidated results of
operations and cash flows for the years ended March 31, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of America.



/s/ BRIMMER, BUREK & KEELAN LLP

Brimmer, Burek & Keelan LLP



Tampa, Florida

May 21, 2003



F-2



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                             |  | March 31,2003 |            |   | March 31,2002 |  
|------------------------------------------------------------------------------------------------------------ |  | ------------- | ---------- | - | ------------- | -
|ASSETS                                                                                                       |  |               |            |   |               |  
|Current assets:                                                                                              |  |               |            |   |               |  
|Cash and cash equivalents                                                                                    |  | $             | 23,914     |   |               | $
|Certificate of deposit                                                                                       |  |               | 45,917     |   |               |  
|Marketable equity securities, net                                                                            |  |               | 4,314      |   |               |  
|Accounts receivable, net                                                                                     |  |               | 51,155     |   |               |  
|Inventories                                                                                                  |  |               | 25,662     |   |               |  
|Prepaid expenses                                                                                             |  |               | 38,744     |   |               |  
|Other current assets                                                                                         |  |               | 7,729      |   |               |  
|Due from affiliates                                                                                          |  |               | 6,063      |   |               |  
|Due from related parties                                                                                     |  |               |           |   |               |  
|Notes receivable, net                                                                                        |  |               |           |   |               |  
|Notes receivable from affiliates                                                                             |  |               | 37,426     |   |               |  
|                                                                                                             |  |               |            |   |               |  
|Total current assets                                                                                         |  |               | 240,924    |   |               |  
|Property, plant and equipment, net                                                                           |  |               | 1,374,305  |   |               |  
|Intangible assets, net                                                                                       |  |               | 24,583     |   |               |  
|Investments in unconsolidated affiliates                                                                     |  |               | 357,902    |   |               |  
|Notes receivable                                                                                             |  |               |           |   |               |  
|Note receivable from affiliate                                                                               |  |               |           |   |               |  
|Other assets, net                                                                                            |  |               | 12,040     |   |               |  
|                                                                                                             |  |               |            |   |               |  
|Total assets                                                                                                 |  | $             | 2,009,754  |   |               | $
|                                                                                                             |  |               |            |   |               |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                         |  |               |            |   |               |  
|Current liabilities:                                                                                         |  |               |            |   |               |  
|Accounts payable                                                                                             |  | $             | 149,070    |   |               | $
|Other payables                                                                                               |  |               | 85,964     |   |               |  
|Current portion of long-term obligations                                                                     |  |               | 48,362     |   |               |  
|Accrued expenses                                                                                             |  |               | 42,416     |   |               |  
|Accrued income taxes                                                                                         |  |               | 5,746      |   |               |  
|Obligations to affiliates                                                                                    |  |               | 33,418     |   |               |  
|                                                                                                             |  |               |            |   |               |  
|Total current liabilities                                                                                    |  |               | 364,976    |   |               |  
|Deferred income taxes                                                                                        |  |               |           |   |               |  
|Long-term obligations, less current portion                                                                  |  |               | 831,712    |   |               |  
|                                                                                                             |  |               |            |   |               |  
|Total liabilities                                                                                            |  |               | 1,196,688  |   |               |  
|                                                                                                             |  |               |            |   |               |  
|Commitments and contingencies                                                                                |  |               |            |   |               |  
|Shareholders' equity:                                                                                        |  |               |            |   |               |  
|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 and 20,000 shares issued and outstanding, at face value |  |               |           |   |               |  
|Common stock, $.01 par value; 20,000,000 shares authorized;                                                  |  |               |            |   |               |  
|3,082,875 and 3,052,141 shares issued and outstanding                                                        |  |               | 30,828     |   |               |  
|Additional paid-in capital                                                                                   |  |               | 2,538,142  |   |               |  
|Retained earnings (deficit)                                                                                  |  |               | (1,690,048 | ) |               |  
|Accumulated other comprehensive income:                                                                      |  |               |            |   |               |  
|Unrealized losses on marketable equity securities                                                            |  |               | (65,856    | ) |               |  
|                                                                                                             |  |               |            |   |               |  
|Total shareholders' equity                                                                                   |  |               | 813,066    |   |               |  
|                                                                                                             |  |               |            |   |               |  
|Total liabilities and shareholders' equity                                                                   |  | $             | 2,009,754  |   |               | $
|                                                                                                             |  |               |            |   |               |  



See accompanying notes
to consolidated financial statements.



F-3



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                  |  | Year EndedMarch 31,2003 |            |   | Year Ended March 31,2002 |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ------------------------ | -
|Revenues:                                                                         |  |                         |            |   |                          |  
|Distribution                                                                      |  | $                       | 822,077    |   |                          | $
|Prescription services                                                             |  |                         | 8,359      |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Total revenues                                                                    |  |                         | 830,436    |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Cost of goods sold:                                                               |  |                         |            |   |                          |  
|Distribution                                                                      |  |                         | 422,206    |   |                          |  
|Prescription services                                                             |  |                         | 7,313      |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Total cost of goods sold                                                          |  |                         | 429,519    |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Gross profit:                                                                     |  |                         |            |   |                          |  
|Distribution                                                                      |  |                         | 399,871    |   |                          |  
|Prescription services                                                             |  |                         | 1,046      |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Total gross profit                                                                |  |                         | 400,917    |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Operating expenses:                                                               |  |                         |            |   |                          |  
|Selling, general and administrative expenses                                      |  |                         | 913,840    |   |                          |  
|Amortization expense                                                              |  |                         | 1,244      |   |                          |  
|Depreciation expense                                                              |  |                         | 94,307     |   |                          |  
|Bad debt expense                                                                  |  |                         | 1,152,608  |   |                          |  
|Impairment of intangible assets                                                   |  |                         |           |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Total operating expenses                                                          |  |                         | 2,161,999  |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Operating loss before other income and expense                                    |  |                         | (1,761,082 | ) |                          |  
|                                                                                  |  |                        
|Other income (expense):                                                           |  |                         |            |   |                          |  
|Interest income                                                                   |  |                         | 17,375     |   |                          |  
|Gain on transfer of equity securities                                             |  |                         |           |   |                          |  
|Gains on exchanges of equity securities                                           |  |                         |           |   |                          |  
|Loss on distribution of investment                                                |  |                         | (1,388,088 | ) |                          |  
|Impairment loss on investment in affiliated company                               |  |                         | (166,939   | ) |                          |  
|Gain (loss) on sale of assets                                                     |  |                         |           |   |                          |  
|Other income and expenses, net                                                    |  |                         | 264,202    |   |                          |  
|Losses on marketable equity securities, net                                       |  |                         | (21,570    | ) |                          |  
|Equity in income (loss) of affiliated companies                                   |  |                         | (3,585,370 | ) |                          |  
|Interest expense                                                                  |  |                         | (68,263    | ) |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Total other income (expense)                                                      |  |                         | (4,948,653 | ) |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Loss from continuing operations before income taxes                               |  |                         | (6,709,735 | ) |                          |  
|Income tax expense (benefit)                                                      |  |                         | (2,418,146 | ) |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Income (loss) from continuing operations                                          |  |                         | (4,291,589 | ) |                          |  
|Discontinued operations:                                                          |  |                         |            |   |                          |  
|Loss from operations of Dynamic Life Korea Ltd., income taxes not applicable      |  |                         |           |   |                          |  
|Gain on sale of Dynamic Life Korea Ltd., less applicable income taxes of $594,172 |  |                         |           |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Net income (loss)                                                                 |  |                         | (4,291,589 | ) |                          |  
|Preferred stock dividends                                                         |  |                         |           |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Net income (loss) available to common shareholders                                |  | $                       | (4,291,589 | ) |                          | $
|                                                                                  |  |                         |            |   |                          |  
|Basic income (loss) per share before discontinued operations                      |  | $                       | (1.40      | ) |                          | $
|Basic income (loss) per share from discontinued operations                        |  |                         |           |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Basic income (loss) per share                                                     |  | $                       | (1.40      | ) |                          | $
|                                                                                  |  |                         |            |   |                          |  
|Basic weighted average number of common shares outstanding                        |  |                         | 3,075,057  |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Diluted income (loss) per share before discontinued operations                    |  | $                       | (1.40      | ) |                          | $
|Diluted income (loss) per share from discontinued operations                      |  |                         |           |   |                          |  
|                                                                                  |  |                         |            |   |                          |  
|Diluted income (loss) per share                                                   |  | $                       | (1.40      | ) |                          | $
|                                                                                  |  |                         |            |   |                          |  
|Diluted weighted average number of common shares outstanding                      |  |                         | 3,075,057  |   |                          |  
|                                                                                  |  |                         |            |   |                          |  



See accompanying notes
to consolidated financial statements.



F-4



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Years Ended March 31, 2003 and 2002



|                                                                                                                  |  | Series A Preferred Stock |   |  | Series B Preferred Stock |          |                                | Common Stock |         | Additional Paid-inCapital |         |   | Retained Earnings(Deficit) |        |  | AccumulatedOtherComprehensiveIncome |  |   | TotalShareholders'Equity | 
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------ | - |  | ------------------------ | -------- | ------------------------------ | ------------ | ------- | ------------------------- | ------- | - | -------------------------- | ------ |  | ----------------------------------- |  | - | ------------------------ | 
|                                                                                                                  |  |                          |   |  |                          |          | Unrealized Losses onSecurities |              |        
|                                                                                                                  |  | Shares                   |   |  | Dollars                  |          |                                | Shares       |         |                           | Dollars |   |                            | Shares |  | Dollars                             |  |   |                          | 
|Balances at March 31, 2001                                                                                        |  | 310,000                  |   |  | $                        | 775,000  |                                |              | 30,000  |                           |         | $ | 75,000                     |        |  | 2,917,141                           |  | $ | 29,171                   | 
|                                                                                                                  |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|COMPREHENSIVE INCOME                                                                                              |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|Net income                                                                                                        |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|Unrealized gains (losses) on marketable equity securities (net of tax of $5,338)                                  |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|                                                                                                                  |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|Comprehensive income                                                                                              |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|Cash paid in lieu of fractional shares for common stock exchanged, in relation to August 1998 reverse stock split |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|Conversion of 10,000 shares of Series B preferred stock to 10,000 shares of common stock                          |  |                         |   |  |                          |         |                                |              | (10,000 | )                         |         |   | (25,000                    | )      |  | 10,000                              |  |   | 100                      | 
|Issuance of 125,000 shares of common stock in exchange for the transfer of equity securities                      |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  | 125,000                             |  |   | 1,250                    | 
|Redemption of 310,000 shares of Series A preferred stock in exchange for the transfer of equity securities        |  | (310,000                 | ) |  |                          | (775,000 | )                              |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|Dividends to preferred shareholders                                                                               |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|                                                                                                                  |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|Balances at March 31, 2002                                                                                        |  |                         |   |  |                          |         |                                |              | 20,000  |                           |         |   | 50,000                     |        |  | 3,052,141                           |  |   | 30,521                   | 
|                                                                                                                  |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|COMPREHENSIVE INCOME (LOSS)                                                                                       |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|Net income (loss)                                                                                                 |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|Unrealized gains (losses) on marketable equity securities (net of tax of $6,315)                                  |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|                                                                                                                  |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|Comprehensive income (loss)                                                                                       |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|Cash paid in lieu of fractional shares for common stock exchanged, in relation to August 1998 reverse stock split |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|Conversion of 20,000 shares of Series B preferred stock to 20,000 shares of common stock                          |  |                         |   |  |                          |         |                                |              | (20,000 | )                         |         |   | (50,000                    | )      |  | 20,000                              |  |   | 200                      | 
|Issuance of 10,734 shares of common stock in payment of accrued preferred share dividends                         |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  | 10,734                              |  |   | 107                      | 
|Dividend distribution of 1,933,000 shares of DrugMax, Inc. at $1.25 per share                                     |  |                         |   |  |                          |         |                                |              |        |                           |         |   |                           |        |  |                                    |  |   |                         | 
|                                                                                                                  |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 
|Balances at March 31, 2003                                                                                        |  |                         |   |  | $                        |         |                                |              |        |                           |         | $ |                           |        |  | 3,082,875                           |  | $ | 30,828                   | 
|                                                                                                                  |  |                          |   |  |                          |          |                                |              |         |                           |         |   |                            |        |  |                                     |  |   |                          | 



See accompanying notes
to consolidated financial statements.



F-5



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                     |  | Year EndedMarch 31,2003 |            |   | Year EndedMarch 31,2002 |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ---------- | - | ----------------------- | -
|Cash flows from operating activities:                                                |  |                         |            |   |                         |  
|Net income (loss)                                                                    |  | $                       | (4,291,589 | ) |                         | $
|                                                                                     |  |                         |            |   |                         |  
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                         |            |   |                         |  
|Depreciation and amortization                                                        |  |                         | 95,551     |   |                         |  
|Impairment loss in investment in affiliated company                                  |  |                         | 166,939    |   |                         |  
|Impairment of intangible assets                                                      |  |                         |           |   |                         |  
|Write off of uncollectible note receivable                                           |  |                         | 1,028,411  |   |                         |  
|Write off of uncollectible other receivables                                         |  |                         | 151,637    |   |                         |  
|Transfer of equity securities for settlement of compensation expense                 |  |                         |           |   |                         |  
|Equity in (income) loss of affiliated companies                                      |  |                         | 3,585,370  |   |                         |  
|Equity in loss of subsidiary through date of sale                                    |  |                         |           |   |                         |  
|Gain on sale of subsidiary                                                           |  |                         |           |   |                         |  
|Gain on transfer of equity securities                                                |  |                         |           |   |                         |  
|Gain on exchanges of equity securities                                               |  |                         |           |   |                         |  
|Loss on disposition of equipment                                                     |  |                         |           |   |                         |  
|Loss on distribution of investment                                                   |  |                         | 1,388,088  |   |                         |  
|Losses on sales of marketable equity securities, net                                 |  |                         | 21,570     |   |                         |  
|Changes in operating assets and liabilities:                                         |  |                         |            |   |                         |  
|Accounts receivable                                                                  |  |                         | (37,009    | ) |                         |  
|Inventories                                                                          |  |                         | 71,241     |   |                         |  
|Due to/from affiliates, net                                                          |  |                         | (125,198   | ) |                         |  
|Prepaid expenses                                                                     |  |                         | 2,690      |   |                         |  
|Other current assets                                                                 |  |                         | (129,623   | ) |                         |  
|Other assets                                                                         |  |                         | (294       | ) |                         |  
|Accounts payable                                                                     |  |                         | (69,665    | ) |                         |  
|Other payables                                                                       |  |                         | (11,559    | ) |                         |  
|Accrued expenses                                                                     |  |                         | (962       | ) |                         |  
|Accrued income taxes                                                                 |  |                         | 5,746      |   |                         |  
|Deferred income taxes                                                                |  |                         | (2,446,556 | ) |                         |  
|                                                                                     |  |                         |            |   |                         |  
|Net cash used in operating activities                                                |  |                         | (595,212   | ) |                         |  
|                                                                                     |  |                         |            |   |                         |  
|Cash flows from investing activities:                                                |  |                         |            |   |                         |  
|Purchases of property and equipment                                                  |  |                         | (45,593    | ) |                         |  
|Cash transferred with sale of subsidiary                                             |  |                         |           |   |                         |  
|Purchase of certificate of deposit                                                   |  |                         | (46,455    | ) |                         |  
|Redemption of certificate of deposit                                                 |  |                         | 51,999     |   |                         |  
|Purchase of investment in common stock                                               |  |                         |           |   |                         |  
|Proceeds from sale of marketable equity securities                                   |  |                         |           |   |                         |  
|Proceeds from related party receivables                                              |  |                         | 20,460     |   |                         |  
|                                                                                     |  |                         |            |   |                         |  
|Net cash used in investing activities                                                |  |                         | (19,589    | ) |                         |  
|                                                                                     |  |                         |            |   |                         |  
|Cash flows from financing activities:                                                |  |                         |            |   |                         |  
|Proceeds from issuance of long-term obligations                                      |  |                         | 34,651     |   |                         |  
|Payments of long-term obligations                                                    |  |                         | (62,147    | ) |                         |  
|Payment of fractional shares on common stock exchanged                               |  |                         | (2         | ) |                         |  
|Proceeds from issuance of related party obligations                                  |  |                         |           |   |                         |  
|                                                                                     |  |                         |            |   |                         |  
|Net cash provided by (used in) financing activities                                  |  |                         | (27,498    | ) |                         |  
|                                                                                     |  |                         |            |   |                         |  
|Net increase (decrease) in cash                                                      |  |                         | (642,299   | ) |                         |  
|Cash and cash equivalents at beginning of period                                     |  |                         | 666,213    |   |                         |  
|                                                                                     |  |                         |            |   |                         |  
|Cash and cash equivalents at end of period                                           |  | $                       | 23,914     |   |                         | $
|                                                                                     |  |                         |            |   |                         |  



See accompanying notes
to consolidated financial statements.



F-6



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)



|                                                                                                 |  | Year EndedMarch 31,2003 |           | Year EndedMarch 31,2002
|------------------------------------------------------------------------------------------------ |  | ----------------------- | --------- | -----------------------
|Supplemental disclosure of cash flow information:                                                |  |                         |           |                        
|Cash paid during the period for interest                                                         |  | $                       | 67,302    |                        
|                                                                                                 |  |                         |           |                        
|Cash paid during the period for income taxes                                                     |  | $                       | 22,665    |                        
|                                                                                                 |  |                         |           |                        
|Supplemental schedule of non-cash investing activities:                                          |  |                         |           |                        
|Exchange of notes receivable from affiliate to investment in preferred stock of affiliate        |  | $                       | 429,846   |                        
|                                                                                                 |  |                         |           |                        
|Note received from sale of subsidiary                                                            |  | $                       |          |                        
|                                                                                                 |  |                         |           |                        
|Issuance of common stock for purchase of equity securities                                       |  | $                       |          |                        
|                                                                                                 |  |                         |           |                        
|Supplemental schedule of non-cash financing activities:                                          |  |                         |           |                        
|Distribution of investment                                                                       |  | $                       | 3,804,338 |                        
|                                                                                                 |  |                         |           |                        
|Dividend distribution of 1,933,000 shares of DrugMax, Inc.                                       |  | $                       | 2,416,250 |                        
|                                                                                                 |  |                         |           |                        
|Conversion of Series B 6% Cumulative Convertible Preferred stock into common stock               |  | $                       | 50,000    |                        
|                                                                                                 |  |                         |           |                        
|Accrual of preferred stock dividends                                                             |  | $                       | 377       |                        
|                                                                                                 |  |                         |           |                        
|Issuance of common stock in payment of accrued preferred share dividends                         |  | $                       | 16,101    |                        
|                                                                                                 |  |                         |           |                        
|Transfer of equity securities in exchange for settlement of notes payable and accrued interest   |  | $                       |          |                        
|                                                                                                 |  |                         |           |                        
|Transfer of equity securities in exchange for repurchase of Series A convertible Preferred stock |  | $                       |          |                        
|                                                                                                 |  |                         |           |                        
|Transfer of equity securities in exchange for settlement of accrued compensation expense         |  | $                       |          |                        
|                                                                                                 |  |                         |           |                        
|Obligation to affiliate incurred for purchase of investment in common stock                      |  | $                       |          |                        
|                                                                                                 |  |                         |           |                        



See accompanying notes
to consolidated financial statements.



F-7



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Dynamic Health Products, Inc. (Company) creates, packages and
distributes a wide variety of proprietary and non-proprietary dietary supplements, over-the-counter drugs, and health and beauty care products, and provides prescription services. The Companys primary business is the wholesale distribution of
dietary supplements, over-the-counter drugs, and health and beauty care products throughout the United States. The channels of distribution for its products are health food, drug, convenience and mass market stores, and the Company directly markets
its products through distributors, radio, infomercials, catalog sales and through use of the internet.



Principles of Consolidation



The accompanying consolidated financial statements for the year ended March 31, 2003 include the accounts of Dynamic Health Products, Inc. and its principally wholly-owned subsidiaries (collectively the Company), J. Labs, Inc.,
Dynamic Life Products, Inc., Herbal Health Products, Inc. (Herbal), Online Meds Rx, Inc. (Online), formerly known as Dynamic Life, Inc., and its subsidiary Dynamic Life Asia, LLC, 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.



The accompanying consolidated financial statements for the year ended March 31, 2002 include the accounts of Dynamic Health
Products, Inc. and its principally wholly-owned subsidiaries, J. Labs, Inc., Dynamic Life Products, Inc., Herbal Health Products, Inc., Online Meds Rx, Inc. and its subsidiaries Dynamic Life Asia, LLC and Dynamic Life Korea Ltd. (Dynamic
Korea), Dynamic Financials Corporation and its subsidiary Bryan Capital Limited Partnership, and Todays Drug, Inc. Effective November 30, 2001, the Company sold Dynamic Korea (see Note 2). Dynamic Korea has a year end of December 31. The
results of operations of Dynamic Korea for the period from January 1, 2001 through November 30, 2001 are included as a loss from discontinued operations in the consolidated financial statements for the year ended March 31, 2002. Significant
intercompany balances and transactions have been eliminated in consolidation.



Industry Segments



In accordance with
Statement of Financial Accounting Standards No. 131, Disclosures About Segments Of An Enterprise And Related Information (SFAS 131), 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 year ended March 31, 2003, the Company had two industry segments: distribution and prescription services (see Note 19).



F-8



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Equity Method Investments



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 or losses.



Cash and Cash Equivalents



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



Investments in Equity Securities



At March 31, 2003 and 2002, the marketable equity securities are classified
as available for sale. In accordance with Statement of Financial Accounting Standards No. 115, Accounting For Certain Investments In Debt And Equity Securities (SFAS 115), marketable equity securities available for sale are recorded in
the Companys financial statements at fair market value. The corresponding unrealized gain or loss in the fair market value in relation to cost is accounted for as a separate component of shareholders equity, net of tax.



Inventories



Inventories, net are stated at the lower of cost or market. Cost is determined using the first-in, first-out method (see
Note 6).



Property, Plant and Equipment



Depreciation is provided for using the straight-line method, in amounts
sufficient to relate the cost of depreciable assets to operations over their estimated service lives (buildings 20 years, all other asset categories range from three to seven years). Leasehold improvements are amortized using the straight-line
method over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Leased equipment under capital leases is amortized using the straight-line method over the lives of the respective leases or over the
service lives of the assets for those leases that substantially transfer ownership. Accelerated methods are used for tax depreciation.



Intangible Assets



Intangible assets consist primarily of loan costs. Loan costs are amortized over the life of the loan and lease costs are amortized over a 5-year period.
The straight-line method is used in computing the amortization.



F-9



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Impairment of Assets



The Companys policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets,
certain identifiable intangibles and goodwill when certain events have taken place that indicate that the remaining balance may not be recoverable. When factors indicate that the intangible assets should be evaluated for possible impairment, the
Company uses an estimate of related undiscounted cash flows. A deficiency in these cash flows relative to the carrying amounts is an indication of the need for a write-down due to impairment. The impairment write-down would be the difference between
the carrying amounts and the fair value of these assets. Losses on impairment are recognized by a charge to earnings. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. There
were no impairment losses during the year ended March 31, 2003. During the year ended March 31, 2002, the Company recorded an impairment of assets, in the amount of $95,085, comprised of goodwill associated with the acquisition of certain assets in
September 1998.



Income Taxes



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



Earnings (Loss) Per Common Share



Earnings
(loss) per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock
outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, using the treasury stock method (see Note 17).



Use of
Estimates



The preparation of financial statements in
conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at March 31, 2003 and
2002, as well as the reported amounts of revenues and expenses for the years then ended. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.



F-10



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Revenue Recognition



Revenues are recognized when the merchandise is shipped to the customer. The Company has no return policy. However, with
certain large customers, industry practice mandates the acceptance of certain returns, which have thus far been immaterial of the Company.



Stock Based Compensation



The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock Based Compensation, but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for options issued to employees. Under Opinion No. 25, the intrinsic method is used to determine compensation expense when the fair market value of the stock exceeds the
exercise price on the date of grant. No compensation expense has been recognized for stock options granted in fiscal years 2003 and 2002. If the Company had elected to recognize compensation expense for stock options based on the fair value at the
grant date consistent with the method prescribed by SFAS No. 123, net income (loss) and related per share amounts would have been reduced (increased) (see Note 14).



Advertising Costs



The Company charges advertising costs to expense as incurred. Advertising expense was $20,683 and $27,997 for the years ended March 31, 2003 and 2002,
respectively.



Research and Development Costs



The Company charges research and development costs to expense as incurred.



Fair Value of Financial Instruments



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



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



Long-Term Obligations: The
fair value of the Companys fixed-rate long-term obligations is estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At March 31, 2003 and
2002, the fair value of the Companys long-term obligations approximated its carrying value.



F-11



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Reclassifications



Certain reclassifications have been made to the financial statements as of and for the year ended March 31, 2002 to conform
to the presentation as of and for the year ended March 31, 2003.



NOTE 2  ACQUISITIONS, MERGERS AND DISPOSITION



Purchase of Additional Shares of Tribeca Beverage Company



In July 2001, the Company purchased 20%, or 200,000 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, for a total purchase price of $200,000. In December 2002, the Company purchased an additional 10%, or 100,000 shares of common stock of Tribeca from the former President of Tribeca for
$1. Tribeca is in the business of developing, marketing and distributing non-alcoholic beverages. The investment was accounted for under the equity method. As a result of managements analysis, it has been determined that the investment was
worthless as of March 31, 2003 and the Company recognized an impairment loss of $166,939 in the investment. As of March 31, 2002, the investment amounted $180,863 and is included in investments in unconsolidated affiliates. The balance of the
obligation due to Tribeca for the purchase of the investment as of March 31, 2003 and 2002 was $4,278 and $63,977, respectively, and is included in obligations to affiliates.



Sale of Subsidiary



Effective November 30, 2001, the Company sold all of the issued and outstanding shares of capital stock of Dynamic Life Korea Ltd. to the General Director
of Dynamic Korea, Mr. Y.J. Lee of Seoul, South Korea, for a total sales price of $1,000,000 U.S. Dollars. The sales price was based upon the estimated value of Dynamic Korea and was approved by unanimous vote of the Board of Directors of the
Company. The sale was accomplished in accordance with the terms of a Stock Purchase Agreement dated November 16, 2001, by and between Mr. Y.J. Lee and the Company. Payment was in the form of a promissory note in the principal amount of $1,000,000
U.S. Dollars. The interest rate on the note was 8.5% per annum. Principal and interest were payable monthly in the amount of $27,777.77 per month for 36 months, commencing from the earlier of the time Dynamic Korea starts making a profit or twelve
months from November 16, 2001, with the balance of any unpaid principal and interest being paid in full on or before December 31, 2004. The note was secured by the business assets of Dynamic Korea. In November 2002, the purchaser defaulted on the
note and no payments had been received. As a result of managements analysis, it has been determined that all further amounts due under this note will be uncollectible. This resulted in an increase in bad debt expense for the year ended March
31, 2003 of approximately $1 million (see Note 7).



F-12



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 2  ACQUISITIONS, MERGERS AND DISPOSITION (Continued)



Dividend Distribution of Shares of DrugMax, Inc. Common Stock



On October 10, 2002, the Board of Directors of the Company approved the
declaration of a dividend distribution to holders of record of its issued and outstanding common shares as of October 10, 2002, in the form of approximately 1,933,000 shares of DrugMax, which the Company owned. On November 22, 2002, the Company
distributed 1,933,000 shares of DrugMax to its shareholders. The payment rate was .626882 shares of DrugMax common stock for each share of the Companys common stock held on October 10, 2002. 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.



NOTE 3  RELATED PARTY TRANSACTIONS



On October 1, 1999, the Company entered into a triple-net lease agreement with Innovative Companies, Inc., formerly Go2Pharmacy, Inc.
(Innovative), an affiliate of the Company, whereby Innovative agreed to lease the Companys land and 33,222 square foot building situated 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 Innovatives corporate headquarters and also serves as part of Innovative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 Innovative.



In July 2000, certain notes receivable totaling $425,000 arose pursuant to Herbals sale of substantially all of its
assets relating to the distribution of veterinary products to Vertical Health Solutions, Inc. (Vertical), an affiliate of the Company. The first promissory note was in the principal amount of $75,000, with interest at 10% per annum.
Principal and interest were payable monthly commencing November 27, 2000, in the amount of $7,500 per month until the note is paid in full. The second promissory note was in the principal amount of $350,000, with interest at 10% per annum. Principal
and interest were payable (i) upon the completion of an initial public offering of common stock of Vertical which shall be made within twelve months from July 31, 2000, or (ii) if the note is not paid in full within twelve months from July 31, 2000,
then payments were to be made monthly in the amount of $12,372.99 per month until the note is paid in full. The notes were secured by the business assets of Vertical. On October 1, 2001, the promissory notes were amended to reflect new terms of
repayment. Under the new terms, the entire amount of unpaid principal and interest were due and payable on or before one year of the date of the note addendum or upon completion of an initial public offering of common stock of Vertical, and interest
was due and payable on the last day of each month at the rate of 10% per annum on the remaining principal balances. As of March 31, 2002, the outstanding principal balance on the notes was $419,248 and was included in notes receivable from
affiliate(s). Effective June 30, 2002, the Company entered into a Conversion Agreement with Vertical whereby the parties agreed to convert the Companys notes receivable from Vertical, with a balance of unpaid principal and interest due of
$429,846, into 429,846 shares of Series A preferred stock of Vertical.



F-13



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 3  RELATED PARTY TRANSACTIONS (Continued)



For the year ended March 31, 2003, the Company charged Vertical consulting
fees totaling approximately $6,063 for accounting and administrative services. The charge is on an hourly basis for services rendered. As of March 31, 2003, approximately $6,063 was due from Vertical and is included in amounts due from affiliates.



In July 2001, the Company purchased 20%, or 200,000 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, for a total purchase price of
$200,000. In December 2002, the Company purchased an additional 10%, or 100,000 shares of common stock of Tribeca from the former President of Tribeca for $1. The investment was accounted for under the equity method. As a result of managements
analysis, it has been determined that the investment was worthless as of March 31, 2003 and the Company recognized an impairment loss of $166,939 in the investment. As of March 31, 2002, the investment amounted $180,863 and is included in
investments in unconsolidated affiliates. The balance of the obligation due to Tribeca for the purchase of the investment as of March 31, 2003 and 2002 was $4,278 and $63,977, respectively, and is included in obligations to affiliates.



On March 20, 2002, the Company entered into a Settlement Agreement whereby
it resolved all disputes and agreed on dismissal of all pending litigation between the Company and U.S. Diversified Technologies, Inc. (USDTI), the holder of 310,000 shares of Series A Convertible Preferred stock of the Company and Paul
Santostasi, a principal shareholder of USDTI and former Vice Chairman of the Company. Pursuant to the Settlement Agreement, the Company agreed to cause the transfer of $50,000 in cash and 287,500 shares of its investment in DrugMax to USDTI, in
exchange for USDTIs 310,000 shares of Series A Convertible Preferred stock of the Company. This exchange resulted in a recorded gain of $83,344 to the Company for the year ended March 31, 2002. The Company also agreed to cause the transfer of
45,000 shares of its investment in DrugMax to Paul Santostasi in satisfaction of $180,000 of its obligation to Mr. Santostasi, which resulted in $71,853 of compensation expense and a recorded gain of $11,280 to the Company for the year ended March
31, 2002. Upon full execution of a Release And Settlement Agreement on October 2, 2002, the $50,000 in cash and the 332,500 shares were subsequently transferred.



On March 22, 2002, the Company entered into a Sublease and Consent agreement with Innovative Health Products, Inc., a
wholly-owned subsidiary of Innovative, whereby the Company agreed to sublease approximately 5,200 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 was sublet for a term of approximately one year, ending on March 31, 2003. The sublease contains an option to continue the sublease subsequent
to March 31, 2003, on a month-to-month basis through January 10, 2004, unless terminated earlier. This option to continue has been exercised. The rental under the sublease is $33,384 annually.



F-14



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 3  RELATED PARTY TRANSACTIONS (Continued)



In January 2002, the Company issued 10,000 shares of common stock of the
Company and in May 2002 the Company issued 20,000 shares of its common stock. The 30,000 shares of common stock were issued in exchange for 30,000 shares of Series B 6% Cumulative Convertible Preferred stock of the Company, which shares were issued
in conjunction with a private placement undertaken in 1998.



As
of December 31, 2001, there were holders of record of 30,000 shares of Series B 6% Cumulative Convertible Preferred stock of the Company. In July 2002, the Company declared a dividend distribution in the form of 23,709 shares of its investment in
Innovatives common stock, to holders of record as of December 31, 2001, of Company Series B 6% Cumulative Convertible Preferred stock. The payment rate was .790327 shares of Innovative common stock for each share of the Companys common
stock held as of July 9, 2002, by these shareholders.



On
October 10, 2002, the Board of Directors of the Company approved the declaration of a dividend distribution to holders of record of its issued and outstanding common shares as of October 10, 2002, in the form of approximately 1,933,000 shares of
DrugMax, which the Company owned. On November 22, 2002, the Company distributed 1,933,000 shares of DrugMax to its shareholders. The payment rate was .626882 shares of DrugMax common stock for each share of the Companys common stock held on
October 10, 2002. 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.



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.



For the years ended March 31, 2003 and 2002, purchases of products from
subsidiaries of Innovative were $164,922 and $291,579, respectively, and sales of products to subsidiaries of Innovative were $3,574 and zero, respectively. As of March 31, 2003 and 2002, $91 and zero, respectively, were due from Innovative and are
in included in amounts due from affiliates, and $29,140 and $74,792, respectively, were due to subsidiaries of Innovative and are included in obligations to affiliates.



For the years ended March 31, 2003 and 2002, sales of products to subsidiaries of DrugMax were approximately $5,760 and
zero, respectively.



For the years ended March 31, 2003 and
2002, purchases of products from T & L, Inc., an affiliate of Mandeep K. Taneja, Chief Executive Officer and President of the Company, were approximately $2,262 and zero, respectively, and sales of products to T & L, Inc. were approximately
$37 and zero, respectively.



F-15



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 3  RELATED PARTY TRANSACTIONS (Continued)



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



NOTE 4  MARKETABLE EQUITY SECURITIES, NET



At March 31, 2003 investments in marketable equity securities, net are
summarized as follows.



|                                     |  | GrossUnrealizedGain |   | GrossUnrealizedGain |   | FairValue
|------------------------------------ |  | ------------------- | - | ------------------- | - | ---------
|Available for sale equity securities |  | $                   |  |                     | $ | 102,434  
|                                     |  |                     |   |                     |   |          



Realized gains and
losses from available for sale equity securities are determined on the basis of the specific cost of the security sold versus the sale price of the security. For the year ended March 31, 2003 the Company realized losses of $21,570 and no gains from
the sale of available for sale equity securities. For the year ended March 31, 2002, the Company realized losses of $18,789 and no gains from the sale of available for sale equity securities.



NOTE 5  ACCOUNTS RECEIVABLE, NET



At March 31, 2003 and 2002, accounts receivable, net consist of the
following:





|                                          |  | 2003 |        |   | 2002 |  
|----------------------------------------- |  | ---- | ------ | - | ---- | -
|Accounts receivable                       |  | $    | 52,080 |   |      | $
|Less allowance for uncollectible accounts |  |      | (925   | ) |      |  
|                                          |  |      |        |   |      |  
|Total                                     |  | $    | 51,155 |   |      | $
|                                          |  |      |        |   |      |  



For the years ended
March 31, 2003 and 2002, bad debt expense charged to operations for estimated uncollectible accounts receivable was $933 and $21, respectively, whereas uncollectible accounts receivable written off during the years amounted to $29 and zero,
respectively.



F-16



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 6INVENTORIES



|At |  | March 31, 2003 and 2002, inventories, net consist of the following:
|-- |  | -------------------------------------------------------------------

|
|

|                              |  | 2003 |         |   | 2002 |  
|----------------------------- |  | ---- | ------- | - | ---- | -
|Raw materials                 |  | $    | 17,679  |   |      | $
|Work in process               |  |      | 6,866   |   |      |  
|Finished goods                |  |      | 57,417  |   |      |  
|                              |  |      |         |   |      |  
|                              |  |      | 81,962  |   |      |  
|Less reserve for obsolescence |  |      | (56,300 | ) |      |  
|                              |  |      |         |   |      |  
|Total                         |  | $    | 25,662  |   |      | $
|                              |  |      |         |   |      |  



NOTE 7  NOTES RECEIVABLE, NET



At March 31, 2003 and 2002, notes receivable, net consist
of the following:

|
|



|                                                  |  | 2003 |   | 2002 |  
|------------------------------------------------- |  | ---- | - | ---- | -
|Notes receivable                                  |  | $    |  |      | $
|Less allowance for uncollectible notes receivable |  |      |  |      |  
|                                                  |  |      |   |      |  
|Total                                             |  | $    |  |      | $
|                                                  |  |      |   |      |  



For the year ended
March 31, 2003, bad debt expense charged to operations for uncollectible notes receivable was $1,028,411, associated with the note receivable resulting from the November 2001 sale of the Companys subsidiary, Dynamic Korea (see Note 2, Sale of
Subsidiary), whereas uncollectible notes receivable written off during the year amounted to $1,291,143. For the year ended March 31, 2002, bad debt expense charged to operations for estimated uncollectible notes receivable was $262,732, whereas
uncollectible notes receivable written off during the year amounted to $535,684.



NOTE 8PROPERTY, PLANT AND EQUIPMENT, NET



At March 31, 2003 and 2002, property, plant and equipment, net consist of the following:





|                                  |  | 2003 |           | 2002
|--------------------------------- |  | ---- | --------- | ----
|Land and building                 |  | $    | 1,535,212 |     
|Machinery and equipment           |  |      | 13,697    |     
|Furniture, fixtures and equipment |  |      | 147,938   |     
|Vehicles                          |  |      |          |     
|                                  |  |      |           |     
|Leasehold improvements            |  |      | 1,696,847 |     



F-17



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 8PROPERTY, PLANT AND EQUIPMENT, NET (Continued)



|Less accumulated depreciation and amortization |  |   | (322,542  | ) |  |   | (228,235  | )
|---------------------------------------------- |  | - | --------- | - |  | - | --------- | -
|                                               |  |   |           |   |  |   |           |  
|Total                                          |  | $ | 1,374,305 |   |  | $ | 1,423,019 |  
|                                               |  |   |           |   |  |   |           |  



Depreciation expense
charged to operations was $94,307 and $84,652 for the years ended March 31, 2003 and 2002, respectively.



NOTE 9  INTANGIBLE ASSETS, NET



At March 31, 2003 and 2002, intangible assets, net consist of the following:



|                              |  | 2003 |        |   | 2002 |  
|----------------------------- |  | ---- | ------ | - | ---- | -
|Lease costs                   |  | $    | 500    |   |      | $
|Loan costs                    |  |      | 28,613 |   |      |  
|                              |  |      |        |   |      |  
|                              |  |      | 29,113 |   |      |  
|Less accumulated amortization |  |      | (4,530 | ) |      |  
|                              |  |      |        |   |      |  
|Total                         |  | $    | 24,583 |   |      | $
|                              |  |      |        |   |      |  



Amortization expense
charged to operations was $1,244 and $1,245 for the years ended March 31, 2003 and 2002, respectively.



NOTE 10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.



Investment in Vertical Health
Solutions, Inc.



As of March 31, 2002, the Company owned
4.5% of Vertical. Effective June 30, 2002, the Company entered into a Conversion Agreement with Vertical whereby the parties agreed to convert the Companys notes receivable from Vertical (see Note 3), with a balance of unpaid principal and
interest due of $429,846, into 429,846 shares of Series A preferred stock of Vertical. The Company therefore owned approximately 21.0% of Vertical as of June 30, 2002 and the investment was accounted for under the equity method until December 31,
2002. Effective December 31, 2002 the Companys percentage of ownership in Vertical was reduced from approximately 21.0% to approximately 19.5% upon Verticals issuance of additional shares of its Series A preferred stock. Subsequent to
December 31, 2002, due to the reduction in the Companys percentage of ownership, the Company continued to account for this investment under the cost method. At March 31, 2003 and 2002, the Companys investment in Vertical amounted
$357,902 and $9,500, respectively.



F-18



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 10INVESTMENTS IN UNCONSOLIDATED AFFILIATES  (Continued)



The results of operations of the Companys equity-basis affiliate,
Vertical are summarized below:



|                                        |  | Nine MonthsEnded December31, 2002 |          
|--------------------------------------- |  | --------------------------------- | ---------
|Condensed Income Statement Information: |  |                                   |          
|Net sales                               |  | $                                 | 1,151,623
|Gross profit                            |  |                                   | 512,868  
|Net loss                                |  |                                   | (495,683 



As the investment was
not accounted for under the equity method during the year ended March 31, 2002, no financial information is provided for such period.



Investment in Tribeca Beverage Company



In July 2001, the Company purchased 20%, or 200,000 shares of common stock of Tribeca Beverage Company. In December 2002, the Company purchased an
additional 10%, or 100,000 shares (see Note 2). The investment was accounted for under the equity method. As a result of managements analysis, it has been determined that the investment was worthless as of March 31, 2003 and the Company
recognized an impairment loss of $166,939 in the investment. As of March 31, 2002, the investment amounted $180,863 and is included in investments in unconsolidated affiliates. The balance of the obligation due to Tribeca for the purchase of the
investment as of March 31, 2003 and 2002 was $4,278 and $63,977, respectively, and is included in obligations to affiliates.



The results of operations of the Companys equity-basis affiliate, Tribeca are summarized below:







|                                        |  | TwelveMonthsEndedMarch 31,2003 |         |   | Period FromJune 22, 2001(Date ofInception) ToMarch 31,2002 |  
|--------------------------------------- |  | ------------------------------ | ------- | - | ---------------------------------------------------------- | -
|Condensed Income Statement Information: |  |                                |         |   |                                                            |  
|Net sales                               |  | $                              | 50,408  |   |                                                            | $
|Gross profit                            |  |                                | 23,118  |   |                                                            |  
|Net loss                                |  |                                | (68,040 | ) |                                                            |  



F-19



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 10INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Continued)



Investment in DrugMax, Inc.



As of March 31, 2002 the Company owned approximately 27% of DrugMax. Based
on market prices, this investment had a market value of approximately $7,809,320 at March 31, 2002. On November 22, 2002, the Company distributed to its shareholders, its remaining investment in DrugMax, which consisted of 1,933,000 shares of
DrugMax common stock (see Note 2).



The combined results of
operations and financial position of the Companys equity-basis affiliate, DrugMax are summarized below:



|                                        |  | Nine MonthsEndedDecember 31,2002 |             |   | Year EndedMarch 31, 2002
|--------------------------------------- |  | -------------------------------- | ----------- | - | ------------------------
|Condensed Income Statement Information: |  |                                  |             |   |                         
|Net sales                               |  | $                                | 222,073,763 |   |                         
|Gross profit                            |  |                                  | 6,144,490   |   |                         
|Net income (loss)                       |  |                                  | (12,859,887 | ) |                         
|                                        |  |                                  |             |   |                         
|                                        |  | As Of March31, 2002              |             |   |                         
|Condensed Balance Sheet Information:    |  |                                  |             |   |                         
|Current assets                          |  | $                                | 37,964,843  |   |                         
|Non-current assets                      |  |                                  | 28,337,914  |   |                         
|Current liabilities                     |  |                                  | 33,876,401  |   |                         
|Non-current liabilities                 |  |                                  | 979,761     |   |                         
|Stockholders equity                    |  |                                  | 31,446,595  |   |                         



On November 30, 2001,
the Company transferred 225,500 shares of its investment in DrugMax to certain creditors in satisfaction of $1,132,218 of its obligations and recorded a gain of $301,107 related to the transfer.



On February 15, 2002, the Company received 125,000 shares of DrugMax in
exchange for 125,000 new shares of common stock of the Company.



On March 20, 2002, the Company agreed to transfer 287,500 shares of its investment in DrugMax to U.S. Diversified Technologies, Inc., in exchange for its 310,000 shares of Series A Convertible Preferred stock of the Company, in mutual
settlement of litigation. Upon full execution of a Release And Settlement Agreement on October 2, 2002, the 310,000 shares were subsequently transferred.



F-20



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 10INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Continued)



On March 20, 2002, the Company agreed to transfer 45,000 shares of its
investment in DrugMax to Paul Santostasi, a principal shareholder of U.S. Diversified Technologies, Inc. and former Vice Chairman of the Company, in satisfaction of $180,000 of its obligation and in mutual settlement of litigation, which resulted in
$71,853 of compensation expense and a recorded gain of $11,280 to the Company. Upon full execution of a Release And Settlement Agreement on October 2, 2002, the 45,000 shares were subsequently transferred.



NOTE 11INCOME TAXES



Income tax expense (benefit) for the years ended March 31, 2003 and 2002 are
as follows:



|                                      |  | 2003 |            |   | 2002 |  
|------------------------------------- |  | ---- | ---------- | - | ---- | -
|Current income tax expense (benefit)  |  | $    | 5,746      |   |      | $
|Deferred income tax expense (benefit) |  |      | (2,423,892 | ) |      |  
|                                      |  |      |            |   |      |  
|Income tax expense (benefit)          |  | $    | (2,418,146 | ) |      | $
|                                      |  |      |            |   |      |  



Income taxes for the
years ended March 31, 2003 and 2002 differ from the amounts computed by applying the effective income tax rate of 37% to income before income taxes as a result of the following:



|                                                |  | 2003 |            |   | 2002 |  
|----------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Computed tax expense at the statutory rate      |  | $    | (2,481,300 | ) |      | $
|Increase (decrease) in taxes resulting from:    |  |      |            |   |      |  
|State income taxes, net of federal tax benefit  |  |      |           |   |      |  
|Receivable and inventory allowances             |  |      | 21,000     |   |      |  
|Gain on sale of subsidiary                      |  |      | (27,000    | ) |      |  
|Equity in loss of affiliated companies          |  |      | 1,314,300  |   |      |  
|Depreciation                                    |  |      | 33,800     |   |      |  
|Distribution of investment stock                |  |      | 905,800    |   |      |  
|Loss from discontinued operations               |  |      |           |   |      |  
|Exchange of securities for stock redemption     |  |      |           |   |      |  
|Exchange of securities for notes payable        |  |      |           |   |      |  
|Bad debt expense on note receivable             |  |      | 273,000    |   |      |  
|Unrealized loss on marketable equity securities |  |      | 24,000     |   |      |  
|Net operating loss utilization                  |  |      | (33,260    | ) |      |  
|Business credits utilization                    |  |      | (24,090    | ) |      |  
|                                                |  |      |            |   |      |  
|Current income tax expense (benefit)            |  | $    | 6,250      |   |      | $
|                                                |  |      |            |   |      |  



F-21



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 11INCOME TAXES (Continued)



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



|                                                  |  | 2002 |          |   | 2003
|------------------------------------------------- |  | ---- | -------- | - | ----
|Deferred tax assets:                              |  |      |          |   |     
|Bad debts                                         |  | $    | 350      |   |     
|Inventories                                       |  |      | 21,200   |   |     
|Net operating loss carryforward                   |  |      | 44,000   |   |     
|Unrealized losses on marketable equity securities |  |      | 24,800   |   |     
|Depreciation                                      |  |      | 34,500   |   |     
|Investment in unconsolidated subsidiary           |  |      | 27,000   |   |     
|                                                  |  |      |          |   |     
|Gross deferred tax assets                         |  |      | 151,850  |   |     
|Less valuation allowance                          |  |      | (151,850 | ) |     
|                                                  |  |      |          |   |     
|                                                  |  | $    |         |   |     
|                                                  |  |      |          |   |     
|                                                  |  |      |          |   |     
|                                                  |  | 2002 |          |   | 2003
|Deferred tax liabilities:                         |  |      |          |   |     
|Depreciation                                      |  | $    |         |   |     
|Gain (loss) on sale of subsidiary and securities  |  |      |         |   |     
|                                                  |  |      |          |   |     
|Gross deferred tax liability                      |  | $    |         |   |     
|                                                  |  |      |          |   |     
|Net increase (decrease) in valuation allowance    |  | $    |         |   |     
|                                                  |  |      |          |   |     



The Company had an
estimated deferred income tax liability of $2,440,241 as of the year ended March 31, 2002, which primarily represented the potential future tax expense associated with the gain resulting from the Companys sale of its subsidiary, Becan
Distributors, Inc., in November 1999. The distribution of the Companys investment in DrugMax to its shareholders in November 2002 resulted in a reduction of the estimated future tax expense associated with that gain. As of March 31, 2003, the
Company had an accrued income tax liability of $5,746 and no net deferred income tax asset or liability.



F-22



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 12LONG-TERM OBLIGATIONS



Long-term obligations consist of the following at March 31, 2003 and 2002:



|                                                                                                                                                                                                                                                 |  | 2003 |         | 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ----
|Note payable collateralized by real property, due in monthly payments of approximately $6,483, including interest at prime (5.00%
at March 31, 2003 and 2002) plus 2.25% through October 2024. The note is guaranteed by the Companys Chairman. |  | $    | 847,912 |     
|Capitalized lease obligations for equipment, due in monthly principal and interest payments of approximately $1,813 through
2004.                                                                                                                |  |      | 11,710  |     
|Other                                                                                                                                                                                                                                            |  |      | 20,452  |     
|                                                                                                                                                                                                                                                 |  |      |         |     
|                                                                                                                                                                                                                                                 |  |      | 880,074 |     
|Less current maturities                                                                                                                                                                                                                          |  |      | 48,362  |     
|                                                                                                                                                                                                                                                 |  |      |         |     
|Total                                                                                                                                                                                                                                            |  | $    | 831,712 |     
|                                                                                                                                                                                                                                                 |  |      |         |     



At March 31, 2003,
aggregate maturities of long-term obligations are as follows:





|Year Ending March 31, |  |  
|--------------------- |  | -
|2004                  |  | $
|2005                  |  |  
|2006                  |  |  
|2007                  |  |  
|2008                  |  |  
|Thereafter            |  |  
|                      |  |  
|Total                 |  | $
|                      |  |  



NOTE 13  COMMITMENTS AND
CONTINGENCIES



Operating Leases



The Company has operating leases for facilities and certain machinery and
equipment that expire at various dates through 2006. Certain leases provide an option to extend the lease term. Certain leases provide for payment by the Company of any increases in property taxes, insurance, and common area maintenance over a base
amount and others provide for payment of all property taxes and insurance by the Company.



F-23



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)



Future minimum lease payments, by year and in aggregate under non-cancelable
operating leases, consist of the following at March 31, 2003:



|Year Ending March 31, |  |  
|--------------------- |  | -
|2004                  |  | $
|2005                  |  |  
|2006                  |  |  
|2007                  |  |  
|2008                  |  |  
|Thereafter            |  |  
|                      |  |  
|Total                 |  | $
|                      |  |  



Total rent expense for
the years ended March 31, 2003 and 2002 was approximately $52,202 and $33,060, respectively.



Employment Agreement



In March 1999, the Company entered into an Employment Agreement with Jugal K. Taneja, for a term of three years. The annual salary payable under this contract amounted to $240,000 for the year ended March 31, 2002, plus an annual bonus at
the discretion of the Board of Directors. Effective January 1, 2002, based on mutual agreement between the parties, the Employment Agreement between the Company and Jugal K. Taneja was replaced by a Consulting Agreement.



Consulting Agreement



Effective January 1, 2002, the Company entered into a Consulting Agreement with Jugal K. Taneja. Mr. Taneja has served as
the Companys Chairman of the Board since its inception. Until June 1998 and from November 1999 until February 14, 2002, he also served as the Companys Chief Executive Officer. The Consulting Agreement provides for an initial three-year
term ending January 1, 2005, and bi-monthly payments of $10,000, based on an annual base compensation of $240,000. On October 1, 2002, upon mutual agreement between the parties, the annual base compensation payable under the agreement was reduced to
$150,000. The agreement contains termination provisions for disability, for cause, and for good reason, and it also contains confidentiality and non-competition provisions that prohibit him from competing with the Company under certain
circumstances. The period covered by the non-competition provisions will end three years after the termination of the consultants consulting agreement with the Company.



F-24



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)



Litigation



The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary
course of business. The Company believes that none of the claims that were outstanding as of March 31, 2003 should have a material adverse impact on its financial condition or results of operations.



NOTE 14STOCK OPTIONS



The Companys Stock Option Plan (SOP) was adopted in March
1999 to provide for the grant to employees up to 1,500,000 incentive stock options within the meaning of Section 422 of the Internal Revenue Code. The SOP is intended to provide incentives to directors, officers, and other key employees and enhance
the Companys ability to attract and retain qualified employees. Stock options are granted for the purchase of Common Stock at a price not less than the fair market on the date of grant. During the year ended March 31, 2002, 200,000 options
expired. As of March 31, 2003 and 2002, there were no options outstanding.



The following summarizes information about the aggregate stock option activity for the years ended March 31, 2003 and 2002:



|                               |  | Numberof Shares |                              | 2002 |                 |  | 2003     |                             
|------------------------------ |  | --------------- | ---------------------------- | ---- | --------------- |  | -------- | ----------------------------
|                               |  |                 | WeightedAverageExercisePrice |      | Numberof Shares |  |          | WeightedAverageExercisePrice
|Outstanding, beginning of year |  |                |                              | $    |                |  | 200,000  |                             
|Granted                        |  |                |                              |      |                |  |         |                             
|Exercised                      |  |                |                              |      |                |  |         |                             
|Expired and forfeited          |  |                |                              |      |                |  | (200,000 | )                           
|                               |  |                 |                              |      |                 |  |          |                             
|Outstanding, end of year       |  |                |                              | $    |                |  |         |                             
|                               |  |                 |                              |      |                 |  |          |                             
|Options vested, end of year    |  |                |                              | $    |                |  |         |                             
|                               |  |                 |                              |      |                 |  |          |                             



The Company has
adopted only the disclosure provision of SFAS No. 123, as it relates to employee awards. APB 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:



F-25



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 14STOCK OPTIONS (Continued)



|                                    |  | 2003 |            |   | 2002
|----------------------------------- |  | ---- | ---------- | - | ----
|Net income (loss):                  |  |      |            |   |     
|As reported                         |  | $    | (4,291,589 | ) |     
|Pro forma                           |  | $    | (4,291,589 | ) |     
|Net income (loss) per common share: |  |      |            |   |     
|Basic income (loss) per share:      |  |      |            |   |     
|As reported                         |  | $    | (1.40)     |   |     
|Pro forma                           |  | $    | (1.40)     |   |     
|Diluted income (loss) per share:    |  |      |            |   |     
|As reported                         |  | $    | (1.40)     |   |     
|Pro forma                           |  | $    | (1.40)     |   |     



The fair value of each
option granted is estimated on the grant date using the binomial option pricing model. No options were granted during the years ended March 31, 2003 or 2002, therefore no calculation was performed.



NOTE 15SHAREHOLDERS EQUITY



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



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



In January 2002, the Company issued 10,000 shares of common stock of the
Company in exchange for 10,000 shares of Series B 6% Cumulative Convertible Preferred stock of the Company, which shares were issued in conjunction with a private placement undertaken in 1998.



F-26



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 15SHAREHOLDERS EQUITY (Continued)



On February 15, 2002, the Company transferred 125,000 shares of its
investment in DrugMax in exchange for the issuance of 125,000 new shares of Company common stock.



On March 20, 2002, pursuant to a Settlement Agreement (see Note 3), the Company agreed to cause the transfer of 287,500 shares of its investment in
DrugMax to USDTI, in exchange for USDTIs 310,000 shares of Series A Convertible Preferred stock of the Company. In October 2002, the shares were subsequently transferred and the 310,000 shares of Series A Convertible Preferred stock of the
Company were cancelled.



In May 2002, the Company issued 20,000
shares of common stock of the Company in exchange for 20,000 shares of Series B 6% Cumulative Convertible Preferred stock of the Company, which shares were issued in conjunction with a private placement undertaken in 1998.



In September 2002, the Company issued 10,734 shares of common stock of the
Company in payment of $16,101 of accrued preferred share dividends.



In May 2002, the Company filed Form 211, under the U.S. Securities and Exchange Commission Rule 15c2-11, to apply with NASD Regulation for listing of its common stock on the OTC Bulletin Board. In July 2002, the Company subsequently
obtained clearance of its Form 211 for listing of the Companys common stock on the OTC Bulletin Board.



NOTE 16  DISCONTINUED OPERATIONS



On November 30, 2001, the Company sold Dynamic Korea, a wholly-owned subsidiary of the Company (see Note 2, Sale of Subsidiary). The financial statements for the year ended March 31, 2002 include a loss from
discontinued operations in the amount of $473,232, as a result of operations of Dynamic Korea from January 1, 2001 through November 30, 2001, the date of sale. Revenue for the discontinued operations was $825,435 for the period from January 1, 2001
through November 30, 2001.



NOTE 17  EARNINGS (LOSS) PER SHARE



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





|                                                   |  | 2003 |            |   | 2002 |  
|-------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Numerator:                                         |  |      |            |   |      |  
|Net income (loss)                                  |  | $    | (4,291,589 | ) |      | $
|Less preferred stock dividends                     |  |      |           |   |      |  
|                                                   |  |      |            |   |      |  
|Net income (loss) available to common shareholders |  | $    | (4,291,589 | ) |      | $
|                                                   |  |      |            |   |      |  



F-27



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 17  EARNINGS (LOSS) PER SHARE (Continued)



|                                                  |  | 2003 |           |   | 2002
|------------------------------------------------- |  | ---- | --------- | - | ----
|Denominator:                                      |  |      |           |   |     
|Weighted average shares outstanding               |  |      | 3,075,057 |   |     
|Effect of dilutive securities:                    |  |      |           |   |     
|Employee stock options                            |  |      |          |   |     
|Series A Convertible Preferred Stock              |  |      |          |   |     
|Series B Cumulative Convertible Preferred Stock   |  |      |          |   |     
|                                                  |  |      |           |   |     
|Weighted average fully diluted shares outstanding |  |      | 3,075,057 |   |     
|                                                  |  |      |           |   |     
|Net earnings (loss) per common share  Basic      |  | $    | (1.40     | ) |     
|                                                  |  |      |           |   |     
|Net earnings (loss) per common share  Diluted    |  | $    | (1.40     | ) |     
|                                                  |  |      |           |   |     



NOTE 18CONCENTRATION OF
CREDIT RISK



Concentrations of credit risk with respect to
trade receivables are limited due to the distribution of sales over a large customer base.For the year ended March 31, 2003, two customers represented approximately 26% of consolidated revenue. For the year ended March 31, 2002, 68% of
consolidated revenue was received from one customer. Concentrations of credit risk with respect to trade receivables are limited due to the distribution of sales over a large customer base.



Financial instruments that potentially subject the Company to concentrations
of credit risk include cash deposits with commercial banks and brokerage firms. At March 31, 2002, the Company had cash deposits in excess of the Federal Deposit Insurance Companys $100,000 insurance limit.



NOTE 19FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS



For the year ended March 31, 2003, the Company had two industry segments:
Distribution and Prescription Services. For the year ended March 31, 2002, the Company had one industry segment, Distribution. The channels of distribution include health food, drug, convenience and mass-market stores, and direct marketing through
distributors, radio, infomercials, catalog sales and through use of the internet throughout the United States. The Company has a distribution center located in Largo, Florida. From April 2000 to November 30, 2001, the Company also had a distribution
center located in Seoul, South Korea.



F-28



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002



NOTE 19FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS (Continued)



The following shows revenues, gross profit, operating income and assets,
which are the areas management uses in its business segment analysis. Amounts shown below are as of and for the years ended March 31, 2003 and 2002.



|                        |  | 2003 |           |   | 2002 |  
|----------------------- |  | ---- | --------- | - | ---- | -
|Revenues                |  |      |           |   |      |  
|Distribution            |  | $    | 822,077   |   |      | $
|Prescription Services   |  |      | 8,359     |   |      |  
|                        |  |      |           |   |      |  
|                        |  | $    | 830,436   |   |      | $
|                        |  |      |           |   |      |  
|Intersegment sales      |  | $    |          |   |      | $
|                        |  |      |           |   |      |  
|Gross profit            |  |      |           |   |      |  
|Distribution            |  | $    | 399,871   |   |      | $
|Prescription Services   |  |      | 1,046     |   |      |  
|                        |  |      |           |   |      |  
|                        |  | $    | 400,917   |   |      | $
|                        |  |      |           |   |      |  
|Operating income (loss) |  |      |           |   |      |  
|Distribution            |  | $    | (74,510   | ) |      | $
|Prescription Services   |  |      | (8,657    | ) |      |  
|                        |  |      |           |   |      |  
|                        |  | $    | (83,167   | ) |      | $
|                        |  |      |           |   |      |  
|Assets                  |  |      |           |   |      |  
|Distribution            |  | $    | 201,862   |   |      | $
|Prescription Services   |  |      | 8,642     |   |      |  
|Corporate               |  |      | 1,799,250 |   |      |  
|                        |  |      |           |   |      |  
|                        |  | $    | 2,009,754 |   |      | $
|                        |  |      |           |   |      |  



NOTE 20  SUBSEQUENT EVENT



In April 2003, a Limited Liability Company was formed to
market certain dietary supplements. An Operating Agreement has not yet been finalized and no material capital commitments have been made.



F-29