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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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



For the fiscal year ended March 31, 2005



| ̈ | 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)



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



Issuers
telephone number (727) 683-0670



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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 $16,079,528.



The aggregate market value of the voting common stock held by non-affiliates of the Registrant was $3,437,594, based upon
the last reported trade of the stock on July 12, 2005, which was 2,000 shares at $0.85 per share.



The number of shares outstanding of the Issuers common stock at $.01 par value as of July 12, 2005 was 14,024,592.



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PART I



Item 1. DESCRIPTION OF BUSINESS.



The Companys executive offices are located at 12399 Belcher Road South, Suite 140, Largo, Florida 33773 and its telephone number is (727) 683-0670.
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, develops, markets and distributes a wide variety of sports nutrition products, performance drinks, non-prescription dietary supplements, over-the-counter drugs, and health and beauty care products, health food and nutritional products,
soft goods and other related products. The Company distributes approximately 3,000 individual inventory items, which are designated as individual stock keeping units (SKU) purchased from manufacturers. Additionally, the Company carries
its own lines of branded products. These are comprised of approximately 60 products packaged into approximately 100 SKUs. Until September 2004, the Company also provided prescription services. The Company, through data base administration marketed
and served as a conduit between customers and pharmacies, to provide prescription medications and over-the-counter drugs to our customer, through usage of pharmacies, which directly fulfill orders. In addition, the Company provided these
prescription services for other unrelated third parties. The prescription services portion of our business was not regulated by the United States Food and Drug Administration or any other regulatory authority, since the Company is not directly
engaged in the sale or distribution of regulated substances.



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



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changed to Go2Pharmacy, Inc., in September 2002, its name was changed to Innovative Companies, Inc., and in June 2004,
its name was changed to GeoPharma, Inc. (GeoPharma). GeoPharma creates, manufacturers, and packages a wide variety of proprietary and non-proprietary dietary supplements, and health and beauty care products, and manufactures generic and
over-the-counter drugs. On November 7, 2000, the United States Securities and Exchange Commission (SEC) declared GeoPharma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 GeoPharma. In March 2001, the Company distributed 2,324,984 shares of GeoPharma common stock to its shareholders. As of March 31, 2005 and 2004, the Company held 347,938 shares of common stock
of GeoPharma.



In June 1998, the Company acquired 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 Pharma Labs Rx, Inc. (PFL), formerly J.Labs, Inc., incorporated in April
1997, as a Florida corporation. The operations of PFL consisted of the procurement of trademarks and product rights for the Companys branded products. At this time, PFL is not actively conducting operations.



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 Online Meds Rx, Inc. (OMR), formerly Dynamic Life, Inc., as a Florida corporation. In March 2000, Incredible
was merged into OMR. OMR 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 OMR, as previously conducted, are now
carried out through the Herbal Health Products, Inc. In March 2003, OMR began providing prescription services through direct mail and through its web sites. In September 2004, OMR discontinued its prescription services operations. At this time, OMR
is not actively conducting operations.



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.



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In February 2000, through OMR, the Company formed Dynamic Financial Consultants, LLC (DFC),
formerly Dynamic Life Asia, LLC, a Florida limited liability company. Also in February 2000, through DFC, 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.



In December 2003, the Company formed Pharma Labs Rx, Inc. (PNV), as a Nevada corporation, to provide prescription services and to market
prescription drugs through direct mail and through use of the internet. In April 2004, PNV discontinued its prescription services operations. At this time, PNV is not actively conducting operations.



In October 2004, the Company acquired Bob OLeary Health Food
Distributor Co., Inc. (BOSS), incorporated in July 1984, in Pennsylvania. BOSS is engaged in developing, wholesaling and distributing a wide variety of sports nutrition products, non-prescription dietary supplements, vitamins, health
food and nutritional products, soft goods and other related products.



In March 2005, the Company formed Dynamic Marketing I, Inc. (DMI), as a Florida corporation. In March 2005, DMI acquired Dynamic Marketing, Inc. (DM), a Rhode Island corporation. On March 30, 2005, through the filing
by DMI of Articles of Merger, effective March 31, 2005, DM merged into DMI, with DMI being the surviving entity. DMI is engaged in wholesaling and distributing a wide variety of sports nutrition products, non-prescription dietary supplements, health
food and nutritional products, performance drinks, tanning products, exercise accessories and other related products.



In March 2005, the Company formed DYHP Acquisitions, Inc. (DAI), as a Florida corporation. At this time, DAI is not actively conducting
operations.



Products



The Company markets and distributes a wide variety of sports nutrition
products, performance drinks, non-prescription dietary supplements, over-the-counter drugs, and health and beauty care products, health food and nutritional products, soft goods and other related products. The Company distributes approximately 3,000
individual inventory items purchased from over 150 manufacturers. Additionally, the Company carries its own lines of branded products. These are comprised of approximately 60 products packaged into approximately 100 SKUs.



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.



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Marketing and Sales



The Companys products are marketed directly to its wholesale and retail customers through the Companys in-house salespeople. The Company
distributes markets and distributes a wide variety of sports nutrition products, performance drinks, non-prescription dietary supplements, over-the-counter drugs, health and beauty care products, health food and nutritional products, soft goods and
other related products to gyms, health food stores, regional and national chain drugstore, internet companies, mail order facilities, mass merchandisers, deep discounters, distributors and brokers. The Companys products are also marketed
through catalog sales, direct mail and through the Companys web sites.



The Companys prescription services were marketed directly to consumers through a variety of marketing techniques including general public advertising and direct mail solicitations, in order to attract new
customers to our web sites.



Competition



The wholesale and retail product distribution industries, and the
prescription services market 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, retailing, and prescription services businesses.



The Company faces substantial competition from other regional and national distributors in the sports nutrition products, performance drinks, non-prescription dietary supplements, over-the-counter drugs, health and
beauty care products, health food and nutritional products, soft goods and other related products industries, both domestic and abroad. The Companys branded products face substantial competition from broad line manufacturers, major private
label manufacturers and, more recently, large pharmaceutical companies and pharmacies, both domestic and abroad. 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 competitive pricing, its ability to develop new product lines and customer service. Due to the Companys larger
purchasing power, the Company is able to offer its products at what we believe are more attractive prices to our customers. The Company works closely with contract manufacturers to continue to develop future products and to expand our product line
to satisfy the continuing changing needs of customers. The Company has trained in-house customer service personnel available to address all of our customers needs. 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.



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Backlog



The Companys revenues are processed through its system from sales orders generated and issued by the Companys customers. The Company primarily
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, 2005, the Company had no backlog sales orders.



Research and Development



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



Trademarks



The Company has applied for various federally registered trademarks and utilizes the following federally registered
trademarks: Vibrafem, ECLIPSE Sports
Supplements, Eclipse 2000 and Muscle Sandwich. Vibrafem is a topical gel designed to enhance sexual arousal. ECLIPSE Sports Supplements and Eclipse 2000 are lines of dietary supplements, namely vitamins, minerals, herbs, amino acids,
protein powders, protein bars, protein shakes, protein drinks, nutraceuticals and essential fatty acids. Muscle Sandwich is a line of peanut butter bases protein bars. Since approximately 10% of our consolidated revenues result from the sales of these products, 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 will have significant value.



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



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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 United States Food and Drug Administration, all other applicable regulatory standards, and rigorous quality
control procedures used by the manufacturers of the products which the Company purchases. The Company utilized licensed pharmacies for its fulfillment of prescription medications and those pharmacies were solely responsible for ensuring that the
products and services which they provided met acceptable standards. 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 United States Food and Drug Administration (the FDA), which regulates the Companys products under the Federal Food, Drug and Cosmetic Act (the FFDCA) and 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 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.



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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.



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.



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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.



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



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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. If the Company were to experience product recalls or
discontinuances, the Company could incur substantial expenses and wastage of time, as well as damage to the Companys reputation.



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.



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.



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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 affecting the Company.



Employees



As of March 31, 2005 the Company had 85 employees, of which 82 were
full-time employees and three were part-time employees, as compared to eight full-time employees as of March 31, 2004. Of such full-time employees, 24 were engaged in marketing and sales, eight were devoted to customer service, 36 were devoted to
warehousing and distribution, and 14 were responsible for management and administration. Of such part-time employees, one was devoted to web site development and database administration, one was responsible for maintenance and one was devoted to
warehousing and distribution. 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 (the Plan), as determined by the Administrator of
the Plan.



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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
6,000,000 shares of common stock.



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, 2005, 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



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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 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.



The Company faces substantial competition from other regional and national distributors in the sports nutrition products, performance drinks,
non-prescription dietary supplements, over-the-counter drugs, health and beauty care products, health food and nutritional products, soft goods and other related products industries, both domestic and abroad. The Companys branded products face
substantial competition from broad line manufacturers, major private label manufacturers and, more recently, large pharmaceutical companies and pharmacies, both domestic and abroad. 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.



Competition.The wholesale and retail product distribution industries
are 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, marketing and distribution of our
products. 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 products offered by sports
nutrition product and performance drink manufacturers and distributors, health and natural food store chains, drugstore chains, mass merchandisers and supermarket chains. See Business  Competition.



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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.



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, 2005, 13% of consolidated revenues were received from one customer, DPS Nutrition Inc.,
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 85 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.



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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 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 58.6% 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. There are no current arrangements or agreements, with respect thereto. In order to accomplish its future plans, the Company is considering raising capital either through private placement or a secondary public offering.



Item 2. DESCRIPTION OF PROPERTY.



On October 1, 1999, the Company entered into a triple-net lease agreement
with GeoPharma, Inc., an affiliate of the Company, whereby GeoPharma agreed to lease the Companys land and 33,222 square foot building in Largo, Florida for term of ten years. The initial rental under the lease was approximately $192,000
annually. The lease provides for an annual cost-of-living increase. This facility serves as GeoPharmas corporate headquarters and also serves as part of GeoPharmas offices, manufacturing, warehousing and shipping operations. On October
25, 2004, the Company sold its land and building to GeoPharma for $1,925,000 in cash. The purchase price was determined by an independent, third party appraisal.



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On January 1, 2004, the Company entered into a verbal agreement with GeoPharma, whereby the Company
agreed to sublease approximately 5,131 square feet of office and warehouse space for its executive offices and its operations in Largo, Florida. This facility served as the Companys corporate headquarters and was also used for a portion of the
Companys office, warehousing and shipping operations, until May 1, 2005. The initial rental under the sublease was $41,066 annually.



On October 1, 2004, the Company entered into a lease agreement with Robert OLeary and Linda OLeary, whereby the Company agreed to lease
approximately 26,200 square feet of office and warehouse space for its operations in Scranton, Pennsylvania. This facility is used for the offices, warehousing and shipping operations of BOSS. The lease is for a term of 10 years ending on September
30, 2014. The initial rental under the lease was $90,000 annually.



On February 8, 2005, the Company entered into a lease agreement with Yale Mosk & Co., whereby the Company agreed to lease approximately 10,000 square feet of office and warehouse space for its executive offices and its operations in
Largo, Florida. This facility serves as the Companys corporate headquarters and is also used for a portion of the Companys office, warehousing and shipping operations. The lease is for a term of 62 months commencing on May 1, 2005 and
ending on June 30, 2010. The initial rental under the lease was $85,000 annually.



On March 29, 2005, the Company entered into a lease with GAM Realty, LLC, which was effective March 31, 2005, whereby the Company agreed to lease approximately 15,000 square feet of office and warehouse space for its
operations in Cranston, Rhode Island. This facility is used for a portion of the office, warehousing and shipping operations of DMI. The lease is for a term of five years ending on March 31, 2010. The initial rental under the lease was $120,000
annually.



On March 29, 2005, the Company entered into an
assignment and assumption of lease agreement with Dynamic Marketing, Inc., effective March 31, 2005, whereby the Company agreed to assume the lease for approximately 14,725 square feet of warehouse space for its warehousing and shipping operations
in Henderson, Nevada, for the balance of the lease term. This facility is used for a portion of the warehousing and shipping operations of DMI. The lease is for a term of 62 months commencing on December 8, 2000 and ending on March 8, 2006. The
initial rental under the lease on March 31, 2005 was $76,568 annually.



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, 2005, the Company had equipment, furniture, vehicles and leasehold improvements, net of accumulated depreciation, in the approximate amount of $759,519.



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Item 3. LEGAL PROCEEDINGS.



The Company is involved in litigation with Hi-Tech Pharmaceuticals, Inc. (Hi-Tech), whereby Hi-Tech filed a
lawsuit against the Company on August 25, 2003 with the United States District Court for the Northern District of Georgia over claims regarding intellectual property matters, in connection with the use of the Companys product named StaminaPro.
Hi-Tech seeks unspecified monetary damages as well as non-monetary relief. Management of the Company does not believe that it has any material exposure with regard to the allegations of the claims. The Company is vigorously defending this action. In
addition, the Company has instituted counterclaims against Hi-Tech and Jared Wheat, the President of Hi-Tech. We are seeking relief for libel, slander and tortious interference in amounts in excess of $75,000, exclusive of interest and costs. For
more than six months the plaintiff has failed to participate in this action. Furthermore, the plaintiffs initial action seeking injunction against the Company was denied by the court.



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 that it believes will have a material adverse affect on its
results of operations.



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



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



The Annual Meeting of Stockholders of the Company was held on February 17,
2005. At the meeting, the following actions were taken by the shareholders:



Jugal K. Taneja, Mandeep K. Taneja, Cani I. Shuman, Kotha S. Sekharam, Rakesh K. Sharma, M.D., Morton L. Stone, and David W. Brown were elected as Directors to serve until the next annual meeting and until their
respective successors are elected and qualified or until their earlier resignation, removal from office or death. The votes cast for and against each were as follows:



|                       |  |            |  |         |  |         
|---------------------- |  | ---------- |  | ------- |  | --------
|                       |  | For        |  | Against |  | Withheld
|Jugal K. Taneja        |  | 11,400,823 |  | -0-     |  | 151,780 
|Mandeep K. Taneja      |  | 11,400,823 |  | -0-     |  | 151,780 
|Cani I. Shuman         |  | 11,413,323 |  | -0-     |  | 139,280 
|Kotha S. Sekharam      |  | 11,413,323 |  | -0-     |  | 139,280 
|Rakesh K. Sharma, M.D. |  | 11,523,023 |  | -0-     |  | 29,580  
|Morton L. Stone        |  | 11,523,155 |  | -0-     |  | 29,448  
|David W. Brown         |  | 11,523,155 |  | -0-     |  | 29,448  



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Shareholders approved (10,360,067 for; 174,052 against or abstain) a proposal to increase the authorized
number of shares of blank check preferred stock to 5,000,000.



Sharesholders also approved (11,459,111 for; 93,492 against or abstain) a proposal to approve a reverse stock split of the Companys common stock at a ratio of between four-for-five and one-for-two, to be
implemented within 90 days of the meeting date of February 17, 2005, at the discretion of the Companys board of directors.



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PART II



Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.



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 |     | $ | 0.50
|December 31, 2002  |  | $    | 1.50 |     | $ | 0.65
|March 31, 2003     |  | $    | 0.65 |     | $ | 0.45
|June 30, 2003      |  | $    | 0.75 |     | $ | 0.40
|September 30, 2003 |  | $    | 1.45 |     | $ | 0.10
|December 31, 2003  |  | $    | 0.45 |     | $ | 0.10
|March 31, 2004     |  | $    | 1.10 |     | $ | 0.30
|June 30, 2004      |  | $    | 1.15 |     | $ | 0.51
|September 30, 2004 |  | $    | 1.25 |     | $ | 0.51
|December 31, 2004  |  | $    | 1.85 |     | $ | 0.75
|March 31, 2005     |  | $    | 1.58 |     | $ | 0.98



As of July 12, 2005,
there were approximately 550 stockholders of record of the Companys common stock, according to ADP and the Companys stock transfer agent, Registrar and Transfer Company, located in Cranford, New Jersey.



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



On June 4, 2004, pursuant to a Financial Consulting
Agreement, the Company issued 300,000 warrants purchase common stock to a consulting firm, for consulting services provided totaling $270,000. The exercise prices range from $1.50 to $2.50 per share and they become exercisable in June 2005 and
expire at various dates through June 2008. Such warrants to purchase shares were issued pursuant to Section 4(2) under the Securities Act of 1933.



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On October 1, 2004, the Company issued 35,000 restricted shares of its common stock to various
consultants for consulting services provided totaling $35,350. Such shares were issued pursuant to Section 4(2) under the Securities Act of 1933.



On January 4, 2005, the Company issued 75,000 restricted shares of its common stock to various employees for bonuses totaling $111,000. Such shares were
issued pursuant to Section 4(2) under the Securities Act of 1933.



On February 17, 2005, the Company issued 50,000 restricted shares of its common stock to Jugal K. Taneja, the Chairman of the Board of the Company, for consulting services provided totaling $50,000. Such shares were issued pursuant to
Section 4(2) under the Securities Act of 1933.



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Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.



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



Overview



The Company
derives its revenues from developing, marketing and distributing a wide variety of sports nutrition products, performance drinks, non-prescription dietary supplements, over-the-counter drugs, health and beauty care products, health food and
nutritional products, soft goods and other related products. We also derived revenues from services provided in connection with prescription services, until September 30, 2004.



Revenues for the distribution segment result from product sales and are recognized by the Company upon passage of title and
risk of loss to customers (when product is delivered to common carrier for shipment to customers). Provisions for discounts and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are
recorded. Sales incentives to customers and returns have thus far been immaterial to the Company. All shipping and handling costs invoiced to customers are included in revenues. Revenues for the prescription services segment resulted from
non-product related administrative fees earned principally for pharmacy network management and are recorded when performance occurs and collectibility is assured.



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. Costs incurred by the Company for shipping and handling are included in cost of goods sold. 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, legal and accounting
costs, sales and marketing and other indirect operating costs.



Interest income is comprised of interest earned on notes receivable and interest earned on cash balances maintained in interest bearing accounts with banks.



Interest expense is primarily associated with borrowings for the funding of acquisitions and other working capital needs.



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Other income (expense) consists primarily of rental income.



Effective October 1, 2004, the Company acquired Bob OLeary Health Food
Distributor Co., Inc. The results of operations of BOSS from October 1, 2004 through March 31, 2005 are included in the results of operations of the Company.



Effective March 31, 2005, the Company, through its wholly-owned subsidiary, Dynamic Marketing I, Inc., acquired Dynamic Marketing, Inc. On March 30, 2005,
through the filing by Dynamic Marketing I, Inc. of Articles of Merger, effective March 31, 2005, Dynamic Marketing, Inc. merged into Dynamic Marketing I, Inc. with Dynamic Marketing I, Inc. being the surviving entity. The results of operations of
DMI for March 31, 2005 are included in the results of operations of the Company.



Results of Operations



Fiscal Year Ended March 31, 2005
Compared To Fiscal Year Ended March 31, 2004



Revenues. The Company generated total revenues of $16,079,528 for the year ended March 31, 2005, an increase of $14,186,989 or 749.6%, compared to $1,892,539 for the year ended March 31, 2004. Distribution revenues increased
$14,331,226 or 854.4%, to $16,008,631 for the year ended March 31, 2005, compared to $1,677,405 for the year ended March 31, 2004. The increase was primarily attributable to revenues associated with BOSS of approximately $14.9 million and revenues
associated with DMI of approximately $63,600. Revenues associated with Herbal decreased by approximately $498,100, primarily due to a decrease in Herbals sales of its branded products, StaminaPro and Vibrafem, while Herbal has experienced an
increase in revenues attributable to the introduction of new products of approximately $177,700. The Company has chosen not to actively market StaminaPro until intellectual property issues are settled. The Company expects revenues for BOSS to
increase due to the purchase of a customer list in February 2005 and an increase in BOSS in-house sales force. In addition, BOSS has expanded its distribution channels with the opening of distribution centers in Henderson, Nevada and Largo, Florida
in May 2005. Prescription services revenues were $70,897 for the year ended March 31, 2005, compared to $215,134 for the year ended March 31, 2004. The Company discontinued its prescription services operations in September 2004.



Gross profit. The Company achieved total gross profit of $2,236,716
for the year ended March 31, 2005, an increase of $1,286,730 or 135.5%, compared to $949,986 for the year ended March 31, 2004. Total gross margins, as a percentage of revenues, decreased to 13.9% for the year ended March 31, 2005 from 50.2% for the
year ended March 31, 2004. Distribution gross profit increased $1,320,083 or 145.3%, to $2,228,634 for the year ended March 31, 2005, as compared to $908,551 for the year ended March 31, 2004. BOSSs gross profit was approximately $1.7 million,
DMIs gross profit was approximately $11,000, and Herbals gross profit was approximately $473,000. For the year ended March 31, 2005, distribution gross margin decreased to 13.9%, from 54.2% for the year ended March 31, 2004. The decrease
was primarily attributable to lower gross margins associated with BOSS of 11.7% and DMI of 17.4%, as compared to a gross margin for Herbal of 43.7%. Herbals gross margin decreased from 54.2% in the prior year due to a change in its mix of
sales, with increased sales of products that yield a lower gross margin and a decrease in sale of products that yielded a higher gross margin, such as StaminaPro and Vibrafem. Prescription services gross profit decreased $33,353, to $8,082 for the
year ended March 31, 2005, from $41,435 for the year ended March 31, 2004, due to the absence of prescription services revenues subsequent to September 2004.



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Operating expenses.The Company incurred operating expenses of $3,301,346 for the year ended March
31, 2005, compared to $1,350,040 for the year ended March 31, 2004. For the year ended March 31, 2005, these expenses include various administrative, sales, marketing and other direct operating expenses of $3,164,913, and amortization and
depreciation expenses of $136,433, compared to $1,263,909 in various administrative, sales, marketing and other direct operating expenses, and amortization and depreciation expenses of $86,131 for the year ended March 31, 2004. Operating expenses,
excluding amortization and depreciation expenses decreased to 19.7% of revenues for the year ended March 31, 2005, from 66.8% of revenues for the year ended March 31, 2004. The decrease in operating expenses as a percentage of revenues was primarily
attributable to the increase in revenues associated with BOSS, and was partially offset by expenses associated with BOSS, as well as an increase in amortization of deferred consulting fees of approximately $356,900, an increase in insurance expense,
an increase in legal fees and an increase in public relations fees.



Interest income. Interest income was $5,357 for the year ended March 31, 2005, compared to $3,104 for the year ended March 31, 2004. The increase in interest income was due to the higher cash amounts held in interest bearing accounts
in banks during the year ended March 31, 2005.



Interest
expense. Interest expense was $869,003 for the year ended March 31, 2005, compared to $96,169 for the year ended March 31, 2004. Interest expense increased for the year ended March 31, 2005, primarily due to the $6 million convertible term note
that funded on September 30, 2004, in connection with the acquisition of BOSS. Approximately $585,600 of the interest expense relates to the non-cash amortization of the debt discounts based on the Black-Scholes pricing model, applied to the
warrants issued in conjunction with the September 30, 2004 convertible term note and the March 29, 2005 convertible minimum borrowing note and revolving note.



Income taxes. As of March 31, 2005, the Company had an accrued income tax liability of $5,009 and an estimated deferred income tax liability of
$336,999, which primarily represented the potential future tax expense associated with the unrealized gains on marketable equity securities. As of March 31, 2004, the Company had no accrued income tax liability and a net deferred income tax
liability of $1,189,300.



Net income (loss) per share.Net income per share for the year ended March 31, 2005 was $0.01, compared to net loss per share of $0.01 for the year ended March 31, 2004. The increase in net income per share was primarily a result of an increase in the Companys gain on
distribution of investment of $1,349,966, the gain on the sale of property of $654,241 and the absence of losses on marketable equity securities, net, of $102,434, and was partially offset by an increase in the Companys operating loss before
other income and expense of $664,576, a decrease in other income and expenses, net, of $190,295, due to the absence of rental income subsequent to the October 2004 sale of the Companys land and building, and the absence of the gain on sale of
investment of $71,843.



Inflation; Seasonality.Management believes that there was no material effect on operations or the financial condition of the Company as a result of inflation for the years ended March 31, 2005 and 2004. 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.



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Financial Condition, Liquidity and Capital Resources



The Company has financed its operations through the usage of available cash
reserves. The Company had working capital of $3,245,956 at March 31, 2005, compared to working capital of $3,944,497 at March 31, 2004.



Net cash provided by operating activities was $164,611 for the year ended March 31, 2005, as compared to net cash used in operating activities of $53,264
for the year ended March 31, 2004. The provision of cash was primarily attributable to net income of $135,956 based on consolidated gross profit increases of approximately $1.3 million, a decrease in other current assets of $134,542, an increase in
accounts payable of $2,662,829 due to increased purchases and other increased operating expenses, an increase in other payables of $138,068 primarily due to increased interest expenses and increased deposits from customers, an increase in accrued
income taxes of $5,009 and an increase in deferred income taxes of $33,575, partially offset by an increase in accounts receivable of $490,791 based on increases in credit sales, an increase in inventories of $1,210,078 due to stocking requirement
for the Companys additional distribution facilities, a decrease in amounts due to/from affiliates, net, of $213,419 based on net payments made on accounts, an increase in prepaid expenses of $94,108 primarily for insurance premiums, an
increase in other assets of $19,919 and a decrease in accrued expenses of $337,838 surrounding operational expenses incurred.



Net cash used in investing activities was $5,692,929, representing purchases of property and equipment of $55,830, cash paid for the purchase of BOSS of
$5,409,895, cash paid for the purchase of DM of $1,983,337, the purchase of a customer list of $153,000 and the purchase of a trademark of $1,977, and was partially offsets by proceeds from the sale of the Companys land and building of
$1,911,110.



Net cash provided by financing activities was
$7,179,760, representing proceeds from the issuance of the convertible debt funding of $5,734,500 for the acquisition of BOSS, proceeds from the issuance of convertible and revolving debt funding of $2,812,500 for the acquisition of DM and for the
payment of DM non-assumable obligations, and proceeds from the issuance of related party obligations of $150,000 for the cash in escrow requirements associated with the acquisition of BOSS, partially offset by payments of long-term obligations of
$1,253,891, which included payments on the convertible debt and the repayment in full of a mortgage on the Companys land and building of $831,891, payments of short-term obligations of $35,638, payments of loan costs of $74,492 in connection
with the BOSS and DM acquistions, payment of common stock registration costs of $3,186, payments of fractional shares on common stock exchanged of $33 and payments of related party obligations of $150,000.



At March 31, 2005, the Company had $1,870,561 in cash and cash equivalents,
as compared to $219,119 at March 31, 2004.



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 and increased revenues associated with acquisitions made during the year ended March 31, 2005. 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.



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The Company established a loan with GE Capital Small Business Finance Corporation on September 13, 1999.
The principal amount of the note is $880,000. The note bears interest at the lowest Prime Rate as published in the Wall Street Journal (based on the prime rate in effect on the first business day of the month in which a change occurs) plus 2.25% per
annum. The term of the note was 25 years and one month from the date of the note, payable in equal monthly installments of principal and interest. The note was secured by a mortgage on the Companys land and building in Largo, Florida. The note
was also secured by personal guarantee from the Companys Chairman of the Board. Proceeds from the note were used to satisfy all outstanding mortgages on the property and for payment of loan costs associated with the note. In October 2004, the
Companys sold of its land and building in Largo, Florida and the note was paid in full out of the proceeds from the sale.



On January 1, 2004, the Company entered into a verbal agreement with GeoPharma, whereby the Company agreed to sublease approximately 5,131 square feet of
office and warehouse space for its executive offices and its operations in Largo, Florida. This facility served as the Companys corporate headquarters and was also used for a portion of the Companys office, warehousing and shipping
operations, until May 1, 2005. The initial rental under the sublease was $41,066 annually.



In January 2004, the Company issued 83,334 shares of its common stock to a consultant in full satisfaction of the Companys outstanding obligation in the amount of $50,351, for legal services provided to the
Company.



In February 2004, the Company issued 260,000 shares
of its common stock to William LaGamba, a principal shareholder of the Company, in payment of consulting services provided to the Company during the year ended March 31, 2004, of approximately $79,834, and in full satisfaction of an outstanding
obligation to Mr. LaGamba of approximately $50,166, including interest at the rate of 7% per annum, for working capital advances made to the Company.



In February 2004, the Company issued 100,000 shares of its common stock to a consultant in full satisfaction of the Companys outstanding obligation
in the amount of $50,000, for consulting services provided to the Company.



In June 2004, pursuant to a Financial Consulting Agreement, the Company issued 300,000 warrants purchase common stock to a consulting firm, for consulting services provided totaling $270,000. The exercise prices range
from $1.50 to $2.50 per share and they become exercisable in June 2005 and expire at various dates through June 2008.



In October 2003, the Company received payment of $53,936 of dividends receivable from Vertical Health Solutions, Inc., an affiliate of the Company, in the
form of 269,680 shares of common stock of Vertical. The dividend was included in other income and expenses, net, in the statements of operations for the year ended March 31, 2004. In January 2004, Verticals stock began publicly trading. Jugal
K. Taneja, a principal shareholder and Chairman of the Board of the Company is also a principal shareholder and a Director of Vertical. On June 14, 2004, the Board of Directors of the Company, approved the declaration of a pro rata dividend
distribution to holders of record of its issued and outstanding common shares as of July 1, 2004, in the form of approximately 1.3 million shares of Vertical, which the Company owned. On July



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7, 2004, the Board of Directors of the Company amended the record date to July 16, 2004 and the distribution date to July
26, 2004. The payment rate was one share of Vertical common stock for each ten shares of the Companys common stock held on July 16, 2004. The Company only distributed whole shares and any fractional shares to which shareholders would otherwise
be entitled were rounded down to the nearest whole share.



On
July 26, 2004, the Company distributed approximately 1.3 million shares of Vertical common stock to its shareholders. This resulted in a gain of $1,359,966 to the Company for the year ended March 31, 2005.



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



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



On September 22, 2004, the Company issued a note payable to Premium Financing Specialists, Inc., for insurance expenses associated with a new policy, in the principal amount of $41,446. The principal together with
interest at the rate of 11.25% per annum is payable in nine monthly installments commencing October 21, 2004 in the amount of $4,824.



On October 1, 2004, the Company issued 35,000 restricted shares of its common stock to various consultants for consulting services provided totaling
$35,350.



On October 1, 2004, pursuant to a Financial
Consulting Agreement, the Company issued 200,000 warrants to purchase common stock to a consulting firm, for consulting services provided totaling $195,000. The exercise prices range from $1.25 to $1.50 per share, with 25% vesting on October 1, 2004
and then subsequent vesting is at 25% per quarter, expiring on October 1, 2008.



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



The above was accomplished pursuant to a Stock Purchase Agreement dated
September 10, 2004. At the closing, the Company acquired all of the issued and outstanding shares of common stock of BOSS (the Shares). The consideration paid by the Company for the Shares and the sellers execution of a
Non-Competition, Non-Solicitation and Confidentiality



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Agreement was $5,500,000 in cash, subject to a dollar for dollar adjustment, equal to the increase or decrease in net
book value of BOSS from June 30, 2004 to September 30, 2004. In December 2004, the Company paid an additional $159,420 for the purchase, due to a dollar for dollar increase in the net book value of BOSS as of September 30, 2004, as compared to June
30, 2004. Of the cash paid, $550,000 was placed in escrow and was subsequently disbursed to the sellers six months subsequent to closing. In addition, at closing, the Company paid an aggregate of $234,500 in cash to the former shareholders of BOSS
in consideration of outstanding debt. The transaction was accounted for as a purchase. The results of operations of BOSS have been included in the Companys results of operations since the date of acquisition, October 1, 2004.



The aggregate cost of this acquisition was as follows:



|                           |  |   |          
|-------------------------- |  | - | ---------
|Assumption of liabilities  |  | $ | 1,725,209
|Cash paid to sellers       |  |   | 5,659,420
|Cash for acquisition costs |  |   | 28,255   
|                           |  |   |          
|                           |  | $ | 7,412,884
|                           |  |   |          



The aggregate purchase
price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 954,472  
|Inventory              |  |   | 2,476,313
|Cash acquired          |  |   | 277,780  
|Property and equipment |  |   | 232,926  
|Other assets           |  |   | 192,347  
|Trademarks             |  |   | 8,062    
|Goodwill               |  |   | 3,270,984
|                       |  |   |          
|                       |  | $ | 7,412,884
|                       |  |   |          



An analysis was
conducted in connection with the acquisition of BOSS, to determine the existence of any intangible assets, for valuation purposes. It was determined that the only significant intangible assets were trademarks, which were valued at fair value, and
goodwill. Goodwill associated with this acquisition will not be deductible for income tax purposes.



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



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



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



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



The convertible note has a term of three years. The fixed conversion rate is equal to $.90 (103% of the average closing
price for the ten days prior to the execution of the securities purchase agreement).



Beginning on December 1, 2004, and each month thereafter, the Company shall pay $187,500 of the outstanding principal, together with accrued interest on the convertible note, in cash or registered stock. The monthly
payments shall be payable in registered stock if: (i) the Company has an effective registration statement under which the stock can be sold; (ii) the average closing price of the Companys common stock as reported by Bloomberg, L.P. on the
Companys principal trading market for the five trading days immediately preceding such repayment date shall be greater than or equal to 110% of the fixed conversion rate; and (iii) the amount of such conversion does not exceed 25% of the
aggregate dollar trading volume of our common stock for the twenty 22 day trading period immediately preceding the applicable repayment date. If the conversion criteria are not met, the investor shall convert only such part of the monthly payment
that meets the conversion criteria. Any part of the monthly payment due on a repayment date that the investor has not been able to convert into shares of common stock due to failure to meet the conversion criteria, shall be paid by the Company in
cash at the rate of 102% of the principal portion of the monthly payment otherwise due on such repayment date. As of March 31, 2005, the outstanding principal balance on the convertible note was $5,062,500. As of March 31, 2005, 989,758 shares of
Company common stock have been issued to Laurus in payment of $750,000 of principal and $140,782 of interest on the note.



Laurus will not be entitled to be issued shares of common stock in repayment of any portion of the convertible note or upon exercise of the warrants if
and to the extent such issuance would result in Laurus and its affiliates beneficially owning more than 4.99% of the Companys issued and outstanding common stock upon such issuance, unless Laurus shall have provided at least 75 days prior
written notice to the Company of its revocation of such restriction.



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



The warrants are exercisable until five years from the date of the Securities
Purchase Agreement at a purchase price equal to $1.04 per share (115% of the average closing price of the Companys common stock for the 10 trading days immediately prior to the execution date). The warrants are exercisable on a cashless basis.
In the event that the warrants are exercised on a cashless basis, then the Company will not receive any proceeds. In addition, the exercise price of the warrants will be adjusted in the event the Company issues common stock at a price below market,
with the exception of any securities issued as of the date of this warrant or issued in connection with the convertible notes issued pursuant to the Securities Purchase Agreement.



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Due to the convertible nature of the note, the Company recorded a charge of $2,066,667 due to the
beneficial conversion feature, in accordance with EITF Issue No. 98-5, Accounting For Convertible Securities With Beneficial Conversion Features Or Contingently Adjustable Conversion Ratios, and EITF Issue No. 00-27, Application of
EITF Issue No. 98-5 To Certain Convertible Instruments. The value of the beneficial conversion feature was measured using the intrinsic value and is being amortized to interest expense over the life of the note. The Company allocated
$1,413,358 of the aggregate proceeds from the note to the warrants as original issuance discount, which represented the relative fair value of the warrants at the date of issuance, and is amortizing the discount to interest expense over the life of
the note. The value of the conversion feature and the original issue discount amortized to interest expense for the year ended March 31, 2005 was $581,574. The discount was determined utilizing the Black-Scholes pricing model with a volatility
factor of 139.67% and a risk free interest rate of 4.4%.



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



On October 29, 2004, the Company filed a Registration Statement on Form S-2
for the registration of up to 8,701,585 shares of the Companys common stock, including up to 7,326,585 shares of common stock underlying the Secured Convertible Note issued to Laurus Master Fund, Ltd., in the principal amount of $6,000,000 and
up to 1,375,000 shares issuable upon the exercise of common stock purchase warrants. On November 15, 2004, the Securities and Exchange Commission declared the Registration Statement to be effective.



The Company incurred loan costs in the amount of $305,818 associated with the
$6 million of funding received on September 30, 2004, in connection with the acquisition of BOSS.



On October 17, 2004, a meeting of the Compensation Committee of the Board of Directors of the Company was held. At the meeting, the Compensation Committee
granted options to purchase 500,000 shares of the Companys common stock, effective October 1, 2004, to Jugal Taneja, the Companys Chairman and a principal shareholder of the Company, as compensation for Mr. Tanejas personal
guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair value of the Companys common stock on September 30, 2004). The options
vest approximately equally over a three-year period, commencing October 1, 2005. The value of the options, $498,763, as determined by reference to the Black-Scholes option pricing model, has been recorded as deferred consulting fees and is being
amortized over the life of the loan. For the year ended March 31, 2005, the amount amortized as consulting fee was $83,127. As of March 31, 2005, the balance of deferred consulting fees for these options was $415,636, of which the current portion
was $166,245 and the long-term portion was $249,391.



On
October 25, 2004, the Company sold its 33,222 square foot building located at 6950 Bryan Dairy Road, Largo, Florida to GeoPharma, Inc. for $1,925,000 in cash. This resulted in a gain of $654,241 to the Company for the year ended March 31, 2005. The
sale price was determined by an independent third-party appraisal. The Company was previously leasing the facility to GeoPharma pursuant to a ten-year triple-net lease that would have expired in September 2009.



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On October 1, 2004, the Company entered into a Lease Agreement with Robert OLeary and Linda
OLeary, whereby the Company agreed to lease approximately 26,200 square feet of office and warehouse space for its operations in Scranton, Pennsylvania. This facility is used for the offices, warehousing and shipping operations of BOSS. The
lease is for a term of 10 years ending on September 30, 2014. The initial rental under the lease was $90,000 annually.



On January 4, 2005, the Company issued 75,000 restricted shares of its common stock to various employees for bonuses totaling $111,000.



In February 2005, the Company entered into a lease agreement with Yale Mosk
& Co., whereby the Company agreed to lease approximately 10,000 square feet of office and warehouse space for its executive offices and its operations in Largo, Florida. This facility serves as the Companys corporate headquarters and is
also used for a portion of the Companys office, warehousing and shipping operations. The lease is for a term of 62 months commencing on May 1, 2005 and ending on June 30, 2010. The initial rental under the lease was $85,000 annually.



In February 2005, the Company entered into an agreement
whereby it acquired certain assets of Protech Distributing, Inc., a California corporation. The assets acquired consisted of a customer list and inventory. The Company paid cash in the amount of $153,000 for the customer list and purchased inventory
for $108,761. The assets acquired did not constitute a business within the meaning of SFAS 141.



On February 17, 2005, the Company issued 50,000 restricted shares of its common stock to Jugal K. Taneja, the Chairman of the Board of the Company, for
consulting services provided totaling $50,000.



Effective March
31, 2005, the Company acquired Dynamic Marketing, Inc., a Rhode Island corporation. DM is engaged in wholesaling and distributing a wide variety of non-prescription dietary supplements, health food and nutritional products, performance drinks,
tanning products, exercise accessories and other related products. It was determined by management and the Board of Directors of the Company that it would be in the best interest of the Company to acquire DM to further certain of its business
objectives, including without limitation, providing additional sales and expanded marketing and distribution channels for the Company.



The above was accomplished pursuant to an Agreement And Plan Of Merger (the Agreement), dated March 2, 2005. At the closing, the Company,
through its wholly-owned subsidiary, Dynamic Marketing I, Inc., a Florida corporation, acquired all of the issued and outstanding shares of common stock of DM (the Shares). Effective March 31, 2005, DM merged into DMI, with DMI being the
surviving corporation. The consideration paid by the Company for the Shares was $75,000 in cash, 100,000 restricted shares of the Companys common stock, the right to receive the earnout payments (the Earnout), if any, payable
pursuant to the Agreement and an option (the Option) to purchase up to an aggregate of 250,000 shares of the Companys common stock over a three year period with three years vesting and an exercise price of $1.55 per share, based
upon and subject to the terms of the form of stock option agreement. In addition, concurrent with the closing, the Company paid an aggregate of $1,946,349 of non-assumable DM obligations.



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The Earnout provides for potential additional payments of Company common stock to the seller totaling
150,000 shares based upon the achievement of certain EBITDA (earnings before interest, taxes, depreciation and amortization) goals of DMI, through the year ending March 31, 2008, in relation to the EBITDA for DM for the year ended December 31, 2004,
based on DMs audited financial statements for the year then ended.



The transaction was accounted for as a purchase. The results of operations of DMI have been included in the Companys results of operations since the date of acquisition, March 31, 2005.



The aggregate cost of this acquisition was as follows:



|                                |  |   |          
|------------------------------- |  | - | ---------
|Assumption of liabilities       |  | $ | 3,678,481
|Cash paid                       |  |   | 75,000   
|Cash paid for acquisition costs |  |   | 28,809   
|Common stock issued             |  |   | 165,000  
|Stock options issued            |  |   | 387,500  
|                                |  |   |          
|                                |  | $ | 4,334,790
|                                |  |   |          



The aggregate purchase
price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 1,117,371
|Inventory              |  |   | 1,025,853
|Cash acquired          |  |   | 66,821   
|Property and equipment |  |   | 459,134  
|Other assets           |  |   | 358,982  
|Goodwill               |  |   | 1,306,629
|                       |  |   |          
|                       |  | $ | 4,334,790
|                       |  |   |          



An analysis was
conducted in connection with the acquisition of DM, to determine the existence of any intangible assets, for valuation purposes. It was determined that the only significant intangible asset was goodwill. Goodwill associated with this acquisition
will not be deductible for income tax purposes.



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



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



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



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



The Company is permitted to borrow an amount
based upon its eligible accounts receivable and inventory, as defined in the agreements with Laurus. The Company must pay certain fees for any unused portion of the credit facility or in the event the facility is terminated prior to expiration. The
Companys obligations under the notes are secured by all of the assets of the Company, including but not limited to inventory and accounts receivable. The notes mature



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on March 29, 2008. Annual interest on the Notes is equal to the prime rate published in The Wall Street
Journal from time to time, plus 2.0%, provided, that, such annual rate of interest may not be less than 6%, subject to certain downward adjustments resulting from certain increases in the market price of the Companys common stock. Interest on
the notes is payable monthly in arrears on the first day of each month, commencing on April 1, 2005.



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



Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the notes will be reduced accordingly. The
conversion price of the secured convertible notes may be adjusted in certain circumstances such as if the Company pays a stock dividend, subdivides or combines outstanding shares of common stock into a greater or lesser number of shares, or takes
such other actions as would otherwise result in dilution.



115%
of the full principal amount of the convertible notes is due upon default under the terms of convertible notes. Laurus has contractually agreed to restrict its ability to convert if the convertible notes would exceed the difference between the
number of shares of common stock beneficially owned by the holder or issuable upon exercise of the warrant and the option held by such holder and 4.99% of the outstanding shares of common stock of the Company.



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



The Company paid a fee at closing to Laurus Capital Management LLC, the manager of the Laurus Master Funds, Ltd., equal to 3.9% of the total maximum funds
to be borrowed under the Companys agreements with Laurus. The funding provided for detachable warrants and an embedded conversion feature. Pursuant to EITF Issue No. 00-27, the Company recorded a discount utilizing the Black-Scholes pricing
model for the warrants and the conversion feature of $1,431,633, which is being amortized as interest expense over the life of the loan. A volatility factor of 95.01% and risk free interest rate of 4.44% was used.



The proceeds of the funding were used for the acquisition of Dynamic
Marketing, Inc., costs associated with the acquisition and for working capital. The Company had borrowed $3 million on this note as of March 31, 2005. The borrowing is in excess of the advance rates provided for in the note. The lender has issued a
waiver to this covenant whereby the Company is permitted to bring the ratios into compliance within one year from the date of the note.



The Company incurred loan costs in the amount of $221,674 associated with the $4 million of funding received on March 29, 2005, in connection with the
acquisition of DM.



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On April 22, 2005, the Company filed a Registration Statement on Form S-2 for the registration of up to
2,944,690 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the March 29, 2005 Secured Convertible Notes issued to Laurus, in the principal amount of $4,000,000 and up to 750,000 shares issuable
upon the exercise of common stock purchase warrants. Such Registration Statement is not effective.



On March 29, 2005, the Company entered into a lease with GAM Realty, LLC, which was effective March 31, 2005, whereby the Company agreed to lease
approximately 15,000 square feet of office and warehouse space for its operations in Cranston, Rhode Island. This facility is used for a portion of the office, warehousing and shipping operations of DMI. The lease is for a term of five years ending
on March 31, 2010. The initial rental under the lease was $120,000 annually.



On March 29, 2005, the Company entered into an Assignment and Assumption of Lease agreement with Dynamic Marketing, Inc., effective March 31, 2005, whereby the Company agreed to assume the lease for approximately
14,725 square feet of warehouse space for its warehousing and shipping operations in Henderson, Nevada, for the balance of the lease term. This facility is used for a portion of the warehousing and shipping operations of DMI. The lease is for a term
of 62 months commencing on December 8, 2000 and ending on March 8, 2006. The initial rental under the lease on March 31, 2005 was $76,568 annually.



Item 7. FINANCIAL STATEMENTS.



All financial information required by this Item is attached hereto following Item 13 of this Annual Report on Form 10-KSB.



Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.



None.



Item 8A. CONTROLS AND PROCEDURES.



Evaluation of disclosure controls and procedures. An evaluation was
performed under the supervision and with the participation of our management, including the Companys chief executive officer and its chief financial officer, of the effectiveness of the design and operation of the Companys disclosure
procedures. Based on managements evaluation as of the end of the period covered by this Annual Report, our chief executive officer and chief financial officer have concluded that the Companys disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) were sufficiently effective to ensure that the information required to be disclosed by us in the reports that we filed
under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness.



Changes in internal controls. There have been no significant changes in the Companys internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation referred to above, nor were there any significant deficiencies or material weaknesses in our internal controls. Accordingly, no corrective actions were required or undertaken.



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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          |  | 61  |  | Chairman of the Board and Director                         |  | 1992          
|                         |  |     | 
|Mandeep K. Taneja        |  | 31  |  | Chief Executive Officer, President and Director            |  | 2000          
|                         |  |     | 
|Cani I. Shuman           |  | 48  |  | Chief Financial Officer, Secretary, Treasurer and Director |  | 2001          
|                         |  |     | 
|Kotha S. Sekharam, Ph.D. |  | 54  |  | Director                                                   |  | 1995          
|                         |  |     | 
|Rakesh K. Sharma, M.D.   |  | 47  |  | Director                                                   |  | 1999          
|                         |  |     | 
|Morton L. Stone          |  | 74  |  | Director                                                   |  | 2002          
|                         |  |     | 
|David W. Brown           |  | 41  |  | Director                                                   |  | 2005          



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 has served as
Co-Chairman of DrugMax, Inc. since December 2004. He previously served as Chairman of the Board of DrugMax, Inc., and from October 2000 until December 2004 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



34



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##### Table of Contents

director and Chairman of the Board of GeoPharma, Inc., a publicly-held company that manufactures and distributes
nutritional and health products, and manufactures generic and over-the-counter drugs. Mr. Taneja also serves as a director of Vertical Health Solutions, Inc., a publicly-held company that distributes veterinary products. Mr. Taneja holds degrees in
Petroleum Engineering, Mechanical Engineering, and a Masters in Business Administration from Rutgers University.



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, Online Meds Rx, Inc., formerly known as 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 Bachelor of Science 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 a 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 GeoPharma, Inc., a publicly-held company that manufactures and distributes nutritional and health products, and manufactures generic and
over-the-counter drugs. 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.



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David W. Brown became a director of the Company in February 2005. He has served as President and Chief
Executive Officer of SYMCO, Inc., a manufacturer and distributor of dietary supplements, since October 2004. Prior to that he served as General Manager of Nutrition Business Advisors, LLC since August 2003. Prior to that Mr. Brown served as a
Director, President and Chief Executive Officer of Metabolife International, Inc. since August 2000. Prior to that he served as President of Natural Balance, Inc. since June 1996. Mr. Brown holds a Bachelors of Art degree in Japanese from Brigham
Young University. He also holds a Juris Doctorate from Cornell University Law School and is a member of the California and Colorado bar associations.



Audit Committee



The Company has an audit committee, which consists of Dr. Kotha S. Sekharam, Morton L. Stone and David W. Brown. At this time, an audit committee
financial expert is not required for the Company and it does not have an audit committee financial expert serving on its audit committee.



Compensation Committee



The Company has a compensation committee, which consists of Dr. Rakesh K. Sharma, Morton L. Stone and David W. Brown.



Executive Committee



The Company has an executive committee, which consists of Mandeep K. Taneja, Cani I. Shuman and David W. Brown.



Section 16(a) Beneficial Ownership Reporting Compliance



Based solely upon a review of Forms 3, 4 and 5, furnished to the Company
during the years ended March 31, 2004 and 2005, the Company is not aware of any director, officer or beneficial owner of more than ten percent of the Companys common stock that failed to file reports required by Section 16(a) of the Securities
Exchange Act of 1934 on a timely basis during the year ended March 31, 2005, except the following:



|                 |  |                       
|---------------- |  | ----------------------
|Name             |  | Number of Late Filings
|Jugal K. Taneja  |  | 1                     
|William LaGamba  |  | 5                     
|Morton L. Stone  |  | 4                     
|Rakesh K. Sharma |  | 2                     
|David W. Brown   |  | 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 was filed as an exhibit to the Companys March 31, 2003 Annual Report on Form 10-KSB.



36



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##### Table of Contents

Item 10. EXECUTIVE COMPENSATION.



The following table sets forth certain summary information with respect to the compensation paid to the Companys
executive officers for the fiscal years ended March 31, 2005, 2004 and 2003. Other than as listed below, the Company had no executive officers whose total annual salary and bonus exceeded $100,000 for that fiscal year.



SUMMARY COMPENSATION TABLE



|                                                                 |  |                         |  |                       |  |                        |  |                               |  |                                 |  |                                             |  |                  |  |                           
|---------------------------------------------------------------- |  | ----------------------- |  | --------------------- |  | ---------------------- |  | ----------------------------- |  | ------------------------------- |  | ------------------------------------------- |  | ---------------- |  | --------------------------
|                                                                 |  | Annual Compensation (1) |  |                       |  | Long-Term Compensation
|                                                                 |  |                         |  |                       |  |                        |  |                               |  |                                 |  | Awards                                      |  |                  |  | Payouts                   
|Name and Principal Position                                      |  | Year                    |  | Salary ($)            |  | Bonus ($)              |  | Other Annual Compensation ($) |  | Restricted Stock Award (shares) |  | Securities Underlying Options/ SARs (#) (2) |  | LTIP Payouts ($) |  | All Other Compensation ($)
|Mandeep K. Taneja, Chief Executive Officer And President (3)     |  | 200520042003            |  | 156,000153,000105,000 |  |   9,360              |  |                            |  | 40,000                        |  |   25,000100,000                            |  |               |  |                        
|Cani I. Shuman, Chief Financial Officer, Secretary and Treasurer |  | 200520042003            |  | 78,00075,00070,500    |  |   4,680              |  |                            |  | 30,000                        |  |   25,000100,000                            |  |               |  |                        
|Jugal K. Taneja, Chairman (4) (5)                                |  | 200520042003            |  | 150,000150,000195,000 |  |                     |  |                            |  | 50,000                        |  |   50,000200,000                            |  |               |  |                        

---

|(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) | Effective December 20, 2002 and January 23, 2004, the Companys officers and directors were granted common stock options by action of the Companys Board of Directors. The
options vest pro rata over a three-year period beginning December 20, 2003 and January 23, 2005, respectively. The exercise price of the options for the December 20, 2002 grant was $0.1625 ($0.65 pre-split) and the exercise price of the options for
the January 23, 2004 grant was $1.00, based on the closing price of the Companys stock on the OTC Bulletin Board the business date prior to the date of the grant. For an officer or director who, at the time of the grant, owns stock
representing more than ten percent of the voting power of all classes of stock of the Company, the exercise price of the of the options for the December 20, 2002 grant was $0.17875 ($0.715 pre-split) and the exercise price of the options for the
January 23, 2004 grant was $1.10, based on the closing price of the Companys stock on the OTC Bulletin Board the business date prior to the date of the grant.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. Mandeep Taneja served as the Companys Chief Executive Officer since December 2002.
|--- | ---------------------------------------------------------------------------------------

|(4) | Mr. Jugal Taneja served as the Companys Chief Executive Officer until June 1998 and from November 1999 until February 2002, and has served as a Consultant since February 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Effective October 1, 2004, the Company granted options to purchase 500,000 shares of the Companys common stock to Mr. Jugal Taneja, as compensation for Mr. Tanejas
personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair value of the Companys common stock on September 30, 2004). The
options vest approximately equally over a three-year period, commencing October 1, 2005. The compensation described in the table does not include these options.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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During the year ended March 31, 2005, 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.



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. The agreement has continued under the same terms and amounts, however, there is not written agreement at this time.



Employment Agreements



On September 30, 2004, the Company, through its wholly-owned subsidiary, BOSS, entered into an Employment Agreement with Joseph Mies to serve as
BOSSs Chief Operating Officer, effective October 1, 2004. The Employment Agreement provides for an initial three-year term ending September 30, 2007, with an annual base compensation of $100,000. The agreement contains a provision for bonus
compensation. The agreement also 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.



On March 30, 2005, the Company, through its
wholly-owned subsidiary, DMI, entered into an Employment Agreement with Gregg Madsen to serve as DMIs Chief Operating Officer, effective March 31, 2005. The Employment Agreement provides for an initial three-year term ending March 30, 2008,
with an annual base compensation of $125,000. The agreement contains a provision for bonus compensation. The agreement also 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. In addition, On March 30,2005, Mr. Madsen was granted options to purchase 300,000 shares of the Companys common stock. The options vest
over a three-year period beginning March 31, 2005.



Employee And
Non-Employee Stock Option Plans



1999 Stock Option 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 1999 Plan will



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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 will allow the grant to officers, directors, or other key employees and consultants of the Company, of options to
purchase up to a maximum aggregate of 6,000,000 shares of Company common stock.



The Board of Directors of the Company or a committee of the Board may administer the 1999 Plan, and has complete discretion to select the optionees and terms and conditions of each option, subject to the provisions of
the 1999 Plan. Options granted under the 1999 Plan may be incentive stock options as defined in Section 411 of the Internal Revenue Code of 1986 or so-called nonqualified options. The exercise price of incentive stock options may not be
less than 100% of the fair market value of the Companys common stock as of the date of grant (110% of the fair market value if the grant is to an employee who owns more than 10% of the total combined voting power of all classes of capital
stock of the Company). The Internal Revenue Code currently limits to $100,000 the aggregate value of the common stock that may be acquired in any one year pursuant to incentive stock options under the 1999 Plan or any other option plan adopted by
the Company.



Nonqualified options may be granted under the
1999 Plan at an exercise price of not less than 100% of the fair market value of the Companys common stock on the date of grant. Nonqualified options also may be granted without regard to any restriction on the amount of common stock that may
be acquired pursuant to such options in any one year.



Subject
to the limitations contained in the 1999 Plan, options become exercisable at such times and in such installments as the Committee shall provide in the terms of each individual stock option agreement. The Committee must also provide in the terms of
each stock option agreement, when the option expires and becomes unexercisable, and may also provide for the option expiration of at least thirty days upon termination of employment for any reason. No option held by directors, executive officers or
other persons subject to Section 16 of the Securities Exchange Act of 1934 may be exercised during the first six months after such option is granted.



Unless otherwise provided in the applicable stock option agreement, upon termination of employment of an optionee, all options that were then exercisable
would terminate three months (twelve months in the case of termination by reason of death or disability) following termination of employment. Any options which were not fully vested and exercisable on the date of such termination would immediately
be cancelled concurrently with the termination of employment.



Options granted under the 1999 Plan may not be exercised more than ten years after the grant (five years after the grant if the grant is an incentive stock option to an employee who owns more than 10% of the total combined voting power of
all classes of capital stock of the Company). Options granted under the 1999 Plan are not transferable and may be exercised only by the respective grantees during their lifetime or by their heirs, executors or administrators in the event of death.
Under the 1999 Plan, shares subject to cancelled or terminated options are reserved for subsequently granted options. The number of options outstanding and the exercise price thereof are subject to adjustment in the case of certain transactions such
as mergers, recapitalizations, stock splits or stock dividends. The 1999 Plan is effective for ten years, unless sooner terminated or suspended.



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On January 23, 2004, the Board of Directors of the Company approved the retroactive granting of 700,000
(125,000 pre-split) options, effective as of December 20, 2002, and on January 23, 2004, the granting of 205,000 options, to be allocated to each of the Companysofficers and directors as of the respective dates. The exercise price of the
options for the December 20, 2002 grant was $0.1625 ($0.65 pre-split) and the exercise price of the options for the January 23, 2004 grant was $1.00, based on the closing price of the Companys stock on the OTC Bulletin Board the business date
prior to the date of the grant. For an officer or director who, at the time of the grant, owned stock representing more than ten percent of the voting power of all classes of stock of the Company, the exercise price of the of the options for the
December 20, 2002 grant was $0.17875 ($0.715 pre-split) and the exercise price of the options for the January 23, 2004 grant was $1.10, based on the closing price of the Companys stock on the OTC Bulletin Board the business date prior to the
date of the grant. Each of the employees of record were to receive the options based on their years of service and their salary.



During the year ended March 31, 2005, there were no options granted to executive officers of the Company.



On October 17, 2004, a meeting of the Compensation Committee of the Board of
Directors of the Company was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of the Companys common stock, effective October 1, 2004, to Jugal Taneja, the Companys Chairman and a principal
shareholder of the Company, as compensation for Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair
value of the Companys common stock on September 30, 2004). The options vest approximately equally over a three-year period, commencing October 1, 2005. For the options granted, the balance of deferred consulting fees as of March 31, 2005 2004
was $415,636. The initial valuation of these options was $498,763. For the year ended March 31, 2005, the Company included compensation expense in the amount of $83,127 in selling, general and administrative expenses in the statements of operations,
for these options.



In connection with the purchase of Dynamic
Marketing, Inc., effective March 31, 2005, the Company granted an option to purchase up to an aggregate of 250,000 shares of the Companys common stock to Gregg Madsen. The options vest approximately equally over the three-year period,
commencing March 31, 2006, at an exercise price of $1.55 per share, based upon and subject to the terms of the form of stock option agreement.



In connection with the Company entering into an Employment Agreement with Gregg Madsen to serve as DMIs Chief Operating Officer, effective March 31,
2005, Mr. Madsen was granted options to purchase 300,000 shares of the Companys common stock. The options vest equally over a three-year period, commencing March 31, 2005. The exercise price of $1.08, for the options, was determined based upon
the average closing price of the Companys common stock during the five trading days immediately preceding the Employment Agreement. These options were issued pursuant to the 1999 Stock Option Plan.



40



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##### Table of Contents

The following represents the common stock options outstanding as of March 31, 2004 and 2005.



|                                           |  |          
|------------------------------------------ |  | ---------
|Option balance outstanding, March 31, 2003 |  | 700,000  
|Granted                                    |  | 205,000  
|Exercised                                  |  | 0        
|Forfeited                                  |  | 0        
|                                           |  |          
|Option balance outstanding, March 31, 2004 |  | 905,000  
|Granted                                    |  | 1,050,000
|Exercised                                  |  | 0        
|Forfeited                                  |  | 0        
|                                           |  |          
|Option balance outstanding, March 31, 2005 |  | 1,955,000
|                                           |  |          



As of March 31, 2005,
of the 1,955,000 options outstanding, 534,982 options were vested, with 1,420,018 being nonvested.



Forfeited options represent options granted to one or more employees of record whose employment is terminated, voluntarily or involuntarily, and based on
their termination date, such options were considered nonvested.



Item 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.



The following table sets forth certain information, as of March 31, 2005 with respect to the beneficial ownership of the outstanding Common Stock by (i)
each person known to the Company to own 5% or more of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) the executive officers of the Company, and (iv) all directors and officers of the Company as a group. Except as
otherwise indicated, each of the shareholders listed below has sole voting and investment power over the shares beneficially owned.



|                |  |                                                   |  |                                               |  |                              |  
|--------------- |  | ------------------------------------------------- |  | --------------------------------------------- |  | ---------------------------- | -
|Title Of  Class |  | Name And Address Of Beneficial Owner(1)           |  | Amount And Nature Of Beneficial  Ownership(2) |  | Approximate Percent Of Class |  
|Common          |  | Jugal K. Taneja(3)                                |  | 4,691,706                                     |  | 32.2                         | %
|Common          |  | Manju Taneja(4)                                   |  | 1,781,404                                     |  | 12.2                         | %
|Common          |  | William L. LaGamba(5)                             |  | 1,769,000                                     |  | 12.2                         | %
|Common          |  | Michele LaGamba(6)                                |  | 1,769,000                                     |  | 12.2                         | %
|Common          |  | Mandeep K. Taneja(7)                              |  | 1,594,993                                     |  | 11.0                         | %
|Common          |  | Mihir K. Taneja                                   |  | 1,479,996                                     |  | 10.2                         | %
|Common          |  | Kotha S. Sekharam, Ph.D.(8)                       |  | 540,794                                       |  | 3.7                          | %
|Common          |  | Morton L. Stone(9)                                |  | 188,030                                       |  | 1.3                          | %
|Common          |  | Cani I. Shuman(10)                                |  | 104,997                                       |  | 0.7                          | %
|Common          |  | Rakesh K. Sharma, M.D.(11)                        |  | 78,330                                        |  | 0.5                          | %
|Common          |  | David W. Brown                                    |  | 0                                             |  | 0                            | %
|Common          |  | All officers and directors as a group (7 persons) |  | 7,198,850                                     |  | 49.4                         | %

---

|(1) | Except as otherwise noted, the address for the above identified officers and directors of the Company is c/o Dynamic Health Products, Inc. at 12399 Belcher Road South, Suite 140,
Largo, FL 33773.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(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. Percentages are
based upon the assumption that each shareholder has exercised all of the currently exercisable options he or she owns which are currently exercisable or exercisable within 60 days and that no other shareholder has exercised any options he or she
owns.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 1,652,740 shares beneficially owned by Manju Taneja, Jugal K. Tanejas spouse, as to which Mr. Taneja exercises no investment or voting power and disclaims beneficial
ownership. Also includes (i) 2,680,304 shares owned by Carnegie Capital, Ltd. and (ii) 80,000 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. Includes 149,998 shares issuable upon exercise of currently exercisable options.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 128,664 shares beneficially owned by Jugal K. Taneja, as to which Manju Taneja exercises no investment or voting power and disclaims beneficial ownership. Excludes (i)
2,680,304 shares owned by Carnegie Capital, Ltd., and (ii) 80,000 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 784,000 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 504,000 shares held by Mr. LaGamba as custodian for their minor children.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes 481,000 shares owned by William L. LaGamba, and 504,000 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes 74,997 shares issuable upon exercise of currently exercisable options.
|--- | -------------------------------------------------------------------------------

|(8) | Includes 40,000 shares owned by Madhavi Sekharam, Dr. Sekharams spouse, as to which Dr. Sekharam exercises no investment or voting power and disclaims beneficial ownership.
Includes 78,330 shares issuable upon exercise of currently exercisable options.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 78,330 shares issuable upon exercise of currently exercisable options.
|--- | -------------------------------------------------------------------------------

|(10) | Includes 74,997 shares issuable upon exercise of currently exercisable options.
|---- | -------------------------------------------------------------------------------

|(11) | Includes 78,330 shares issuable upon exercise of currently exercisable options.
|---- | -------------------------------------------------------------------------------



Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.



On October 1, 1999, the Company entered into a triple-net lease agreement with GeoPharma, Inc. (GeoPharma), a
publicly traded company and an affiliate of the Company, whereby GeoPharma 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 GeoPharmas corporate headquarters and also serves as part of GeoPharmas offices, manufacturing, warehousing and shipping
operations. On October 25, 2004, the Company sold the building to GeoPharma for $1,925,000 in cash. This resulted in a gain of



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##### Table of Contents

$654,241 to the Company. The sale price was determined by an independent third-party appraisal. Jugal K. Taneja, a
principal shareholder and Chairman of the Board of the Company is also a principal shareholder and Chairman of the Board of GeoPharma. As of March 31, 2005 and 2004, the Companys investment in GeoPharma, consisting of 347,938 shares of its
common stock, is included in marketable equity securities, net (see Note 4).



In October 2003, the Company received payment of $53,936 of dividends receivable from Vertical Health Solutions, Inc. (Vertical), an affiliate of the Company, in the form of 269,680 shares of common stock
of Vertical. The dividend was included in other income and expenses, net, in the statements of operations for the year ended March 31, 2004. In January 2004, Verticals stock began publicly trading. Jugal K. Taneja, a principal shareholder and
Chairman of the Board of the Company is also a principal shareholder and a Director of Vertical. On June 14, 2004, the Board of Directors of the Company, approved the declaration of a pro rata dividend distribution to holders of record of its issued
and outstanding common shares as of July 1, 2004, in the form of approximately 1.3 million shares of Vertical, which the Company owned. On July 7, 2004, the Board of Directors of the Company amended the record date to July 16, 2004 and the
distribution date to July 26, 2004. The payment rate was one share of Vertical common stock for each ten shares of the Companys common stock held on July 16, 2004. The Company only distributed whole shares and any fractional shares to which
shareholders would otherwise be entitled were rounded down to the nearest whole share.



On July 26, 2004, the Company distributed approximately 1.3 million shares of Vertical common stock to its shareholders. This resulted in a gain of $1,359,966 to the Company for the year ended March 31, 2005.



For the years ended March 31, 2005 and 2004, the Company
charged Vertical consulting fees totaling $5.213 and $8,725, respectively, for accounting and administrative services. The charge was on an hourly basis for services rendered. As of March 31, 2005 and 2004, approximately $325 and $4,138,
respectively, were due from Vertical and are included in amounts due from affiliates. As of March 31, 2005 and 2004, the Companys investment in Vertical is included in marketable equity securities, net (see Note 4 and Note 12).



The Company owns 30%, or 300,000 shares of common stock of Tribeca Beverage
Company (Tribeca), an affiliate of Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company, and Mandeep K. Taneja, a Director, Chief Executive Officer and President of the Company. The investment was accounted
for under the equity method until March 31, 2003, at which time, as a result of managements analysis, it was determined that the investment was worthless and the Company recognized an impairment loss of $166,939 in the investment. As of March
31, 2005, $301 was due from Tribeca and is included in due from affiliates. As of March 31, 2004, $1,281 was due to Tribeca and is included in obligations to affiliates.



On March 22, 2002, the Company entered into a Sublease and Consent agreement with Innovative Health Products, Inc.
(Innovative), a wholly-owned subsidiary of GeoPharma, 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
served as the Companys corporate headquarters and was 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 contained an option to
continue the sublease subsequent to March 31, 2003, on a month-to-month basis through January 10, 2004, unless terminated earlier. The option to continue was exercised and on January 1, 2004 the Company terminated the sublease. The rental under the
sublease was $33,384 annually.



43



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##### Table of Contents

On January 1, 2004, the Company entered into a verbal agreement with Innovative, whereby the Company
agreed to sublease approximately 5,131 square feet of office and warehouse space for its executive offices and its operations in Largo, Florida. This facility served as the Companys corporate headquarters and was also used for its offices,
warehousing and shipping operations. The facility was sublet until May 1, 2005, at which time the sublease was terminated. The initial rental under the sublease was $41,066 annually.



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



For the years ended March 31, 2005 and 2004, purchases of products from subsidiaries of GeoPharma were $476,952 and $698,559, respectively, and sales of
products to subsidiaries of GeoPharma $18,774 and $2,900, respectively. As of March 31, 2005 and 2004, $66,151 and $242,113, respectively, were due to subsidiaries of GeoPharma 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 year ended March 31, 2004, purchases of
products from T & L, Inc. (T&L), an affiliate of Mandeep K. Taneja, a Director, Chief Executive Officer and President of the Company, were $89,642. For the year ended March 31, 2004, the Company charged T&L fees totaling
$1,454 for prescription services provided. The charge was on an hourly basis for services rendered. For the year ended March 31, 2005, there were no purchases of products from T&L and no prescription services were provided to T&L. As of
March 31, 2005 and 2004, zero and $5,192, respectively, were due from T&L and are included in amounts due from affiliates, and $1,898 and $1,898, respectively, were due to T&L and are included in obligations to affiliates.



For the year ended March 31, 2004, sales of products to Generilean Health
Systems, LLC (GHS), an affiliate of the Company (see Note 10), were $393.



For the year ended March 31, 2004, sales of products to OTB Products, LLC (OTB), an affiliate of the Company, were $11,514. In addition, for the year ended March 31, 2004, the Company charged OTB fees of
$37,890 for prescription services provided and $5,856 for consulting services provided. The charges were based on both hourly and monthly rates. OTB was a 50% partner in Generilean, a Florida limited liability company in which the Company was a 50%
partner.



44



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##### Table of Contents

In February 2004, the Company issued 260,000 shares of its common stock to William LaGamba, a principal
shareholder of the Company, in payment of consulting services provided to the Company during the year ended March 31, 2004, of approximately $79,834, and in full satisfaction of an outstanding obligation to Mr. LaGamba of approximately $50,166,
including interest at the rate of 7% per annum, for working capital advances made to the Company.



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



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



On October 17, 2004, a meeting of the Compensation Committee of the Board of
Directors of the Company was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of the Companys common stock, effective October 1, 2004, to Jugal Taneja, the Companys Chairman and a principal
shareholder of the Company, as compensation for Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair
value of the Companys common stock on September 30, 2004). The options vest approximately equally over a three-year period, commencing October 1, 2005. The value of the options, as determined by reference to the Black Scholes Model, has been
recorded as a prepaid expense and is being amortized over the life of the loan.



On March 29, 2005, the Company entered into a lease with GAM Realty, LLC, which was effective March 31, 2005, whereby the Company agreed to lease approximately 15,000 square feet of office and warehouse space for its
operations in Cranston, Rhode Island. This facility is used for a portion of the office, warehousing and shipping operations of DMI. The lease is for a term of five years ending on March 31, 2010. The initial rental under the lease was $120,000
annually.



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##### Table of Contents

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  |  | Articles of Incorporation of Direct Rx Healthcare, Inc., filed January 27, 1998. (1)                                                                                       
|     | 
|3.2  |  | Articles of Amendment to Articles of Incorporation of Nu-Wave Health Products, Inc., dated August 11, 1998. (2)                                                            
|     | 
|3.3  |  | Articles of Amendment to Articles of Incorporation of Dynamic Health Products, Inc., filed September 1, 1998. (3)                                                          
|     | 
|3.4  |  | Articles of Restatement of the Articles of Incorporation of Dynamic Health Products, Inc., filed April 16, 1999. (3)                                                       
|     | 
|3.5  |  | Certificate of Amendment to Restated Articles of Incorporation of Dynamic Health Products, Inc., filed October 25, 2004.(7)                                                
|     | 
|10.1 |  | Stock Purchase Agreement by and among the Company, Robert T. OLeary, Linda OLeary, and Bob OLeary Health Food Distributor Co., Inc., dated as of September 10, 2004.
(5)
|     | 
|10.2 |  | Securities Purchase Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                        
|     | 
|10.3 |  | Master Security Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                            
|     | 
|10.4 |  | Registration Rights Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                        
|     | 
|10.5 |  | Guaranty issued by Jugal K. Taneja to Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                                        
|     | 
|10.6 |  | Subsidiary Guaranty between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                                  
|     | 
|10.7 |  | Supplemental Stock Pledge Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                  



46



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|      |  |                                                                                                                                      
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------
|10.8  |  | Subsidiary Stock Pledge Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)              
|      | 
|10.9  |  | Secured Convertible Term Note issued by the Company to Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                 
|      | 
|10.10 |  | Common Stock Purchase Warrant issued by the Company to Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                 
|      | 
|10.11 |  | Agreement And Plan Of Merger by and among the Company and Gregg Madsen and Dynamic Marketing, Inc., dated as of March 2, 2005. (8)   
|      | 
|10.12 |  | Security Agreement by and among the Company and Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                            
|      | 
|10.13 |  | Secured Revolving Note issued by the Company to Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                            
|      | 
|10.14 |  | Secured Convertible Minimum Borrowing Note issued by the Company to Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)        
|      | 
|10.15 |  | Common Stock Purchase Warrant issued by the Company to Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                     
|      | 
|10.16 |  | Registration Rights Agreement between the Company and Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                      
|      | 
|10.17 |  | Amendment No. 1 to Master Security Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (9)   
|      | 
|10.18 |  | Employment Agreement between the Company and Joseph Mies, dated as of September 30, 2004.                                            
|      | 
|10.19 |  | Employment Agreement between the Company and Gregg Madsen, dated as of March 30, 2005. (10)                                          
|      | 
|10.20 |  | Lease Agreement by and between the Company and Robert OLeary and Linda OLeary, dated as of October 1, 2004.                        
|      | 
|10.21 |  | Warehouse/Office Lease by and between the Company and Yale Mosk & Co, dated as of February 8, 2005.                                  
|      | 
|10.22 |  | Lease Agreement by and between the Company and GAM Realty, LLC, dated as of March 29, 2005.                                          
|      | 
|10.23 |  | Industrial Real Estate Lease by and between Dynamic Marketing, Inc. and Pacific Industrial Park L.L.C., dated as of December 8, 2000.
|      | 
|14.1  |  | Code of Ethics of Dynamic Health Products, Inc. (4)                                                                                  



47



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##### Table of Contents

|     |  |                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|21.1 |  | Dynamic Health Products, Inc.  List of Subsidiaries.                                                                                                          
|     | 
|31.1 |  | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
|     | 
|31.2 |  | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).              
|     | 
|32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).              

---

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

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

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

|(4) | Incorporated by reference to the Companys Annual Report on Form 10-KSB for the fiscal year ended March 31, 2003, file number 0-23031, filed in Washington, D.C. on June 30,
2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Current Report on Form 8-K, dated September 10, 2004, file number 0-23031, filed in Washington, D.C. on September 10, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(7) | Incorporated by reference to the Companys Current Report on Form 8-K, dated October 25, 2004, file number 0-23031, filed in Washington, D.C. on October 26, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Companys Current Report on Form 8-K, dated March 3, 2005, file number 0-23031, filed in Washington, D.C. on March 3, 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the Companys Current Report on Form 8-K, dated March 29, 2005, file number 0-23031, filed in Washington, D.C. on April 1, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to the Companys Current Report on Form 8-K/A, dated March 31, 2005, file number 0-23031, filed in Washington, D.C. on June 14, 2005.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K.



During the three month period ending March 31, 2005, the Company filed seven
reports on Form 8-K.



48



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##### Table of Contents

Form 8-K dated January 6, 2005, with respect to the Companys press release concerning the
Companys current activities.



Form 8-K dated February 16,
2005, with respect to the Companys press release concerning the Companys results of operations.



Form 8-K dated March 3, 2005, with respect to the Companys entry into an Agreement And Plan of Merger, for the purchase of Dynamic Marketing, Inc.



Form 8-K dated March 29, 2005, with respect to the
Companys completion of the sale to Laurus Master Fund, Ltd. of a material secured convertible note, a secured revolving note and warrants to purchase shares of the Companys common stock.



Form 8-K dated March 31, 2005, with respect to the Companys completion
of the acquisition of Dynamic Marketing, Inc.



Form 8-K/A dated
March 31, 2005, with respect to the Companys completion of the acquisition of Dynamic Marketing, Inc. The audited financial statements of Dynamic Marketing, Inc. for the three years ended December 31, 2004, 2003 and 2002 were included in this
filing.



Form 8-K/A dated March 31, 2005, with respect to the
Companys completion of the acquisition of Dynamic Marketing, Inc. The pro forma financial information required pursuant to Article 11 of Regulation S-X for this acquisition was included in this filing.



Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.



Audit Fees



Total fees billed for professional services rendered by the Companys principal accountant for the audit and review of
the Companys financial statements included in the Companys Form 10-QSBs and Form 10-KSBs, and services provided in connection with the Companys Form 8-Ks and Form S-8s, for the years ended March 31, 2005 and 2004 were $21,669 and
$16,900, respectively.



Tax Fees



Total fees billed for professional services rendered by the Companys
principal accountant for tax services relating to the preparation of the Companys federal and state income tax returns, preparation of the Companys intangible tax returns, and tax advice and planning during the years ended March 31, 2005
and 2004 were $8,353 and $9,835, respectively.



During the
years ended March 31, 2005 and 2004, the Companys principal accountant only performed audit and tax related services, as indicated above.



Pre-Approval Policies and Procedures



The Audit Committee Charter provides that the Audit Committee of the Companys Board of Directors has the sole authority and responsibility to
pre-approve all audit services and permitted non-audit services to be performed for the Company by its independent registered public accounting firm and the related fees. Pursuant to its charter, the Audit Committee has



49



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##### Table of Contents

established pre-approval policies and procedures for permitted non-audit services. The Audit Committee considers each
engagement on a case-by-case basis according to certain required criteria, including that (i) the skill set necessary for the engagement should be unique to the Companys independent registered public account firm and (ii) the engagement should
not involve work that would result in the Companys independent registered public accounting firm eventually auditing its own work.



50



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##### Table of Contents

SIGNATURES



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



|                    |  |                               |  |                                            
|------------------- |  | ----------------------------- |  | -------------------------------------------
|                    |  | DYNAMIC HEALTH PRODUCTS, INC.
|                    |  |                              
|Date: July 14, 2005 |  | By:                           |  | /s/ Mandeep K. Taneja                      
|                    |  |                               |  | Mandeep K. Taneja, Chief Executive Officer,
|                    |  |                               |  | President and Director                     



In accordance with the
Exchange Act this report has been signed below by the following persons on behalf of the registrant in the capacities as on July 14, 2005.



|          |  |                                        |  |                                                           
|--------- |  | -------------------------------------- |  | ----------------------------------------------------------
|Signature |  | Title                                 
|By:       |  | /s/ Jugal K. TanejaJugal K. Taneja     |  | Chairman of the Board and Director                        
|          |  |                                       
|By:       |  | /s/ Mandeep K. TanejaMandeep K. Taneja |  | Chief Executive Officer, President and Director           
|          |  |                                       
|By:       |  | /s/ Cani I. ShumanCani I. Shuman       |  | Chief Financial Officer, Secretary, Treasurer and Director
|          |  |                                       
|By:       |  | /s/ Kotha S. SekharamKotha S. Sekharam |  | Director                                                  



51



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##### Table of Contents

CONTENTS



|                                                           |  |           
|---------------------------------------------------------- |  | ----------
|TABLE OF CONTENTS                                          |  | F-1       
|                                                           | 
|INDEPENDENT AUDITORS REPORT                               |  | F-2       
|                                                           | 
|FINANCIAL STATEMENTS                                       |  |           
|CONSOLIDATED BALANCE SHEETS                                |  | F-3       
|                                                           | 
|CONSOLIDATED STATEMENTS OF OPERATIONS                      |  | F-4       
|                                                           | 
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY |  | F-5       
|                                                           | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                      |  | F-6  F-7 
|                                                           | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 |  | F-8  F-42



F - 1



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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, 2005 and 2004
and the related consolidated statements of operations, changes in shareholders equity, and cash flows for the years ended March 31, 2005 and 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control.
Accordingly, we express no such opinion. 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, 2005 and 2004 and the consolidated results of operations and cash flows for the years ended March 31, 2005 and 2004, in conformity with accounting principles generally
accepted in the United States of America.



|                               
|-------------------------------
|/s/ BRIMMER, BUREK & KEELAN LLP
|Brimmer, Burek & Keelan LLP    
|                               
|Tampa, Florida                 
|July 1, 2005                   



F - 2



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31,



|                                                                                                                               |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                               |  | 2005 |            |   | 2004 |  
|ASSETS                                                                                                                         |  |      |            |   |      |   |            |  
|                                                                                                                               |  |     
|Current assets:                                                                                                                |  |      |            |   |      |   |            |  
|Cash and cash equivalents                                                                                                      |  | $    | 1,870,561  |   |      | $ | 219,119    |  
|Marketable equity securities, net                                                                                              |  |      | 1,162,546  |   |      |   | 3,806,324  |  
|Accounts receivable, net                                                                                                       |  |      | 2,720,424  |   |      |   | 154,230    |  
|Inventories, net                                                                                                               |  |      | 4,901,437  |   |      |   | 189,193    |  
|Prepaid expenses                                                                                                               |  |      | 389,978    |   |      |   | 43,468     |  
|Deferred consulting fees                                                                                                       |  |      | 308,745    |   |      |   |           |  
|Other current assets                                                                                                           |  |      | 218,465    |   |      |   | 56,345     |  
|Due from affiliates                                                                                                            |  |      | 959        |   |      |   | 10,605     |  
|Note receivable from affiliate                                                                                                 |  |      | 43,528     |   |      |   | 40,481     |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total current assets                                                                                                           |  |      | 11,616,643 |   |      |   | 4,519,765  |  
|                                                                                                                               |  |     
|Property, plant and equipment, net                                                                                             |  |      | 759,519    |   |      |   | 1,314,399  |  
|                                                                                                                               |  |     
|Goodwill                                                                                                                       |  |      | 4,577,613  |   |      |   |           |  
|Intangible assets, net                                                                                                         |  |      | 625,842    |   |      |   | 25,842     |  
|Deferred consulting fees                                                                                                       |  |      | 298,141    |   |      |   |           |  
|Other assets                                                                                                                   |  |      | 65,209     |   |      |   | 5,141      |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total assets                                                                                                                   |  | $    | 17,942,967 |   |      | $ | 5,865,147  |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                           |  |      |            |   |      |   |            |  
|                                                                                                                               |  |     
|Current liabilities:                                                                                                           |  |      |            |   |      |   |            |  
|Revolving note payable, net                                                                                                    |  | $    | 1,572,344  |   |      | $ |           |  
|Current portion of long-term obligations                                                                                       |  |      | 876,510    |   |      |   | 27,023     |  
|Capital lease obligation                                                                                                       |  |      | 546        |   |      |   |           |  
|Accounts payable                                                                                                               |  |      | 5,160,608  |   |      |   | 126,086    |  
|Other payables                                                                                                                 |  |      | 272,893    |   |      |   | 95,413     |  
|Accrued expenses                                                                                                               |  |      | 384,982    |   |      |   | 68,411     |  
|Accrued income taxes                                                                                                           |  |      | 5,009      |   |      |   |           |  
|Obligations to affiliates                                                                                                      |  |      | 78,944     |   |      |   | 245,292    |  
|Note payable                                                                                                                   |  |      | 18,851     |   |      |   | 13,043     |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total current liabilities                                                                                                      |  |      | 8,370,687  |   |      |   | 575,268    |  
|                                                                                                                               |  |     
|Long-term obligations, less current portion                                                                                    |  |      | 1,399,272  |   |      |   | 813,491    |  
|Deferred income taxes                                                                                                          |  |      | 336,999    |   |      |   | 1,189,300  |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total liabilities                                                                                                              |  |      | 10,106,958 |   |      |   | 2,578,059  |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Commitments and contingencies                                                                                                  |  |      |            |   |      |   |            |  
|                                                                                                                               |  |     
|Shareholders equity:                                                                                                          |  |      |            |   |      |   |            |  
|Preferred stock, undesignated; 800,000 shares authorized; no shares issued or outstanding                                      |  |      |           |   |      |   |           |  
|Series A Convertible Preferred stock, $.01 par value; 400,000 shares authorized; no shares issued or outstanding               |  |      |           |   |      |   |           |  
|Series B 6% Cumulative Convertible Preferred stock, $.01 par value; 800,000 shares authorized; no shares issued or outstanding |  |      |           |   |      |   |           |  
|Common stock, $.01 par value; 45,000,000 shares authorized; 14,024,592 and 12,774,834 shares issued and outstanding            |  |      | 140,246    |   |      |   | 127,748    |  
|Additional paid-in capital                                                                                                     |  |      | 8,646,924  |   |      |   | 2,671,568  |  
|Retained earnings (deficit)                                                                                                    |  |      | (1,662,763 | ) |      |   | (1,798,719 | )
|Accumulated other comprehensive income:                                                                                        |  |      |            |   |      |   |            |  
|Unrealized gains (losses) on marketable equity securities, net of tax                                                          |  |      | 711,602    |   |      |   | 2,286,491  |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total shareholders equity                                                                                                     |  |      | 7,836,009  |   |      |   | 3,287,088  |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total liabilities and shareholders equity                                                                                     |  | $    | 17,942,967 |   |      | $ | 5,865,147  |  
|                                                                                                                               |  |      |            |   |      |   |            |  



See accompanying notes
to consolidated financial statements.



F - 3



---

##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED MARCH 31,



|                                                             |  |      |            |   |      |   |            |  
|------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                             |  | 2005 |            |   | 2004 |  
|Revenues:                                                    |  |      |            |   |      |   |            |  
|Distribution                                                 |  | $    | 16,008,631 |   |      | $ | 1,677,405  |  
|Prescription services                                        |  |      | 70,897     |   |      |   | 215,134    |  
|                                                             |  |      |            |   |      |   |            |  
|Total revenues                                               |  |      | 16,079,528 |   |      |   | 1,892,539  |  
|                                                             |  |      |            |   |      |   |            |  
|Cost of goods sold:                                          |  |      |            |   |      |   |            |  
|Distribution                                                 |  |      | 13,779,997 |   |      |   | 768,854    |  
|Prescription services                                        |  |      | 62,815     |   |      |   | 173,699    |  
|                                                             |  |      |            |   |      |   |            |  
|Total cost of goods sold                                     |  |      | 13,842,812 |   |      |   | 942,553    |  
|                                                             |  |      |            |   |      |   |            |  
|Gross profit:                                                |  |      |            |   |      |   |            |  
|Distribution                                                 |  |      | 2,228,634  |   |      |   | 908,551    |  
|Prescription services                                        |  |      | 8,082      |   |      |   | 41,435     |  
|                                                             |  |      |            |   |      |   |            |  
|Total gross profit                                           |  |      | 2,236,716  |   |      |   | 949,986    |  
|                                                             |  |      |            |   |      |   |            |  
|Operating expenses:                                          |  |      |            |   |      |   |            |  
|Selling, general and administrative expenses                 |  |      | 3,164,913  |   |      |   | 1,263,909  |  
|Amortization expense                                         |  |      | 67,736     |   |      |   | 1,597      |  
|Depreciation expense                                         |  |      | 68,697     |   |      |   | 84,534     |  
|                                                             |  |      |            |   |      |   |            |  
|Total operating expenses                                     |  |      | 3,301,346  |   |      |   | 1,350,040  |  
|                                                             |  |      |            |   |      |   |            |  
|Operating loss before other income and expense               |  |      | (1,064,630 | ) |      |   | (400,054   | )
|                                                             |  |     
|Other income (expense):                                      |  |      |            |   |      |   |            |  
|Interest income                                              |  |      | 5,357      |   |      |   | 3,104      |  
|Other income and expenses, net                               |  |      | 93,600     |   |      |   | 283,895    |  
|Gain on distribution of investment                           |  |      | 1,349,966  |   |      |   |           |  
|Gain (loss) on sale of property                              |  |      | 654,241    |   |      |   | (1,335     | )
|Gain on sale of investment                                   |  |      |           |   |      |   | 71,843     |  
|Losses on marketable equity securities, net                  |  |      |           |   |      |   | (102,434   | )
|Equity in income (loss) of affiliated companies              |  |      |           |   |      |   | (6,500     | )
|Interest expense                                             |  |      | (869,003   | ) |      |   | (96,169    | )
|                                                             |  |      |            |   |      |   |            |  
|Total other income (expense)                                 |  |      | 1,234,161  |   |      |   | 152,404    |  
|                                                             |  |      |            |   |      |   |            |  
|Income (loss) before income taxes                            |  |      | 169,531    |   |      |   | (247,650   | )
|                                                             |  |     
|Income tax expense (benefit)                                 |  |      | 33,575     |   |      |   | (138,979   | )
|                                                             |  |      |            |   |      |   |            |  
|Net income (loss)                                            |  |      | 135,956    |   |      |   | (108,671   | )
|                                                             |  |     
|Preferred stock dividends                                    |  |      |           |   |      |   |           |  
|                                                             |  |      |            |   |      |   |            |  
|Net income (loss) available to common shareholders           |  | $    | 135,956    |   |      | $ | (108,671   | )
|                                                             |  |      |            |   |      |   |            |  
|Basic income (loss) per share                                |  | $    | 0.01       |   |      | $ | (0.01      | )
|                                                             |  |      |            |   |      |   |            |  
|Basic weighted average number of common shares outstanding   |  |      | 12,991,512 |   |      |   | 12,387,611 |  
|                                                             |  |      |            |   |      |   |            |  
|Diluted income (loss) per share                              |  | $    | 0.01       |   |      | $ | (0.01      | )
|                                                             |  |      |            |   |      |   |            |  
|Diluted weighted average number of common shares outstanding |  |      | 18,170,991 |   |      |   | 12,387,611 |  
|                                                             |  |      |            |   |      |   |            |  



See accompanying notes
to consolidated financial statements.



F - 4



---

##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY

FOR THE YEARS ENDED MARCH 31, 2005 AND 2004



|                                                                                                                  |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | ----------------------- | - | ------------ | - | ------------------------ | - | ------ | ------------------------- | ---------- |  | ------------------------------------- | ------- | -------------------------------------- | ------------------------- | ---------- | - |  | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                  |  | Series APreferred Stock |  | Series BPreferred Stock |   | Common Stock |   | AdditionalPaid-inCapital |   |        | RetainedEarnings(Deficit) |            |  | Accumulated OtherComprehensive Income |         |                                        | TotalShareholders Equity |           
|                                                                                                                  |  | Shares                  |  | Dollars                 |   | Shares       |   | Dollars                  |   | Shares |                           | Dollars    |  |                                       |         | Unrealized Gains(Losses) on Securities |                           |           
|Balances at March 31, 2003                                                                                        |  |                        |  | $                       |  |              |  |                          | $ |       |                           | 12,331,500 |  | $                                     | 123,315 |                                        | $                         | 2,445,655  |   |  | $ | (1,690,048 | ) |  | $ | (65,856    | ) |  | $ | 813,066    |  
|COMPREHENSIVE INCOME (LOSS)                                                                                       |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   |            |  
|Net income (loss)                                                                                                 |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           |           |   |  |   | (108,671   | ) |  |   |            |   |  |   | (108,671   | )
|Unrealized gains (losses) on marketable equity securities (net of tax of $1,323,196)                              |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           |           |   |  |   |           |   |  |   | 2,352,347  |   |  |   | 2,352,347  |  
|                                                                                                                  |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   |            |  
|Comprehensive income (loss)                                                                                       |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   | 2,243,676  |  
|Cash paid in lieu of fractional shares for common stock exchanged, in relation to August 1998 reverse stock split |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | (5         | ) |  |   |           |   |  |   |            |   |  |   | (5         | )
|Issuance of 83,334 shares of common stock in payment of accrued consulting fees                                   |  |                        |  |                         |  |              |  |                          |   |       |                           | 83,334     |  |                                       | 833     |                                        |                           | 49,518     |   |  |   |           |   |  |   |            |   |  |   | 50,351     |  
|Issuance of 260,000 shares of common stock in payment of accrued consulting fees and related party obligations    |  |                        |  |                         |  |              |  |                          |   |       |                           | 260,000    |  |                                       | 2,600   |                                        |                           | 127,400    |   |  |   |           |   |  |   |            |   |  |   | 130,000    |  
|Issuance of 100,000 shares of common stock in payment of accrued consulting fees                                  |  |                        |  |                         |  |              |  |                          |   |       |                           | 100,000    |  |                                       | 1,000   |                                        |                           | 49,000     |   |  |   |           |   |  |   |            |   |  |   | 50,000     |  
|                                                                                                                  |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   |            |  
|Balances at March 31, 2004                                                                                        |  |                        |  |                         |  |              |  |                          |   |       |                           | 12,774,834 |  |                                       | 127,748 |                                        |                           | 2,671,568  |   |  |   | (1,798,719 | ) |  |   | 2,286,491  |   |  |   | 3,287,088  |  
|COMPREHENSIVE INCOME (LOSS)                                                                                       |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   |            |  
|Net income (loss)                                                                                                 |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           |           |   |  |   | 135,956    |   |  |   |            |   |  |   | 135,956    |  
|Unrealized gains (losses) on marketable equity securities (net of tax of $885,875)                                |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           |           |   |  |   |           |   |  |   | (1,574,889 | ) |  |   | (1,574,889 | )
|                                                                                                                  |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   |            |  
|Comprehensive income (loss)                                                                                       |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   | (1,438,933 | )
|Issuance of 300,000 common stock warrants for consulting services                                                 |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | 270,000    |   |  |   |           |   |  |   |            |   |  |   | 270,000    |  
|Dividend distribution of 1,277,483 shares of Vertical Health Solutions, Inc.                                      |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | (1,532,979 | ) |  |   |           |   |  |   |            |   |  |   | (1,532,979 | )
|Issuance of 1,375,000 common stock warrants associated with $6 million funding                                    |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | 3,480,025  |   |  |   |           |   |  |   |            |   |  |   | 3,480,025  |  
|Issuance of 500,000 common stock options for guarantee of long-term debt                                          |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | 498,763    |   |  |   |           |   |  |   |            |   |  |   | 498,763    |  
|Issuance of 35,000 shares of common stock for consulting services                                                 |  |                        |  |                         |  |              |  |                          |   |       |                           | 35,000     |  |                                       | 350     |                                        |                           | 35,000     |   |  |   |           |   |  |   |            |   |  |   | 35,350     |  
|Issuance of 200,000 common stock warrants for consulting services                                                 |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | 195,000    |   |  |   |           |   |  |   |            |   |  |   | 195,000    |  
|Conversion of long-term debt and interest to common stock at $.90 per share, net of registration costs            |  |                        |  |                         |  |              |  |                          |   |       |                           | 989,758    |  |                                       | 9,898   |                                        |                           | 877,697    |   |  |   |           |   |  |   |            |   |  |   | 887,595    |  
|Issuance of 75,000 shares of common stock for employee bonuses                                                    |  |                        |  |                         |  |              |  |                          |   |       |                           | 75,000     |  |                                       | 750     |                                        |                           | 110,250    |   |  |   |           |   |  |   |            |   |  |   | 111,000    |  
|Issuance of 50,000 shares of common stock for consulting services                                                 |  |                        |  |                         |  |              |  |                          |   |       |                           | 50,000     |  |                                       | 500     |                                        |                           | 58,500     |   |  |   |           |   |  |   |            |   |  |   | 59,000     |  
|Issuance of 750,000 common stock warrants associated with $4 million funding                                      |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | 1,431,633  |   |  |   |           |   |  |   |            |   |  |   | 1,431,633  |  
|Issuance of 100,000 shares of common stock for purchase of Dynamic Marketing, Inc.                                |  |                        |  |                         |  |              |  |                          |   |       |                           | 100,000    |  |                                       | 1,000   |                                        |                           | 164,000    |   |  |   |           |   |  |   |            |   |  |   | 165,000    |  
|Issuance of 250,000 common stock options for purchase of Dynamic Marketing, Inc.                                  |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | 387,500    |   |  |   |           |   |  |   |            |   |  |   | 387,500    |  
|Cash paid in lieu of fractional shares for common stock exchanged, in relation to August 1998 reverse stock split |  |                        |  |                         |  |              |  |                          |   |       |                           |           |  |                                       |        |                                        |                           | (33        | ) |  |   |           |   |  |   |            |   |  |   | (33        | )
|                                                                                                                  |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   |            |  
|Balances at March 31, 2005                                                                                        |  |                        |  | $                       |  |              |  |                          | $ |       |                           | 14,024,592 |  | $                                     | 140,246 |                                        | $                         | 8,646,924  |   |  | $ | (1,662,763 | ) |  | $ | 711,602    |   |  | $ | 7,836,009  |  
|                                                                                                                  |  |                         |  |                         |   |              |   |                          |   |        |                           |            |  |                                       |         |                                        |                           |            |   |  |   |            |   |  |   |            |   |  |   |            |  



See accompanying notes
to consolidated financial statements.



F - 5



---

##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31,



|                                                                                                   |  |      |            |   |      |   |          |  
|-------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | -
|                                                                                                   |  | 2005 |            |   | 2004 |  
|Cash flows from operating activities:                                                              |  |      |            |   |      |   |          |  
|Net income (loss)                                                                                  |  | $    | 135,956    |   |      | $ | (108,671 | )
|                                                                                                   |  |     
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |      |            |   |      |   |          |  
|Depreciation and amortization                                                                      |  |      | 136,433    |   |      |   | 86,131   |  
|Common stock issued for consulting fees                                                            |  |      | 94,350     |   |      |   |         |  
|Common stock issued for employee bonuses                                                           |  |      | 111,000    |   |      |   |         |  
|Amortization of deferred consulting fees                                                           |  |      | 356,877    |   |      |   |         |  
|Amortization of debt discount to interest expense                                                  |  |      | 585,551    |   |      |   |         |  
|Common stock issued in payment of interest expense                                                 |  |      | 140,781    |   |      |   |         |  
|Equity in (income) loss of affiliated companies                                                    |  |      |           |   |      |   | 6,500    |  
|Gain on sale of property                                                                           |  |      | (654,241   | ) |      |   |         |  
|Loss on disposition of equipment                                                                   |  |      |           |   |      |   | 1,335    |  
|Gain on distribution of marketable equity securities                                               |  |      | (1,349,966 | ) |      |   |         |  
|Gain on sale of investment                                                                         |  |      |           |   |      |   | (71,843  | )
|Losses on sales of marketable equity securities, net of effect of deferred income taxes            |  |      |           |   |      |   | 65,389   |  
|Changes in operating assets and liabilities:                                                       |  |      |            |   |      |   |          |  
|Accounts receivable                                                                                |  |      | (490,791   | ) |      |   | (103,075 | )
|Inventories                                                                                        |  |      | (1,210,078 | ) |      |   | (163,531 | )
|Due to/from affiliates, net                                                                        |  |      | (213,419   | ) |      |   | 152,688  |  
|Prepaid expenses                                                                                   |  |      | (94,108    | ) |      |   | 33,483   |  
|Other current assets                                                                               |  |      | 134,542    |   |      |   | (48,616  | )
|Other assets                                                                                       |  |      | (19,919    | ) |      |   | 6,899    |  
|Accounts payable                                                                                   |  |      | 2,662,829  |   |      |   | 27,367   |  
|Other payables                                                                                     |  |      | 138,068    |   |      |   | 9,449    |  
|Accrued expenses                                                                                   |  |      | (337,838   | ) |      |   | 155,829  |  
|Accrued income taxes                                                                               |  |      | 5,009      |   |      |   | (5,746   | )
|Deferred income taxes                                                                              |  |      | 33,575     |   |      |   | (96,852  | )
|                                                                                                   |  |      |            |   |      |   |          |  
|Net cash provided by (used in) operating activities                                                |  |      | 164,611    |   |      |   | (53,264  | )
|                                                                                                   |  |      |            |   |      |   |          |  
|Cash flows from investing activities:                                                              |  |      |            |   |      |   |          |  
|Purchases of property and equipment                                                                |  |      | (55,830    | ) |      |   | (25,963  | )
|Proceeds from sale of property                                                                     |  |      | 1,911,110  |   |      |   |         |  
|Purchase of Bob OLeary Health Food Distributor Co., Inc., net of cash acquired                    |  |      | (5,409,895 | ) |      |   |         |  
|Purchase of Dynamic Marketing, Inc., net of cash acquired                                          |  |      | (1,983,337 | ) |      |   |         |  
|Purchase of investment                                                                             |  |      |           |   |      |   | (6,500   | )
|Proceeds from sale of investment                                                                   |  |      |           |   |      |   | 250,000  |  
|Proceeds from sale of marketable equity securities                                                 |  |      |           |   |      |   | 4,781    |  
|Redemption of certificate of deposit                                                               |  |      |           |   |      |   | 45,917   |  
|Purchase of customer list                                                                          |  |      | (153,000   | ) |      |   |         |  
|Purchase of trademark                                                                              |  |      | (1,977     | ) |      |   | (2,856   | )
|                                                                                                   |  |      |            |   |      |   |          |  
|Net cash provided by (used in) investing activities                                                |  |      | (5,692,929 | ) |      |   | 265,379  |  
|                                                                                                   |  |      |            |   |      |   |          |  
|Cash flows from financing activities:                                                              |  |      |            |   |      |   |          |  
|Proceeds from issuance of long-term obligations                                                    |  |      | 5,734,500  |   |      |   |         |  
|Payments of long-term obligations                                                                  |  |      | (1,253,891 | ) |      |   | (39,560  | )
|Proceeds from issuance of short-term obligations                                                   |  |      | 2,812,500  |   |      |   |         |  
|Payments of short-term obligations                                                                 |  |      | (35,638    | ) |      |   | (25,164  | )
|Payments of loan costs                                                                             |  |      | (74,492    | ) |      |   |         |  
|Payment of common stock registration costs                                                         |  |      | (3,186     | ) |      |   |         |  
|Payment of fractional shares on common stock exchanged                                             |  |      | (33        | ) |      |   | (5       | )
|Proceeds from issuance of related party obligations                                                |  |      | 150,000    |   |      |   | 47,819   |  
|Payments of related party obligations                                                              |  |      | (150,000   | ) |      |   |         |  
|                                                                                                   |  |      |            |   |      |   |          |  
|Net cash provided by (used in) financing activities                                                |  |      | 7,179,760  |   |      |   | (16,910  | )
|                                                                                                   |  |      |            |   |      |   |          |  
|Net increase in cash                                                                               |  |      | 1,651,442  |   |      |   | 195,205  |  
|                                                                                                   |  |     
|Cash at beginning of period                                                                        |  |      | 219,119    |   |      |   | 23,914   |  
|                                                                                                   |  |      |            |   |      |   |          |  
|Cash at end of period                                                                              |  | $    | 1,870,561  |   |      | $ | 219,119  |  
|                                                                                                   |  |      |            |   |      |   |          |  



See accompanying notes
to consolidated financial statements.



F - 6



---

##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

FOR THE YEARS ENDED MARCH 31,



|                                                                                                  |  |      |           |      |   |        
|------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | -------
|                                                                                                  |  | 2005 |           | 2004
|Supplemental disclosure of cash flow information:                                                 |  |      |           |      |   |        
|Cash paid during the period for interest                                                          |  | $    | 108,790   |      | $ | 89,548 
|                                                                                                  |  |      |           |      |   |        
|Cash paid during the period for income taxes                                                      |  | $    | 5,250     |      | $ | 50,664 
|                                                                                                  |  |      |           |      |   |        
|Supplemental schedule of non-cash investing activities:                                           |  |      |           |      |   |        
|Issuance of common stock for payment of purchase of Dynamic Marketing, Inc.                       |  | $    | 165,000   |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Issuance of common stock options for payment of purchase of Dynamic Marketing, Inc.               |  | $    | 387,500   |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Exchange of investment in preferred stock of affiliate to investment in common stock of affiliate |  | $    |          |      | $ | 179,846
|                                                                                                  |  |      |           |      |   |        
|Exchange of dividends receivable from affiliate to investment in common stock of affiliate        |  | $    |          |      | $ | 53,936 
|                                                                                                  |  |      |           |      |   |        
|Supplemental schedule of non-cash financing activities:                                           |  |      |           |      |   |        
|Dividend distribution of 1,277,483 shares of Vertical Health Solutions, Inc.                      |  | $    | 1,532,979 |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Issuance of common stock warrants for funding                                                     |  | $    | 4,911,658 |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Payment of loan costs for the issuance of long-term obligations                                   |  | $    | 453,000   |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Issuance of common stock options for guarantee of long-term obligation                            |  | $    | 498,763   |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Issuance of common stock for payment of long-term obligation                                      |  | $    | 750,000   |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Issuance of common stock warrants for consulting services                                         |  | $    | 465,000   |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Issuance of common stock for consulting services                                                  |  | $    | 94,350    |      | $ | 180,185
|                                                                                                  |  |      |           |      |   |        
|Issuance of common stock for employee bonuses                                                     |  | $    | 111,000   |      | $ |       
|                                                                                                  |  |      |           |      |   |        
|Issuance of short-term obligation for prepaid expenses                                            |  | $    | 41,446    |      | $ | 38,207 
|                                                                                                  |  |      |           |      |   |        
|Issuance of common stock for payment of related party note payable                                |  | $    |          |      | $ | 50,166 
|                                                                                                  |  |      |           |      |   |        



See accompanying notes
to consolidated financial statements.



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Dynamic Health Products, Inc. (Company) develops, markets and distributes a wide variety of sports nutrition products, performance drinks,
non-prescription dietary supplements, over-the-counter drugs, health and beauty care products, health food and nutritional products, soft goods and other related products, and provides prescription services. The Companys products are primarily
marketed throughout the United States to independent pharmacies, regional and national chain drug stores, mail order facilities, mass merchandisers, deep discounters, gyms, health food stores, internet companies, distributors and brokers. In
addition, the Company markets its products directly to consumers through infomercials, catalog sales, direct mail and through its web sites. The Companys prescription services were marketed directly to consumers through a variety of marketing
techniques including general public advertising and direct mail solicitations.



a. Principles of Consolidation



The
accompanying consolidated financial statements as of and for the year ended March 31, 2005 include the accounts of Dynamic Health Products, Inc. and its principally wholly-owned subsidiaries (collectively the Company), Pharma Labs Rx,
Inc. (FL), Dynamic Life Products, Inc., Herbal Health Products, Inc., Online Meds Rx, Inc., and its subsidiary Dynamic Financial Consultants, LLC, Bryan Capital Limited Partnership, Pharma Labs Rx, Inc. (NV), Bob OLeary Health Food Distributor
Co., Inc., Dynamic Marketing I, Inc. and DYHP Acquisitions, Inc. Significant intercompany balances and transactions have been eliminated in consolidation.



The accompanying consolidated financial statements as of and for the year ended March 31, 2004 include the accounts of Dynamic Health Products, Inc. and
its principally wholly-owned subsidiaries, Pharma Labs Rx, Inc. (FL), formerly known as J.Labs, Inc., Dynamic Life Products, Inc., Herbal Health Products, Inc., Online Meds Rx, Inc., and its subsidiary Dynamic Financial Consultants, LLC, formerly
known as Dynamic Life Asia, LLC, Bryan Capital Limited Partnership, and Pharma Labs Rx, Inc. (NV). Significant intercompany balances and transactions have been eliminated in consolidation.



b. Industry Segments



In accordance with the provisions of Statement of Financial Accounting Standards No. 131, 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. The measure used by the Companys chief
operating decision maker is a business segments gross profit. As of and for the years ended March 31, 2005 and 2004, the Company had two industry segments that accompany corporate: distribution and prescription services. Each of the business
segments total revenues for the years ended March 31, 2005 and 2004 are presented on the face of the statements of operations (see Note 20).



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



c. Cash and Cash Equivalents



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



d. Investments in Equity Securities



At March 31, 2005 and 2004, 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.



e. Accounts Receivable



Accounts receivable, net are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectibility, historical trends
are evaluated and specific customer issues are reviewed to arrive at appropriate allowances (see Note 5).



f. 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).



g. 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, whichever is shorter, for those leases that
substantially transfer ownership. Accelerated methods are used for tax depreciation.



h. 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.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



i. Intangible Assets



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



j. Impairment of Assets



In accordance with the provisions of Statement of Financial Accounting
Standards No. 144, Accounting For The Impairment Or Disposal Of Long-Lived Assets (SFAS 144), the Companys policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets, certain identifiable
intangibles and goodwill when certain events have taken place that indicate that the remaining unamortized balance may not be recoverable. When factors indicate that the intangible assets should be evaluated for possible impairment, the Company uses
an estimate of related undiscounted cash flows. A deficiency in these cash flows relative to the carrying amounts is an indication of the need for a write-down due to impairment. The impairment write-down would be the difference between the carrying
amounts and the fair value of these assets. Losses on impairment are recognized by a charge to earnings. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. There were no
impairment losses recorded as of and for the years ended March 31, 2005 and 2004.



k. 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.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



l. Earnings (Loss) Per Common Share



Earnings (loss) per share are computed using the basic and diluted
calculations on the face of the statement of operations. Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the
period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock equivalents, using the
treasury stock method. Convertible debt and common stock warrants, officer, employee and non-employee stock options and warrants are considered potentially dilutive and are included in the fully diluted share calculation at March 31, 2005 (see Note
18). During the year ended March 31, 2004, common stock equivalents were not considered, as their effect would be anti-dilutive.



m. 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, 2005 and 2004, as well as the reported amounts of revenues and expenses for the years ended March 31, 2005 and 2004. The
actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.



n. Revenue Recognition



In accordance with Staff Accounting Bulletin No. 101, Revenue Recognition In Financial Statements (SAB101), revenues for the distribution
segment result from product sales and are recognized by the Company upon passage of title and risk of loss to customers (when product is delivered to common carrier for shipment to customers). Provisions for discounts and sales incentives to
customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers and returns have thus far been immaterial to the Company. All shipping and handling costs invoiced to customers
are included in revenues. Costs incurred by the Company for shipping and handling are included in cost of goods sold. Revenues for the prescription services segment result from non-product related administrative fees earned principally for pharmacy
network management and are recorded when performance occurs and collectibility is assured.



o. Advertising Costs



In accordance with Statement of Position No. 93-7, Reporting On Advertising Costs (SOP 93-7), the Company charges advertising costs, including those for catalog sales and direct mail, to expense as incurred. Costs for
direct-response advertising through infomercials are expensed as the advertising program first occurs. Advertising expenses are included in selling, general and administrative expenses in the statements of operations and were $254,478 and $49,466
for the years ended March 31, 2005 and 2004, respectively.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



For cooperative advertising allowances received from third party
manufacturers and vendors, the Company applies EITF Issue No. 02-16 Accounting By A Customer (Including A Reseller) For Certain Consideration Received From A Vendor. These allowances are included as a reduction in cost of goods sold and
were $144,450 and zero, respectively, for the years ended March 31, 2005 and 2004, respectively.



p. Research and Development Costs



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



q. 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 during the year ended March 31, 2005, except for the amortization of deferred compensation expense that arose in connection with those options granted on October 1, 2004, to Jugal Taneja, the Chairman of the Board of the Company, for his
guarantee of the Laurus convertible debt (see Note 3). 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 16). No compensation expense has been recognized for stock options granted during the year ended March 31, 2004.



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 (see Note 16).



r. Fair Value of Financial Instruments



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



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



Short-Term Obligations: The
fair value of the Companys fixed-rate short-term obligations is estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At March 31, 2005 and
2004, the fair value of the Companys short-term obligations approximated its carrying value.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



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



Long-Term Obligations: The fair value of the Companys fixed-rate long-term obligations is estimated using discounted cash flow analyses,
based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At March 31, 2005 and 2004, the fair value of the Companys long-term obligations approximated its carrying value.



s. Accounting For Financial Instruments



In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting For Certain Financial Instruments With Characteristics Of Both Liabilities And Equity (SFAS 150). SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now
be accounted for liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain
obligations that can be settled with shares of stock. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15,
2003.



The Company adopted SFAS 150 and its related adoption
provisions as reflected and as applicable to the September 30, 2004 convertible term note transaction as discussed in Note 13, Long-Term Obligations and to the March 29, 2005 revolving note discussed in Note 12, Short-Term Obligations.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



t. Recently Issued Accounting Standards



Below is a listing of the most recent accounting standards and their effect
on the Company.



In December 2004, the Financial Accounting
Standards Board (FASB) issued a revision to SFAS No. 123, SFAS 123R Share-Based Payment. SFAS No. 123R requires all companies to measure compensation costs for all share-based payments, including stock options, at fair value and expense
such payments over the service period. SFAS No. 123R specifies that companies must use an option-pricing model to estimate fair value, although it does not specifically require the use of a particular model. The new standard is effective for interim
or annual periods beginning after June 15, 2005, and, therefore, will be effective for the Company beginning with the third quarter of 2005. Under the provisions of FAS 123R, companies can select from three transition methods for the implementation
of this standard. The modified prospective method would require all new awards that are granted after the effective date to use the provisions of FAS 123R. Under this method, for vested awards that are outstanding on the effective date of FAS 123R,
a company would not have to record any additional compensation expense. For unvested awards that are outstanding on the effective date of FAS 123R and were previously included as part of pro forma net income and earnings per share under the
provisions of FAS 123 would be charged to expense over the remaining vesting period, without any changes in measurement. The second alternative is a variation of the modified prospective method, which would allow companies to restate earlier interim
periods in the year that FAS 123R is adopted using the applicable FAS 123 pro forma amounts. Under the third alternative, the modified retrospective method, companies would apply the modified prospective method and also restate their prior financial
statements to include the amounts that were previously recognized in their pro forma disclosures under the original provisions of FAS 123. Currently, the Company discloses the estimated effect on net income of these share-based payments in the
footnotes to the financial statements and the estimated fair value of the share-based payments has historically been determined using the Black-Scholes option pricing model. The Company has not determined which option-pricing model or transition
method to use upon implementation of this standard and has not yet completed its evaluation of the impact of SFAS No. 123R.



u. Reclassifications



Certain reclassifications have been made to the financial statements as of and for the year ended March 31, 2004 to conform to the presentation as of and
for the year ended March 31, 2005.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 2  ACQUISITIONS



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



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



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



In conjunction with the
acquisition, the Company completed the placement of $6 million in secured convertible notes and warrants to Laurus Master Fund, Ltd. (see Note 13).





The aggregate cost of this acquisition was as follows:



|                           |  |   |          
|-------------------------- |  | - | ---------
|Assumption of liabilities  |  | $ | 1,725,209
|Cash paid to sellers       |  |   | 5,659,420
|Cash for acquisition costs |  |   | 28,255   
|                           |  |   |          
|                           |  | $ | 7,412,884
|                           |  |   |          
|                           |  |   |          



The aggregate purchase
price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 954,472  
|Inventory              |  |   | 2,476,313
|Cash acquired          |  |   | 277,780  
|Property and equipment |  |   | 232,926  
|Other assets           |  |   | 192,347  
|Trademarks             |  |   | 8,062    
|Goodwill               |  |   | 3,270,984
|                       |  |   |          
|                       |  | $ | 7,412,884
|                       |  |   |          



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+DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 2  ACQUISITIONS (Continued)



An analysis was conducted in connection with the acquisition of BOSS, to determine the existence of any intangible assets,
for valuation purposes. It was determined that the only significant intangible assets were trademarks, which were valued at fair value, and goodwill. Goodwill associated with this acquisition will not be deductible for income tax purposes.



The unaudited pro forma effect of the acquisition of BOSS on
the Companys revenues, net income and net income per share, had the acquisition occurred on April 1, 2004 and 2003, respectively, for the years ended March 31, 2005 and 2004 are as follows:



|                         |  |      |            |      |   |           
|------------------------ |  | ---- | ---------- | ---- | - | ----------
|                         |  | 2005 |            | 2004
|Revenues                 |  | $    | 31,205,545 |      | $ | 31,617,733
|                         |  |      |            |      |   |           
|Net income               |  | $    | 596,928    |      | $ | 609,813   
|                         |  |      |            |      |   |           
|Basic income per share   |  | $    | 0.05       |      | $ | 0.05      
|                         |  |      |            |      |   |           
|Diluted income per share |  | $    | 0.03       |      | $ | 0.05      
|                         |  |      |            |      |   |           



Acquisition of Dynamic Marketing,
Inc.



Effective March 31, 2005, the Company acquired
Dynamic Marketing, Inc. (DM), a Rhode Island corporation. DM is engaged in wholesaling and distributing a wide variety of non-prescription dietary supplements, health food and nutritional products, performance drinks, tanning products,
exercise accessories and other related products. It was determined by management and the Board of Directors of the Company that it would be in the best interest of the Company to acquire DM to further certain of its business objectives, including
without limitation, providing additional sales and expanded marketing and distribution channels for the Company.



The above was accomplished pursuant to an Agreement And Plan Of Merger (the Agreement), dated March 2, 2005. At the closing, the Company,
through its wholly-owned subsidiary, Dynamic Marketing I, Inc. (DMI), a Florida corporation, acquired all of the issued and outstanding shares of common stock of DM (the Shares). Effective March 31, 2005, DM merged into DMI,
with DMI being the surviving corporation. The consideration paid by the Company for the Shares was $75,000 in cash, 100,000 restricted shares of the Companys common stock, the right to receive the earnout payments (the Earnout), if
any, payable pursuant to the Agreement and an option (the Option) to purchase up to an aggregate of 250,000 shares of the Companys common stock over a three year period with three years vesting and an exercise price of $1.55 per
share, based upon and subject to the terms of the form of stock option agreement. In addition, concurrent with the closing, the Company paid an aggregate of $1,946,349 of non-assumable DM obligations.



The Earnout provides for potential additional payments of Company common
stock to the seller totaling 150,000 shares based upon the achievement of certain EBITDA (earnings before interest, taxes, depreciation and amortization) goals of DMI, through the year ending March 31, 2008, in relation to the EBITDA for DM for the
year ended December 31, 2004, based on DMs audited financial statements for the year then ended.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 2  ACQUISITIONS (Continued)



The transaction was accounted for as a purchase. The results of operations of DMI have been included in the Companys
results of operations since the date of acquisition, March 31, 2005.



In conjunction with the acquisition, the Company completed the placement of $4 million in secured convertible notes and warrants to Laurus Master Fund, Ltd. (see Note 12), of which $3 million was drawn at the time of the acquisition.



The aggregate cost of this acquisition was as follows:



|                                |  |   |          
|------------------------------- |  | - | ---------
|Assumption of liabilities       |  | $ | 3,678,481
|Cash paid                       |  |   | 75,000   
|Cash paid for acquisition costs |  |   | 28,809   
|Common stock issued             |  |   | 165,000  
|Stock options issued            |  |   | 387,500  
|                                |  |   |          
|                                |  | $ | 4,334,790
|                                |  |   |          



The aggregate purchase
price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 1,117,371
|Inventory              |  |   | 1,025,853
|Cash acquired          |  |   | 66,821   
|Property and equipment |  |   | 459,134  
|Other assets           |  |   | 358,982  
|Goodwill               |  |   | 1,306,629
|                       |  |   |          
|                       |  | $ | 4,334,790
|                       |  |   |          



An analysis was
conducted in connection with the acquisition of DM, to determine the existence of any intangible assets, for valuation purposes. It was determined that the only significant intangible asset was goodwill. Goodwill associated with this acquisition
will not be deductible for income tax purposes.



The unaudited
pro forma effect of the acquisition of DM on the Companys revenues, net income and net income per share, had the acquisition occurred on April 1, 2004 and 2003, respectively, for the years ended March 31, 2005 and 2004 are as follows:



|                                |  |      |            |   |      |   |           
|------------------------------- |  | ---- | ---------- | - | ---- | - | ----------
|                                |  | 2005 |            |   | 2004
|Revenues                        |  | $    | 29,646,194 |   |      | $ | 17,950,000
|                                |  |      |            |   |      |   |           
|Net income (loss)               |  | $    | (119,873   | ) |      | $ | 97,249    
|                                |  |      |            |   |      |   |           
|Basic income (loss) per share   |  | $    |           |   |      | $ |          
|                                |  |      |            |   |      |   |           
|Diluted income (loss) per share |  | $    |           |   |      | $ |          
|                                |  |      |            |   |      |   |           



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 2  ACQUISITIONS (Continued)



Acquisition of Certain Assets of Protech Distributing, Inc.



On February 14, 2005, the Company entered into an agreement whereby it acquired certain assets of Protech Distributing,
Inc., a California corporation. The assets acquired consisted of a customer list and inventory. The Company paid cash in the amount of $153,000 for the customer list and purchased inventory for $108,761. The assets acquired did not constitute a
business within the meaning of SFAS 141.



NOTE 3  RELATED PARTY
TRANSACTIONS



On October 1, 1999, the Company entered into
a triple-net lease agreement with GeoPharma, Inc. (GeoPharma), a publicly traded company and an affiliate of the Company, whereby GeoPharma 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 GeoPharmas corporate headquarters and also serves as
part of GeoPharmas offices, manufacturing, warehousing and shipping operations. On October 25, 2004, the Company sold the building to GeoPharma for $1,925,000 in cash. This resulted in a gain of $654,241 to the Company. The sale price was
determined by an independent third-party appraisal. Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company is also a principal shareholder and Chairman of the Board of GeoPharma. As of March 31, 2005 and 2004, the
Companys investment in GeoPharma, consisting of 347,938 shares of its common stock, is included in marketable equity securities, net (see Note 4).



In October 2003, the Company received payment of $53,936 of dividends receivable from Vertical Health Solutions, Inc. (Vertical), an affiliate
of the Company, in the form of 269,680 shares of common stock of Vertical. The dividend was included in other income and expenses, net, in the statements of operations for the year ended March 31, 2004. In January 2004, Verticals stock began
publicly trading. Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company is also a principal shareholder and a Director of Vertical. On June 14, 2004, the Board of Directors of the Company, approved the declaration of a
pro rata dividend distribution to holders of record of its issued and outstanding common shares as of July 1, 2004, in the form of approximately 1.3 million shares of Vertical, which the Company owned. On July 7, 2004, the Board of Directors of the
Company amended the record date to July 16, 2004 and the distribution date to July 26, 2004. The payment rate was one share of Vertical common stock for each ten shares of the Companys common stock held on July 16, 2004. The Company only
distributed whole shares and any fractional shares to which shareholders would otherwise be entitled were rounded down to the nearest whole share.



On July 26, 2004, the Company distributed approximately 1.3 million shares of Vertical common stock to its shareholders. This resulted in a gain of
$1,359,966 to the Company for the year ended March 31, 2005.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 3  RELATED PARTY TRANSACTIONS (Continued)



For the years ended March 31, 2005 and 2004, the Company charged Vertical
consulting fees totaling $5,213 and $8,725, respectively, for accounting and administrative services. The charge was on an hourly basis for services rendered. As of March 31, 2005 and 2004, approximately $325 and $4,138, respectively, were due from
Vertical and are included in amounts due from affiliates. As of March 31, 2005 and 2004, the Companys investment in Vertical is included in marketable equity securities, net (see Note 4 and Note 10).



The Company owns 30%, or 300,000 shares of common stock of Tribeca Beverage
Company (Tribeca), an affiliate of Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company, and Mandeep K. Taneja, a Director, Chief Executive Officer and President of the Company. The investment was accounted
for under the equity method until March 31, 2003, at which time, as a result of managements analysis, it was determined that the investment was worthless and the Company recognized an impairment loss of $166,939 in the investment. As of March
31, 2005, $301 was due from Tribeca and is included in due from affiliates. As of March 31, 2004, $1,281 was due to Tribeca and is included in obligations to affiliates.



On March 22, 2002, the Company entered into a Sublease and Consent agreement with Innovative Health Products, Inc.
(Innovative), a wholly-owned subsidiary of GeoPharma, 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
served as the Companys corporate headquarters and was 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 contained an option to
continue the sublease subsequent to March 31, 2003, on a month-to-month basis through January 10, 2004, unless terminated earlier. The option to continue was exercised and on January 1, 2004 the Company terminated the sublease. The rental under the
sublease was $33,384 annually.



On January 1, 2004, the Company
entered into a verbal agreement with Innovative, whereby the Company agreed to sublease approximately 5,131 square feet of office and warehouse space for its executive offices and its operations in Largo, Florida. This facility served as the
Companys corporate headquarters and was also used for its offices, warehousing and shipping operations. The facility was sublet until May 1, 2005, at which time the sublease was terminated. The initial rental under the sublease was $41,066
annually.



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



For the years ended March 31, 2005 and 2004, purchases of products from
subsidiaries of GeoPharma were $476,952 and $698,559, respectively, and sales of products to subsidiaries of GeoPharma $18,774 and $2,900, respectively. As of March 31, 2005 and 2004, $66,151 and $242,113, respectively, were due to subsidiaries of
GeoPharma and are included in obligations to affiliates.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



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.



For the year ended March 31, 2004, purchases of
products from T & L, Inc. (T&L), an affiliate of Mandeep K. Taneja, a Director, Chief Executive Officer and President of the Company, were $89,642. For the year ended March 31, 2004, the Company charged T&L fees totaling
$1,454 for prescription services provided. The charge was on an hourly basis for services rendered. For the year ended March 31, 2005, there were no purchases of products from T&L and no prescription services were provided to T&L. As of
March 31, 2005 and 2004, zero and $5,192, respectively, were due from T&L and are included in amounts due from affiliates, and $1,898 and $1,898, respectively, were due to T&L and are included in obligations to affiliates.



For the year ended March 31, 2004, sales of products to Generilean Health
Systems, LLC (GHS), an affiliate of the Company (see Note 10), were $393.



For the year ended March 31, 2004, sales of products to OTB Products, LLC (OTB), an affiliate of the Company, were $11,514. In addition, for the year ended March 31, 2004, the Company charged OTB fees of
$37,890 for prescription services provided and $5,856 for consulting services provided. The charges were based on both hourly and monthly rates. OTB was a 50% partner in Generilean, a Florida limited liability company in which the Company was a 50%
partner.



In February 2004, the Company issued 260,000 shares
of its common stock to William LaGamba, a principal shareholder of the Company, in payment of consulting services provided to the Company during the year ended March 31, 2004, of approximately $79,834, and in full satisfaction of an outstanding
obligation to Mr. LaGamba of approximately $50,166, including interest at the rate of 7% per annum, for working capital advances made to the Company.



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



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



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 3  RELATED PARTY TRANSACTIONS (Continued)



On October 17, 2004, a meeting of the Compensation Committee of the Board of
Directors of the Company was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of the Companys common stock, effective October 1, 2004, to Jugal Taneja, the Companys Chairman and a principal
shareholder of the Company, as compensation for Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair
value of the Companys common stock on September 30, 2004). The options vest approximately equally over a three-year period, commencing October 1, 2005. The value of the options, as determined by reference to the Black-Scholes option pricing
model, has been recorded as a prepaid expense and is being amortized over the life of the loan.



On March 29, 2005, the Company entered into a lease with GAM Realty, LLC, which was effective March 31, 2005, whereby the Company agreed to lease
approximately 15,000 square feet of office and warehouse space for its operations in Cranston, Rhode Island. This facility is used for a portion of the office, warehousing and shipping operations of DMI. The lease is for a term of five years ending
on March 31, 2010. The initial rental under the lease was $120,000 annually.



NOTE 4  MARKETABLE EQUITY SECURITIES, NET



At March 31, 2005 and 2004, investments in marketable equity securities, net are summarized as follows:



Available for sale equity securities:



|                           |  |      |           |      |   |          
|-------------------------- |  | ---- | --------- | ---- | - | ---------
|                           |  | 2005 |           | 2004
|Cost of securities         |  | $    | 50,667    |      | $ | 233,681  
|Plus gross unrealized gain |  |      | 1,111,878 |      |   | 3,572,643
|                           |  |      |           |      |   |          
|Fair value                 |  | $    | 1,162,546 |      | $ | 3,806,324
|                           |  |      |           |      |   |          
|Gross unrealized loss      |  | $    |          |      | $ |         
|                           |  |      |           |      |   |          



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 years ended March 31, 2005 and 2004, the Company realized losses of zero and
$102,434, respectively. The change in marketable equity securities included in earnings for the years ended March 31, 2005 and 2004, was $1,349,966 and $102,434, respectively.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 5  ACCOUNTS RECEIVABLE, NET



At March 31, 2005 and 2004, accounts receivable, net consist of the following:



|                                          |  |      |           |   |      |   |        
|----------------------------------------- |  | ---- | --------- | - | ---- | - | -------
|                                          |  | 2005 |           |   | 2004
|Accounts receivable                       |  | $    | 2,881,250 |   |      | $ | 154,230
|Less allowance for uncollectible accounts |  |      | (160,826  | ) |      |   |       
|                                          |  |      |           |   |      |   |        
|Total                                     |  | $    | 2,720,424 |   |      | $ | 154,230
|                                          |  |      |           |   |      |   |        



For the years ended
March 31, 2005 and 2004, bad debt expense charged to operations for estimated uncollectible accounts receivable was $28,151 and $42, respectively, whereas uncollectible accounts receivable written off during the years amounted to $191,151 and $967,
respectively.



NOTE 6 - INVENTORIES



At March 31, 2005 and 2004, inventories, net consist of the following:



|                              |  |      |           |   |      |   |         |  
|----------------------------- |  | ---- | --------- | - | ---- | - | ------- | -
|                              |  | 2005 |           |   | 2004 |  
|Raw materials                 |  | $    | 126,559   |   |      | $ | 29,457  |  
|Work in process               |  |      | 1,000     |   |      |   | 82,909  |  
|Finished goods                |  |      | 4,890,970 |   |      |   | 96,677  |  
|                              |  |      |           |   |      |   |         |  
|                              |  |      | 5,018,529 |   |      |   | 209,043 |  
|Less reserve for obsolescence |  |      | (117,092  | ) |      |   | (19,850 | )
|                              |  |      |           |   |      |   |         |  
|Total                         |  | $    | 4,901,437 |   |      | $ | 189,193 |  
|                              |  |      |           |   |      |   |         |  



NOTE 7 - PROPERTY, PLANT AND
EQUIPMENT, NET



At March 31, 2005 and 2004,
property, plant and equipment, net consist of the following:



|                                               |  |      |          |   |      |   |           |  
|---------------------------------------------- |  | ---- | -------- | - | ---- | - | --------- | -
|                                               |  | 2005 |          |   | 2004 |  
|Land and building                              |  | $    |         |   |      | $ | 1,535,212 |  
|Machinery and equipment                        |  |      | 417,484  |   |      |   | 23,435    |  
|Furniture, fixtures and equipment              |  |      | 322,313  |   |      |   | 96,005    |  
|Vehicles                                       |  |      | 105,736  |   |      |   |          |  
|Leasehold improvements                         |  |      | 20,200   |   |      |   | 1,278     |  
|                                               |  |      |          |   |      |   |           |  
|                                               |  |      | 865,733  |   |      |   | 1,655,930 |  
|Less accumulated depreciation and amortization |  |      | (106,214 | ) |      |   | (341,531  | )
|                                               |  |      |          |   |      |   |           |  
|Total                                          |  | $    | 759,519  |   |      | $ | 1,314,399 |  
|                                               |  |      |          |   |      |   |           |  



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 7 - PROPERTY, PLANT AND EQUIPMENT, NET (Continued)



Depreciation expense charged to operations was $68,697 and $84,534 for the
years ended March 31, 2005 and 2004, respectively.



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



The Company leases four facilities. One serves as the Companys corporate headquarters and is also used for its
offices, warehousing and shipping operations, two that are used for its offices, warehousing and shipping operations, and one that is used for its warehousing and shipping operations (see Note 3).



NOTE 8  GOODWILL, NET



At March 31, 2005 and 2004, goodwill, net, consists of the following:



|                              |  |      |           |      |   |  
|----------------------------- |  | ---- | --------- | ---- | - | -
|                              |  | 2005 |           | 2004
|Goodwill                      |  | $    | 4,577,613 |      | $ | 
|                              |  |      |           |      |   |  
|                              |  |      | 4,577,613 |      |   | 
|Less accumulated amortization |  |      |          |      |   | 
|                              |  |      |           |      |   |  
|Total                         |  | $    | 4,577,613 |      | $ | 
|                              |  |      |           |      |   |  



As of March 31, 2005
and 2004, goodwill represented an intangible asset attributable to the distribution segment, resulting from the acquisitions of BOSS and DM. Goodwill is analyzed each September 30 for impairment as it has an indeterminant life. Based on the
Companys analysis performed, no impairment losses were required to have been recorded during the fiscal years ended March 31, 2005 and 2004. For income tax purposes, no deductible expense is anticipated for the acquisition Goodwill.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 9  INTANGIBLE ASSETS, NET



At March 31, 2005 and 2004, intangible assets, net, consist of the following:



|                              |  |      |         |   |      |   |        |  
|----------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|                              |  | 2005 |         |   | 2004 |  
|Loan costs                    |  | $    | 527,492 |   |      | $ | 28,613 |  
|Customer list                 |  |      | 153,000 |   |      |   |       |  
|Trademarks                    |  |      | 12,895  |   |      |   | 2,856  |  
|                              |  |      |         |   |      |   |        |  
|                              |  |      | 693,387 |   |      |   | 31,469 |  
|Less accumulated amortization |  |      | (67,545 | ) |      |   | (5,627 | )
|                              |  |      |         |   |      |   |        |  
|Total                         |  | $    | 625,842 |   |      | $ | 25,842 |  
|                              |  |      |         |   |      |   |        |  



Amortization expense
charged to operations was $67,736 and $1,597 for the years ended March 31, 2005 and 2004, respectively.



The Company incurred loan costs in the amount of $305,818 associated with the $6 million of funding received on September 30, 2004, in connection with the
acquisition of BOSS. Trademarks acquired with the acquisition of BOSS amounted to $8,062. In addition, the Company incurred loan costs in the amount of $221,674 associated with the $4 million of funding received on March 29, 2005, in connection with
the acquisition of DM. On February 14, 2005, the Company purchased a customer list for $153,000 from Protech Distributing, Inc. As of March 31, 2005, no factors existed that would suggest impairment of this asset.



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 2), 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.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 10 - INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Continued)



Effective October 1, 2003, the Company sold 250,000 shares of Series A
Preferred Stock of Vertical for $250,000. Also effective October 1, 2003, the Companys remaining 179,846 shares of Series A Preferred Stock of Vertical were converted into 179,846 pre-split shares of common stock of Vertical, and the Company
received payment of $53,936 of dividends receivable from Vertical in the form of 53,936 pre-split shares of common stock of Vertical. The dividend in the amount of $53,936 was included in other income and expenses, net, in the statements of
operations for the year ended March 31, 2004.



In November 2003
Verticals common shares were split on a five-for-one basis such that for each share of Vertical common stock held by the Company, four additional shares were received. Subsequent to the stock split, the Company owned 1,530,820, or
approximately 11.2% of Vertical.



On January 15, 2004, Vertical
began listing its common stock for trading on the OTC Bulletin Board, under the symbol VHSL and the Company began recording its investment in Vertical at its fair market value, and the investment is included in marketable equity
securities. Since the investment in Vertical was not accounted for under the equity method during the years ended March 31, 2005 and 2004, no financial information is provided for such periods.



Investment in Tribeca Beverage Company



The Company owns 30%, or 300,000 shares of common stock of Tribeca, an
affiliate of Jugal K. Taneja, Chairman of the Board of the Company and Mandeep K. Taneja, Chief Executive Officer and President of the Company. The investment was accounted for under the equity method until March 31, 2003, at which time, as a result
of managements analysis, it was determined that the investment was worthless and the Company recognized an impairment loss of $166,939 in the investment. As of March 31, 2005 and 2004, $301 and zero, respectively, were due from Tribeca and are
included in due from to affiliates.



The results of operations
of the Companys equity-basis affiliate, Tribeca, for the twelve months ended March 31, 2005 and 2004, are summarized below:



|                                        |  |      |         |   |      |   |         |  
|--------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                        |  | 2005 |         |   | 2004 |  
|Condensed Income Statement Information: |  |      |         |   |      |   |         |  
|Net sales                               |  | $    |        |   |      | $ | 4,207   |  
|                                        |  |      |         |   |      |   |         |  
|Gross profit                            |  | $    |        |   |      | $ |        |  
|                                        |  |      |         |   |      |   |         |  
|Net loss                                |  | $    | (19,539 | ) |      | $ | (27,467 | )
|                                        |  |      |         |   |      |   |         |  



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 10 - INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Continued)



Investment in Generilean Health Systems, LLC



On April 30, 2003, the Company entered into a joint venture agreement with a
company to form a Florida limited liability company, Generilean Health Systems, LLC (Generilean), to market various products. Under the terms of the agreement, the Company had a 50% ownership and shared profits and losses equally. The
Company was required to contribute half of the costs incurred in the initial marketing of the products. The Company accounted for the investment under the equity method. As of March 31, 2004, the investment amounted to zero and for the period from
April 30, 2003 through March 31, 2004, $6,500 was recorded as the Companys share of Generileans loss. Generilean discontinued its operations as of March 31, 2004.



NOTE 11 - INCOME TAXES



Income tax expense (benefit) for the years ended March 31, 2005 and 2004 are as follows:



|                                      |  |      |        |      |   |          |  
|------------------------------------- |  | ---- | ------ | ---- | - | -------- | -
|                                      |  | 2005 |        | 2004 |  
|Current income tax expense (benefit)  |  | $    |       |      | $ | (24,700  | )
|Deferred income tax expense (benefit) |  |      | 33,575 |      |   | (114,279 | )
|                                      |  |      |        |      |   |          |  
|Income tax expense (benefit)          |  | $    | 33,575 |      | $ | (138,979 | )
|                                      |  |      |        |      |   |          |  



Income taxes for the
years ended March 31, 2005 and 2004 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:



|                                             |  |      |          |   |      |   |         |  
|-------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                             |  | 2005 |          |   | 2004 |  
|Computed tax expense at the statutory rate   |  | $    | (62,270  | ) |      | $ | (91,630 | )
|Increase (decrease) in taxes resulting from: |  |      |          |   |      |   |         |  
|Sales of fixed assets                        |  |      | (49,000  | ) |      |   |        |  
|Receivable and inventory allowances          |  |      | 11,700   |   |      |   | (13,700 | )
|Equity in loss of affiliated companies       |  |      |         |   |      |   | 3,400   |  
|Depreciation                                 |  |      | (19,070  | ) |      |   | 11,230  |  
|Distribution of investment stock             |  |      | (239,360 | ) |      |   |        |  
|Loss on sale of securities                   |  |      |         |   |      |   | 66,000  |  
|Accrued vacation                             |  |      | 12,300   |   |      |   |        |  
|Amortization of debt discount                |  |      | 216,650  |   |      |   |        |  
|Net operating loss utilization               |  |      | 4,510    |   |      |   |        |  
|                                             |  |      |          |   |      |   |         |  
|Current income tax expense (benefit)         |  | $    |         |   |      | $ | (24,700 | )
|                                             |  |      |          |   |      |   |         |  



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 11 - INCOME TAXES (Continued)



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



|                                                |  |      |         |      |   |           |  
|----------------------------------------------- |  | ---- | ------- | ---- | - | --------- | -
|                                                |  | 2005 |         | 2004 |  
|Deferred tax assets:                            |  |      |         |      |   |           |  
|Bad debts                                       |  | $    | 10,600  |      | $ |          |  
|Inventories                                     |  |      | 16,300  |      |   | 7,500     |  
|Net operating loss carryforward                 |  |      | 86,700  |      |   | 110,400   |  
|Accrued vacation                                |  |      | 27,400  |      |   |          |  
|Depreciation                                    |  |      |        |      |   | 38,500    |  
|                                                |  |      |         |      |   |           |  
|Gross deferred tax assets                       |  |      | 141,000 |      |   | 156,400   |  
|Less valuation allowance                        |  |      |        |      |   |          |  
|                                                |  |      |         |      |   |           |  
|                                                |  | $    | 141,000 |      | $ | 156,400   |  
|                                                |  |      |         |      |   |           |  
|Deferred tax liabilities:                       |  |      |         |      |   |           |  
|Deferred revenue                                |  | $    | 19,000  |      | $ |          |  
|Depreciation                                    |  |      | 41,000  |      |   |          |  
|Unrealized gain on marketable equity securities |  |      | 418,000 |      |   | 1,345,700 |  
|                                                |  |      |         |      |   |           |  
|Gross deferred tax liability                    |  | $    | 478,000 |      | $ | 1,345,700 |  
|                                                |  |      |         |      |   |           |  
|Net increase (decrease) in valuation allowance  |  | $    |        |      | $ | (151,850  | )
|                                                |  |      |         |      |   |           |  



As of March 31, 2005
and 2004, the Company had an accrued income tax liability of $5,009 and zero, respectively and a net deferred income tax liability of approximately $337,000 and $1,189,300, respectively, which primarily represents the potential future tax expense
associated with the unrealized gains on marketable equity securities. The Company has net operating losses that expire through March 31, 2025.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 12 - SHORT-TERM OBLIGATIONS



Short-term obligations consist of the following at March 31, 2005 and 2004:



|                                                                                                                                                                                                                                                     |  |      |           |      |   |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ------
|                                                                                                                                                                                                                                                     |  | 2005 |           | 2004
|Revolving note payable collateralized by all assets, due in monthly payments of interest only at prime (5.75% at March 31, 2005) plus 2%
through March 2008, net of debt discount for warrants issued and embedded conversion feature of $1,427,656. |  | $    | 1,572,344 |      | $ |      
|                                                                                                                                                                                                                                                     |  |     
|Note payable, unsecured, due in monthly payments of $4,824, including interest at 11.25%, through June 2005.                                                                                                                                         |  |      | 18,851    |      |   |      
|                                                                                                                                                                                                                                                     |  |     
|Note payable, unsecured, due in monthly payments of $4,418, including interest at 9.65%, through June 2004.                                                                                                                                          |  |      |          |      |   | 13,043
|                                                                                                                                                                                                                                                     |  |     
|Capitalized lease obligation for certain equipment, due in monthly payments of $546, including interest at 10%, through April
2005.                                                                                                                  |  |      | 546       |      |   |      
|                                                                                                                                                                                                                                                     |  |      |           |      |   |       
|Total                                                                                                                                                                                                                                                |  | $    | 1,591,741 |      | $ | 13,043
|                                                                                                                                                                                                                                                     |  |      |           |      |   |       



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



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



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



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



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 12 - SHORT-TERM OBLIGATIONS (Continued)



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



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



Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the notes will be reduced accordingly. The conversion price of the secured convertible notes may be adjusted in certain circumstances
such as if the Company pays a stock dividend, subdivides or combines outstanding shares of common stock into a greater or lesser number of shares, or takes such other actions as would otherwise result in dilution.



115% of the full principal amount of the convertible notes is due upon
default under the terms of convertible notes. Laurus has contractually agreed to restrict its ability to convert if the convertible notes would exceed the difference between the number of shares of common stock beneficially owned by the holder or
issuable upon exercise of the warrant and the option held by such holder and 4.99% of the outstanding shares of common stock of the Company.



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



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 12 - SHORT-TERM OBLIGATIONS (Continued)



The Company paid a fee at closing to Laurus Capital Management LLC, the manager of the Laurus Master Funds, Ltd., equal to
3.9% of the total maximum funds to be borrowed under the Companys agreements with Laurus. The funding provided for detachable warrants and an embedded conversion feature. Pursuant to EITF Issue No. 00-27, the Company recorded a discount
utilizing the Black-Scholes option pricing model for the warrants and the conversion feature of $1,431,633, which is being amortized as interest expense over the life of the loan. A volatility factor of 95.01% and risk free interest rate of 4.44%
was used.



The proceeds of the funding were used for the
acquisition of Dynamic Marketing, Inc., costs associated with the acquisition and for working capital. The Company had borrowed $3 million on this note as of March 31, 2005. The borrowing is in excess of the advance rates provided for in the note.
The lender has issued a waiver to this covenant whereby the Company is permitted to bring the ratios into compliance within one year from the date of the note.



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 13 - LONG-TERM OBLIGATIONS



Long-term obligations consist of the following at March 31, 2005 and 2004:



|                                                                                                                                                                                                                                                                                                   |  |      |           |      |   |        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                   |  | 2005 |           | 2004
|Convertible note payable collateralized by all assets, due in monthly principal payments of $187,500, plus interest at prime (5.75% at March
31, 2005) plus 2%, through September 2007, net of debt discount for warrants issued of $2,898,451. This note is guaranteed by the Companys Chairman. |  | $    | 2,164,049 |      | $ |       
|                                                                                                                                                                                                                                                                                                   |  |     
|Note payable collateralized by certain equipment, due in monthly payments of approximately $1,662, including interest at 10%, through December
2007.                                                                                                                                               |  |      | 47,785    |      |   |       
|                                                                                                                                                                                                                                                                                                   |  |     
|Note payable collateralized by a vehicle, due in monthly payments of $412, including interest at 4.02%, through January 2009.                                                                                                                                                                      |  |      | 17,894    |      |   |       
|                                                                                                                                                                                                                                                                                                   |  |     
|Note payable collateralized by a vehicle, due in monthly payments of $666, including interest at 1.9%, through February 2010.                                                                                                                                                                      |  |      | 37,431    |      |   |       
|                                                                                                                                                                                                                                                                                                   |  |     
|Note payable collateralized by real property, due in monthly payments of approximately $6,483, including interest at prime (5.00% at March 31,
2004) plus 2.25% through October 2024. This note was guaranteed by the Companys Chairman.                                                          |  |      |          |      |   | 831,891
|                                                                                                                                                                                                                                                                                                   |  |     
|Other                                                                                                                                                                                                                                                                                              |  |      | 8,623     |      |   | 8,623  
|                                                                                                                                                                                                                                                                                                   |  |      |           |      |   |        
|                                                                                                                                                                                                                                                                                                   |  |      | 2,275,782 |      |   | 840,514
|                                                                                                                                                                                                                                                                                                   |  |     
|Less current maturities                                                                                                                                                                                                                                                                            |  |      | 876,510   |      |   | 27,023 
|                                                                                                                                                                                                                                                                                                   |  |      |           |      |   |        
|Total                                                                                                                                                                                                                                                                                              |  | $    | 1,399,272 |      | $ | 813,491
|                                                                                                                                                                                                                                                                                                   |  |      |           |      |   |        



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 13 - LONG-TERM OBLIGATIONS (Continued)



At March 31, 2005, aggregate maturities of long-term obligations are as follows:



|                      |  |   |            |  
|--------------------- |  | - | ---------- | -
|Year Ending March 31, |  |   |           
|2006                  |  | $ | 2,286,518  |  
|2007                  |  |   | 2,279,523  |  
|2008                  |  |   | 589,160    |  
|2009                  |  |   | 11,817     |  
|2010                  |  |   | 7,215      |  
|Thereafter            |  |   |           |  
|                      |  |   |            |  
|                      |  |   | 5,174,233  |  
|Less debt discount    |  |   | (2,898,451 | )
|                      |  |   |            |  
|Total                 |  | $ | 2,275,782  |  
|                      |  |   |            |  



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



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



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



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



The convertible note has a term of three years. The fixed conversion rate is equal to $.90 (103% of the average closing
price for the ten days prior to the execution of the securities purchase agreement).



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 13 - LONG-TERM OBLIGATIONS (Continued)



Beginning on December 1, 2004, and each month thereafter, the Company shall pay $187,500 of the outstanding principal,
together with accrued interest on the convertible note, in cash or registered stock. The monthly payments shall be payable in registered stock if: (i) the Company has an effective registration statement under which the stock can be sold; (ii) the
average closing price of the Companys common stock as reported by Bloomberg, L.P. on the Companys principal trading market for the five trading days immediately preceding such repayment date shall be greater than or equal to 110% of the
fixed conversion rate; and (iii) the amount of such conversion does not exceed 25% of the aggregate dollar trading volume of our common stock for the twenty 22 day trading period immediately preceding the applicable repayment date. If the conversion
criteria are not met, the investor shall convert only such part of the monthly payment that meets the conversion criteria. Any part of the monthly payment due on a repayment date that the investor has not been able to convert into shares of common
stock due to failure to meet the conversion criteria, shall be paid by the Company in cash at the rate of 102% of the principal portion of the monthly payment otherwise due on such repayment date. As of March 31, 2005, the outstanding principal
balance on the convertible note was $5,062,500. As of March 31, 2005, 989,758 shares of Company common stock have been issued to Laurus in payment of $750,000 of principal and $140,782 of interest on the note.



Laurus will not be entitled to be issued shares of common stock in repayment
of any portion of the convertible note or upon exercise of the warrants if and to the extent such issuance would result in Laurus and its affiliates beneficially owning more than 4.99% of the Companys issued and outstanding common stock upon
such issuance, unless Laurus shall have provided at least 75 days prior written notice to the Company of its revocation of such restriction.



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



The
warrants are exercisable until five years from the date of the Securities Purchase Agreement at a purchase price equal to $1.04 per share (115% of the average closing price of the Companys common stock for the 10 trading days immediately prior
to the execution date). The warrants are exercisable on a cashless basis. In the event that the warrants are exercised on a cashless basis, then the Company will not receive any proceeds. In addition, the exercise price of the warrants will be
adjusted in the event the Company issues common stock at a price below market, with the exception of any securities issued as of the date of this warrant or issued in connection with the convertible notes issued pursuant to the Securities Purchase
Agreement.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 13 - LONG-TERM OBLIGATIONS (Continued)



Due to the convertible nature of the note, the Company recorded a charge of $2,066,667 due to the beneficial conversion
feature, in accordance with EITF Issue No. 98-5, Accounting For Convertible Securities With Beneficial Conversion Features Or Contingently Adjustable Conversion Ratios, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5
To Certain Convertible Instruments. The value of the beneficial conversion feature was measured using the intrinsic value and is being amortized to interest expense over the life of the note. The Company allocated $1,413,358 of the aggregate
proceeds from the note to the warrants as original issuance discount, which represented the relative fair value of the warrants at the date of issuance, and is amortizing the discount to interest expense over the life of the note. The value of the
conversion feature and the original issue discount amortized to interest expense for the year ended March 31, 2005 was $581,574. The discount was determined utilizing the Black-Scholes option pricing model with a volatility factor of 222.99% and a
risk free interest rate of 3.38%.



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



NOTE 14  COMMITMENTS AND CONTINGENCIES



Operating Leases



The Company has operating leases for facilities and certain machinery and equipment that expire at various dates through
2014. 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.



Future minimum
lease payments, by year and in aggregate under non-cancelable operating leases, consist of the following at March 31, 2005:



|                      |  |   |          
|--------------------- |  | - | ---------
|Year Ending March 31, |  |  
|2006                  |  | $ | 431,039  
|2007                  |  |   | 350,108  
|2008                  |  |   | 359,042  
|2009                  |  |   | 349,809  
|2010                  |  |   | 343,453  
|Thereafter            |  |   | 428,475  
|                      |  |   |          
|                      |  | $ | 2,261,926
|                      |  |   |          



Total rent expense for
the years ended March 31, 2005 and 2004 was $105,872 and $52,736, respectively.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 14  COMMITMENTS AND CONTINGENCIES (Continued)



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 contained 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. The agreement has continued under the same terms and amounts, however,
there is no written agreement at this time.



Employment Agreements



On September 30, 2004, the Company, through its
wholly-owned subsidiary, BOSS, entered into an Employment Agreement with Joseph Mies to serve as BOSSs Chief Operating Officer, effective October 1, 2004. The Employment Agreement provides for an initial three-year term ending September 30,
2007, with an annual base compensation of $100,000. The agreement contains a provision for bonus compensation. The agreement also 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.



On March 30, 2005, the Company, through its wholly-owned subsidiary, DMI, entered into an Employment Agreement with Gregg Madsen to serve as DMIs
Chief Operating Officer, effective March 31, 2005. The Employment Agreement provides for an initial three-year term ending March 30, 2008, with an annual base compensation of $125,000. The agreement contains a provision for bonus compensation. The
agreement also 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. In
addition, On March 30,2005, Mr. Madsen was granted options to purchase 300,000 shares of the Companys common stock. The options vest over a three-year period beginning March 31, 2005.



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, 2005 and 2004 should have a material adverse impact on its financial condition or results of operations.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 15 - STOCK WARRANTS



In June 2004, pursuant to a Financial Consulting Agreement, the Company issued 300,000 warrants to purchase common stock,
for consulting services. In September 2004, pursuant to a Securities Purchase Agreement, the Company issued 1,375,000 warrants to purchase common stock, in connection with the Companys sale of a secured convertible note (see Note 13). On
October 1, 2004, pursuant to a Financial Consulting Agreement, the Company issued 200,000 4-year life warrants to purchase common stock, for consulting services. On March 29, 2005, pursuant to a Security Agreement, the Company issued 750,000
warrants to purchase common stock, in connection with the Companys sale of a secured convertible note (see Note 12).



At March 31, 2005 and 2004, the Company had outstanding warrants to purchase 2,625,000 and zero shares of the Companys common stock, respectively.
The exercise prices range from $1.50 to $2.50 per share on the 300,000 warrants and they become exercisable in June 2005 and expire at various dates through June 2008. For the 1,375,000 warrants, the exercise price is $1.04 per share, subject to
certain adjustments pursuant to the Securities Purchase Agreement, and they expire in September 2009 (see Note 13). For the 200,000 warrants, the exercise prices range from $1.25 to $1.50 per share, with 25% vesting on October 1, 2004 and then
subsequent vesting is at 25% per quarter, expiring on October 1, 2008. For the 750,000 warrants, the exercise price is $1.37 per share, subject to certain adjustments pursuant to the Security Agreement, and they expire in March 2012 (see Note 12).



For the warrants issued in connection with the financial
consulting agreements, the balance of deferred consulting fees as of March 31, 2005 was $191,250. The initial valuation of these warrants was $442,500. For the year ended March 31, 2005, the Company included consulting expense in the amount of
$273,750 in selling, general and administrative expenses in the statements of operations, for these warrants.



NOTE 16 - STOCK OPTIONS



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



On January 23, 2004, the Board of Directors
of the Company approved the issuance of options to members of the Companys Board of Directors, to purchase 205,000 shares of Company common stock, of which 75,000 shares are at an exercise price of $1.10 per share and of which 130,000 shares
are at an exercise price of $1.00 per share. In addition, in January 2004, the Board of Directors of the Company approved the retroactive issuance of options to its members, for the purchase of 700,000 (125,000 pre-split) shares of Company common
stock, of which 300,000 (75,000 pre-split) shares are at an exercise price of $0.17875 ($0.715 pre-split) per share and of which 400,000 (100,000 pre-split) shares are at an exercise price of $0.1625 ($0.65 pre-split) per share, with a grant date of
December 20, 2002.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 16 - STOCK OPTIONS (Continued)



The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model, with the
following weighted average assumptions:



|                        |  |         |   |  |         |  
|----------------------- |  | ------- | - |  | ------- | -
|                        |  | 2005    |   |  | 2004    |  
|Risk-free interest rate |  | 4.50    | % |  | 3.06    | %
|Dividend yield          |  |        |   |  |        |  
|Volatility              |  | 144.08  | % |  | 250     | %
|Average expected term   |  | 5 years |   |  | 5 years |  



The following
summarizes information about the aggregate stock option activity for the years ended March 31, 2005 and 2004:



|                                                                                              |  |                  |  |                               |      |                 |         |                              |   |     
|--------------------------------------------------------------------------------------------- |  | ---------------- |  | ----------------------------- | ---- | --------------- | ------- | ---------------------------- | - | ----
|                                                                                              |  | 2005             |  | 2004                         
|                                                                                              |  | Number of Shares |  | WeightedAverage ExercisePrice |      | Numberof Shares |         | WeightedAverageExercisePrice
|Outstanding, beginning of year                                                                |  | 905,000          |  | $                             | .15  |                 | 700,000 |                              | $ | .17 
|Granted                                                                                       |  | 1,050,000        |  |                               | 1.01 |                 | 205,000 |                              |   | 1.04
|Exercised                                                                                     |  |                 |  |                               |     |                 |        |                              |   |    
|Expired and forfeited                                                                         |  |                 |  |                               |     |                 |        |                              |   |    
|                                                                                              |  |                  |  |                               |      |                 |         |                              |   |     
|Outstanding, end of year                                                                      |  | 1,955,000        |  | $                             | 1.16 |                 | 905,000 |                              | $ | .37 
|                                                                                              |  |                  |  |                               |      |                 |         |                              |   |     
|Options vested, end of year                                                                   |  | 534,982          |  | $                             | .66. |                 | 233,324 |                              | $ | .17 
|                                                                                              |  |                  |  |                               |      |                 |         |                              |   |     
|Weighted average fair value of options granted during the years ended March 31, 2005 and 2004 |  |                  |  | $                             | 1.25 |                 |         |                              | $ | .16 
|                                                                                              |  |                  |  |                               |      |                 |         |                              |   |     



As of March 31, 2005,
there were 1,955,000 options outstanding. As of March 31, 2004, there were 905,000 options outstanding. Options outstanding and exercisable under the plan as of March 31, 2005 were:



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 16 - STOCK OPTIONS (Continued)



|                        |  |                   |  |                               |       |                                              |      |                   |           |                              |   |      
|----------------------- |  | ----------------- |  | ----------------------------- | ----- | -------------------------------------------- | ---- | ----------------- | --------- | ---------------------------- | - | -----
|                        |  | Outstanding       |  | Exercisable                  
|Range of Exercise Price |  | Number of Options |  | WeightedAverageExercisePrices |       | WeightedAverageRemainingContractedLife (yrs) |      | Number of Options |           | WeightedAverageExercisePrice
|$ 0.16250 - $1.17875    |  | 700,000           |  | $                             | 0.013 |                                              | 2.01 |                   | 700,000   |                              | $ | 0.013
|$ 1.00000 - $1.55000    |  | 1,255,000         |  | $                             | 1.155 |                                              | 4.80 |                   | 1,255,000 |                              | $ | 1.155



On October 17, 2004, a
meeting of the Compensation Committee of the Board of Directors of the Company was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of the Companys common stock, effective October 1, 2004, to Jugal
Taneja, the Companys Chairman and a principal shareholder of the Company, as compensation for Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise
price of the options is $1.14 (110% of the fair value of the Companys common stock on September 30, 2004). The options vest approximately equally over a three year period, commencing October 1, 2005. For the options granted, the balance of
deferred consulting fees as of March 31, 2005 2004 was $415,636. The initial valuation of these options was $498,763. For the year ended March 31, 2005, the Company included compensation expense in the amount of $83,127 in selling, general and
administrative expenses in the statements of operations, for these options.



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:



|                                    |  |      |         |   |      |   |          |  
|----------------------------------- |  | ---- | ------- | - | ---- | - | -------- | -
|                                    |  | 2005 |         |   | 2004 |  
|Net income (loss):                  |  |      |         |   |      |   |          |  
|As reported                         |  | $    | 135,956 |   |      | $ | (108,671 | )
|                                    |  |      |         |   |      |   |          |  
|Pro forma                           |  | $    | (76,495 | ) |      | $ | (177,082 | )
|                                    |  |      |         |   |      |   |          |  
|Net income (loss) per common share: |  |      |         |   |      |   |          |  
|Basic income (loss) per share:      |  |      |         |   |      |   |          |  
|As reported                         |  | $    | 0.01    |   |      | $ | (0.01    | )
|                                    |  |      |         |   |      |   |          |  
|Pro forma                           |  | $    | (0.01   | ) |      | $ | (0.01    | )
|                                    |  |      |         |   |      |   |          |  
|Diluted income (loss) per share:    |  |      |         |   |      |   |          |  
|As reported                         |  | $    | 0.01    |   |      | $ | (0.01    | )
|                                    |  |      |         |   |      |   |          |  
|Pro forma                           |  | $    | (0.01   | ) |      | $ | (0.01    | )
|                                    |  |      |         |   |      |   |          |  



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 17 - SHAREHOLDERS EQUITY



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



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



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



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



In January 2004, the Company issued 83,334 shares of its common stock to a
consultant in full satisfaction of the Companys outstanding obligation in the amount of $50,351, for legal services provided to the Company.



In February 2004, the Company issued 260,000 shares of its common stock to William LaGamba, a principal shareholder of the Company, in payment of
consulting services provided to the Company during the year ended March 31, 2004, of approximately $79,834, and in full satisfaction of an outstanding obligation to Mr. LaGamba of approximately $50,166, including interest at the rate of 7% per
annum, for working capital advances made to the Company.



In
February 2004, the Company issued 100,000 shares of its common stock to a consultant in full satisfaction of the Companys outstanding obligation in the amount of $50,000, for consulting services provided to the Company.



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 17 - SHAREHOLDERS EQUITY (Continued)



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



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



On October 29, 2004, the Company filed a
Registration Statement on Form S-2 for the registration of up to 8,701,585 shares of the Companys common stock, including up to 7,326,585 shares of common stock underlying the Secured Convertible Note in the principal amount of $6,000,000 and
up to 1,375,000 shares issuable upon the exercise of common stock purchase warrants. On November 15, 2004, the Securities and Exchange Commission declared the Registration Statement to be effective.



On April 22, 2005, the Company filed a Registration Statement on Form S-2 for
the registration of up to 2,944,690 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the Secured Convertible Notes in the principal amount of $4,000,000 and up to 750,000 shares issuable upon the
exercise of common stock purchase warrants. Such Registration Statement is not effective.



NOTE 18  EARNINGS (LOSS) PER SHARE



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



|                                                   |  |      |            |      |   |            |  
|-------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                   |  | 2005 |            | 2004 |  
|Numerator:                                         |  |      |            |      |   |            |  
|Net income (loss)                                  |  | $    | 135,956    |      | $ | (108,671   | )
|Less preferred stock dividends                     |  |      |           |      |   |           |  
|                                                   |  |      |            |      |   |            |  
|Net income (loss) available to common shareholders |  | $    | 135,956    |      | $ | (108,761   | )
|                                                   |  |      |            |      |   |            |  
|Denominator:                                       |  |      |            |      |   |            |  
|Weighted average shares outstanding                |  | $    | 12,991,512 |      | $ | 12,387,611 |  
|Effect of dilutive securities:                     |  |      |            |      |   |            |  
|Stock options                                      |  |      | 1,155,822  |      |   |           |  
|Convertible debt                                   |  |      | 2,980,986  |      |   |           |  
|Stock warrants                                     |  |      | 1,042,671  |      |   |           |  
|                                                   |  |      |            |      |   |            |  
|Weighted average fully diluted shares outstanding  |  | $    | 18,170,991 |      | $ | 12,387,611 |  
|                                                   |  |      |            |      |   |            |  



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 18  EARNINGS (LOSS) PER SHARE (Continued)



|                                       |  |   |      |  |   |       |  
|-------------------------------------- |  | - | ---- |  | - | ----- | -
|Net earnings (loss) per common share  |  |   |      |  |   |       |  
|Basic                                  |  | $ | 0.01 |  | $ | (0.01 | )
|                                       |  |   |      |  |   |       |  
|Diluted                                |  | $ | 0.01 |  | $ | (0.01 | )
|                                       |  |   |      |  |   |       |  



For the year ended
March 31, 2004, there were 738,648 shares that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share, because to do so would have been anti-dilutive.



NOTE 19 - 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, 2005, DPS Nutrition Inc. accounted for 13%, in relation to total consolidated revenues. For the year ended March 31, 2004, three customers, Price Master
Corp., Brand New Energy, Inc. and PHE, Inc. accounted for 12.5%, 11.2% and 11%, respectively, in relation to total consolidated revenues. The Company has no concentration of customers within specific geographic areas outside of the United States
that would give rise to significant geographic credit risk.



Financial instruments that potentially subject the Company to concentrations of credit risk include cash deposits with commercial banks and brokerage firms. At March 31, 2005 and 2004, the Company maintained cash balances in excess of the
Federal Deposit Insurance Companys $100,000 insurance limit.



NOTE 20
- FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS



For the
years ended March 31, 2005 and 2004, the Company had two industry segments: Distribution and Prescription Services. The channels of distribution include health food, gyms, drug, convenience and mass-market stores, and direct marketing through
distributors, infomercials, catalog sales, direct mail and through use of the internet throughout the United States. The Company has distribution centers located in Largo, Florida; Scranton, Pennsylvania; Cranston, Rhode Island; and Henderson,
Nevada.



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



NOTE 20 - 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, 2005 and 2004.



|                         |  |      |            |   |      |   |           |  
|------------------------ |  | ---- | ---------- | - | ---- | - | --------- | -
|                         |  | 2005 |            |   | 2004 |  
|Revenues:                |  |      |            |   |      |   |           |  
|Distribution             |  | $    | 16,008,631 |   |      | $ | 1,677,405 |  
|Prescription Services    |  |      | 70,897     |   |      |   | 215,134   |  
|                         |  |      |            |   |      |   |           |  
|                         |  | $    | 16,079,528 |   |      | $ | 1,892,539 |  
|                         |  |      |            |   |      |   |           |  
|Intersegment sales       |  | $    |           |   |      | $ |          |  
|                         |  |      |            |   |      |   |           |  
|Gross profit:            |  |      |            |   |      |   |           |  
|Distribution             |  | $    | 2,228,634  |   |      | $ | 908,551   |  
|Prescription Services    |  |      | 8,082      |   |      |   | 41,435    |  
|                         |  |      |            |   |      |   |           |  
|                         |  | $    | 2,236,716  |   |      | $ | 949,986   |  
|                         |  |      |            |   |      |   |           |  
|Operating income (loss): |  |      |            |   |      |   |           |  
|Distribution             |  | $    | 150,686    |   |      | $ | 229,304   |  
|Prescription Services    |  |      | (49,851    | ) |      |   | (23,222   | )
|Corporate                |  |      | (1,165,465 | ) |      |   | (606,136  | )
|                         |  |      |            |   |      |   |           |  
|                         |  | $    | (1,064,630 | ) |      | $ | (400,054  | )
|                         |  |      |            |   |      |   |           |  
|Assets                   |  |      |            |   |      |   |           |  
|Distribution             |  | $    | 11,475,910 |   |      | $ | 597,537   |  
|Prescription Services    |  |      |           |   |      |   | 2,142,421 |  
|Corporate                |  |      | 6,467,057  |   |      |   | 3,125,189 |  
|                         |  |      |            |   |      |   |           |  
|                         |  | $    | 17,942,967 |   |      | $ | 5,865,147 |  
|                         |  |      |            |   |      |   |           |  



F - 42