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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB



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



For the fiscal year ended March 31, 2004



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



For the transition period from
 to



Commission file number 0-23031



DYNAMIC HEALTH PRODUCTS, INC.

(Name
of small business issuer in its charter)



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



|                                                 |  |           
|------------------------------------------------ |  | ----------
|6911 Bryan Dairy Road, Suite 210, Largo, Florida |  | 33777     
|(Address of principal executive offices)         |  | (Zip Code)



Issuers
telephone number (727) 329-1845



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



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 $1,892,539.



The aggregate market value of the voting common stock held by non-affiliates of the Registrant was $2,906,439, based upon
the last reported trade of the stock on June 23, 2004, which was 4,000 shares at $1.15 per share.



The number of shares outstanding of the Issuers common stock at $.01 par value as of June 23, 2004 was 12,774,834.



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PART I



Item 1. BUSINESS.



The Companys executive offices are located at 6911 Bryan Dairy Road, Suite 210, Largo, Florida 33777 and its telephone number is (727) 329-1845.
References in this Annual Report on Form 10-KSB refer to Dynamic Health Products, Inc. and, as applicable, its subsidiaries as the Company or Dynamic, unless the context otherwise requires.



General



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



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



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



The Company, through its wholly-owned
subsidiaries, markets and distributes high-quality dietary supplements, over-the-counter drugs, and health and beauty care products, and provides prescription services. The core branded products, which the Company markets and distributes focus on
dietary supplements, and health and beauty care products that are in high demand, and that have potentially strong margins. These are comprised of approximately 40 products packaged into approximately 70 SKUs. The Company, through data base
administration markets and serves 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
provides these prescription services for other unrelated third parties. The prescription services portion of our business is 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 changed to Go2Pharmacy, Inc., and in September 2002, its name was changed to Innovative Companies, Inc. (Innovative). Innovative creates, manufacturers, and packages a wide
variety of proprietary and non-proprietary dietary supplements, and health and beauty care products, and



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manufactures generic and over-the-counter drugs. On November 7, 2000, the United States Securities and Exchange Commission (SEC) declared
Innovatives registration of 1,000,000 shares of its common stock to be effective. Prior to the offering, the Company owned all of the issued and outstanding common stock of Innovative. In March 2001, the Company distributed 2,324,984 shares of
Innovative common stock to its shareholders. As of March 31, 2004 and 2003, the Company held 347,938 and 316,307 shares, respectively, of common stock of Innovative.



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



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



In February 2000, through 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.



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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.



Marketing and Sales



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



The Companys prescription
services are 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s branded products and
the pharmaceutical medications, and over-the-counter drugs that the pharmacies fulfill, 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 product quality, competitive pricing, its ability to develop new product lines and customer service. The Companys ability to compete favorably with its competitors with respect to its branded products will
depend primarily upon its development of brand recognition across multiple distribution channels, its ability to quickly develop new products with market potential, to successfully advertise, market and promote its products, as well as its product
quality and the development of a strong and effective distribution network.



Backlog



The Companys revenues are
processed through its system from sales orders generated and issued by the Companys customers. The Company 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, 2004, the Company had no backlog sales orders.



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Product Development



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



Research and Development



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



Trademarks



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



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



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



Principal Suppliers and Sources of Supply



The Company obtains all of its products from third party suppliers. Many
of the raw materials used in the Companys products are harvested internationally. The Company does not have contracts with any suppliers committing such suppliers to provide materials required for the production of its products. There can be
no assurance that suppliers will provide products needed by the Company in the quantities requested or at a price the Company is willing to pay. Because the Company does not control the actual production of these products, it is also subject to
delays caused by interruption in production of materials based on conditions not within its control. Such conditions include job actions or strikes by employees of suppliers, weather, crop



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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 utilizes licensed pharmacies for its fulfillment of
prescription medications and those pharmacies are solely responsible for ensuring that the products and services which they provide meet 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 the
Environmental Protection Agency (the EPA) and Occupational Safety and Health Act (OSHA). The manufacture, labeling and advertising of the Companys products are also regulated under the Federal Occupational Safety and
Health Act and by various state and local agencies as well as each foreign country to which the Company distributes its products.



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



Traditionally, the term dietary supplements referred to products made of one or more essential nutrients, such as vitamins, minerals and protein. But DSHEA broadened the definition to include, with some
exceptions, any product intended for ingestion as a supplement to the diet.



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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.



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



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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
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.



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



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



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



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



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



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



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



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



Employees



As of June 28, 2004, the Company had eight full-time employees. Of such employees, two were engaged in marketing and sales, one was devoted to customer
service, one was devoted to warehousing and distribution, one was devoted to internet and database administration, and three were responsible for management and administration. None of the Companys employees are covered by a collective
bargaining agreement. The Company considers its relations with its employees to be good.



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



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



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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, 2004, the Companys quarterly reports
on Form 10-QSB, the Companys current reports on Form 8-K, periodic press releases, as well as other public documents and statements, may contain forward-looking statements within the meaning of the Act.



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



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



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



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



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Companys products are vitamins, minerals, herbs and other substances for which there is a long history of human consumption, some of its products
contain ingredients for which no such history exists. In addition, although management believes all of the Companys products are safe when taken as directed, there is little long-term experience with human consumption of certain of these
product ingredients in concentrated form. Accordingly, the Company cannot assure that its products, even when used as directed, will have the effects intended or will not have harmful side effects. Any such unintended effects may result in adverse
publicity or product liability claims that could adversely affect the Company.



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



Competition.The dietary supplement and prescription services 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 and marketing of dietary supplements, prescription medications and over-the-counter drugs. Competition from such
companies could have a material adverse effect on the Company. The Company also faces competition in both the health food store and mass market distribution channels from private label dietary supplements offered by health and natural food store
chains, drugstore chains, mass merchandisers, supermarket chains and pharmacies. See Business  Competition.



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



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



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.



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Concentration of Customers. For the year ended March 31, 2004, 35% of consolidated revenues were
received from three customers, representing a concentration of credit risk. If the Companys major customers substantially reduced their volume of purchases from the Company, the Companys business, financial condition, results of
operations and cash flows could be materially adversely affected.



General
Risks



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



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



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



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



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



Anti-Takeover Provisions.Certain provisions of the Companys Articles of Incorporation (the Articles) and Bylaws (the
Bylaws), certain sections of the Florida Business Corporation Act, and the ability of the Board of Directors to issue shares of preferred 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 64.6% of the outstanding shares of the Companys



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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 plans,
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. PROPERTIES.



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



Effective March 22, 2002, the Company entered into a Sublease and Consent
agreement with Innovative Health Products, Inc., a wholly-owned subsidiary of Innovative, whereby the Company agreed to sublease approximately 5,200 square feet of office and warehouse space for its executive offices and its operations in Largo,
Florida. This facility 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 October 1, 1999, the Company entered into a triple-net lease agreement with Innovative, whereby Innovative agreed to lease the Companys land and 33,222 square foot building in Largo, Florida for term of ten years. The initial
rental under the lease was approximately $192,000 annually. The lease provides for an annual cost-of-living increase. This facility serves as Innovatives corporate headquarters and also serves as part of Innovatives offices,
manufacturing, warehousing and shipping operations.



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



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



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As of March 31, 2004, the Company had real property, equipment, furniture, and leasehold improvements,
net of accumulated depreciation, in the approximate amount of $1,314,399, of which $1,268,485 was attributable to the real property.



Item 3. LEGAL PROCEEDINGS.



The Company was involved in litigation in New Jersey over a claim for commissions. In June 2004, upon motion by the Company, the case was dismissed,
without prejudice.



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



In February 2004, the Company was served with a complaint involving litigation in Maryland from Beyond Systems, Inc. over claims regarding commercial
electronic mail matters. Plaintiff seeks monetary damages in excess of $100,000, exclusive of interest and costs. Management believes that such claim is without merit and is defending it vigorously.



In May 2004, the Company was served with a complaint involving litigation in
Ohio from 40 Js, LLC over claims regarding patent infringement. Plaintiff seeks unspecified monetary damages as well as non-monetary relief. Management believes that such claim is without merit and is defending it vigorously.



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



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



The Annual Meeting of Stockholders of
the Company was held on January 23, 2004. 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. and Morton L. Stone 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        |  | 10,353,515 |  | -0-     |  | 11,792  
|Mandeep K. Taneja      |  | 10,356,179 |  | -0-     |  | 9,128   
|Cani I. Shuman         |  | 10,352,447 |  | -0-     |  | 12,860  
|Kotha S. Sekharam      |  | 10,356,179 |  | -0-     |  | 9,128   
|Rakesh K. Sharma, M.D. |  | 10,354,047 |  | -0-     |  | 11,260  
|Morton L. Stone        |  | 10,351,915 |  | -0-     |  | 13,392  



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PART II



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



Market for Securities



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



|                   |  |      |      |     |   |     
|------------------ |  | ---- | ---- | --- | - | ----
|                   |  | High |      | Low
|September 30, 2002 |  | $    | 2.00 |     | $ | 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



As of June 28, 2004,
there were approximately 390 stockholders of record of the Companys common stock.



Dividend Policy



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



Recent Sales of Unregistered Securities



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 payment of 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



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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 payment of $50,000 for consulting services provided to the
Company.



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.



Overview



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



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



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



Results of Operations



Fiscal Year Ended March 31, 2004 Compared To Fiscal Year Ended March 31, 2003



Revenues. The Company generated total revenues of $1,892,539 for the
year ended March 31, 2004, an increase of $1,062,103 or 127.9%, compared to $830,436 for the year ended March 31, 2003. Distribution revenues increased $855,328 or 104.0%, to $1,677,405 for the year



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ended March 31, 2004, compared to $822,077 for the year ended March 31, 2003. The increase was primarily attributable to an increase in sales to existing
customers, with the introduction of new products, as well as increased revenues as a result of expansion of the Companys customer base. The Company commenced its prescription services operations in March 2003. Prescription services revenues
were $215,134 and $8,359 for the years ended March 31, 2004 and 2003, respectively.



Gross profit. The Company achieved total gross profit of $949,986 for the year ended March 31, 2004, an increase of $549,069 or 137.0%, compared to $400,917 for the year ended March 31, 2003. Total gross
margins, as a percentage of revenues, increased to 50.2% for the year ended March 31, 2004 from 48.3% for the year ended March 31, 2003. Distribution gross profit increased $508,680 or 127.2%, to $908,551 for the year ended March 31, 2004, as
compared to $399,871 for the year ended March 31, 2003. For the year ended March 31, 2004, distribution gross margin increased to 54.2%, from 48.6% for the year ended March 31, 2003. The increase was primarily attributable to an increase in the
Companys customer base, as well as increased sales to existing customers, and was partially offset by a change in the Companys mix of sales, with increased sales of products that yield a lower gross margin. Prescription services gross
profit increased $40,389, to $41,435 for the year ended March 31, 2004, from $1,046 for the year ended March 31, 2003.



Operating expenses.The Company incurred operating expenses of $1,350,040 for the year ended March 31, 2004, compared to $2,161,999 for the year
ended March 31, 2003. For the year ended March 31, 2004, these expenses include various administrative, sales, marketing and other direct operating expenses of $1,259,481, depreciation and amortization expenses of $86,131, and bad debt expense of
$4,428, compared to $913,840 in various administrative, sales, marketing and other direct operating expenses, depreciation and amortization expenses of $95,551, and bad debt expense of $1,152,608, for the year ended March 31, 2003. In November 2001,
a note was received in conjunction with the Companys sale of its subsidiary, Dynamic Life Korea Ltd. In November 2002, the purchaser defaulted on the note. During the year ended March 31, 2003, it was determined by management of the Company
that all further amounts due under this note were uncollectible. This resulted in an increase in bad debt expenses for the year ended March 31, 2003 of approximately $1 million. Operating expenses, excluding amortization expense, depreciation
expense and bad debt expense decreased to 66.5% of revenues for the year ended March 31, 2004, from 110.0% of revenues for the year ended March 31, 2003. The decrease was primarily attributable to the increase in revenues and a decrease in
accounting expense, and was partially offset by an increase in advertising, promotion, consulting, credit card, insurance, legal, public relations, salary and web site expenses.



Interest income. Interest income was $3,104 for the year ended March 31, 2004, compared to $17,375 for the year ended
March 31, 2003. The decrease in interest income was primarily a result of a decrease in notes receivable during the year ended March 31, 2003.



Interest expense. Interest expense was $96,169 for the year ended March 31, 2004, compared to $68,263 for the year ended March 31, 2003. Interest
expense increased for the year ended March 31, 2004 as a result of a settlement with the Internal Revenue Service on a contested penalty assessment regarding a prior year. The settlement was favorable to the Company and resulted in interest only
being due with regard to the matter. The interest amount of the settlement was approximately $25,000.



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Income taxes. As of March 31, 2004, the Company had no accrued income tax liability and an
estimated deferred income tax liability of $1,189,300, which primarily represented the potential future tax expense associated with the unrealized gains on marketable equity securities. As of March 31, 2003, the Company had an accrued income tax
liability of $5,746 and no net deferred income tax asset or liability.



Net loss per share.Net loss per share for the year ended March 31, 2004 was $0.01, compared to net loss per share of $0.35 for the year ended March 31, 2003. The decrease in net loss per share was primarily a result of a decrease in
the Companys operating loss before other income and expense of $1,361,028, an increase of other income and expenses, net, of $19,693, the gain on the sale of investment stock of Vertical of $71,843, the absence of the loss on the distribution
of the Companys investment in DrugMax of $1,388,088, a decrease in equity in loss of affiliated companies of $3,578,870, and a decrease in income tax benefit of $2,279,167, partially offset by an increase in losses on marketable equity
securities, net, of $80,864 and an increase in interest expense, net of interest income, of $42,177.



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, 2004 and 2003. Management also believes that its business is not seasonal; however, significant promotional activities can have a direct impact on sales volume in any given quarter.



Financial Condition, Liquidity and Capital Resources



The Company has financed its operations through the usage of available cash
reserves. The Company had working capital of $3,944,497 at March 31, 2004 and a working capital deficit of $124,052 at March 31, 2003.



Net cash used in operating activities was $91,471 for the year ended March 31, 2004, as compared to net cash used in operating activities of $595,212 for
the year ended March 31, 2003. The usage of cash was primarily attributable to an increase in accounts receivable of $103,075, an increase in inventories of $163,531, an increase in prepaid expenses of $4,724, an increase in other current assets of
$48,616, a decrease in accrued income taxes of $5,746, and a decrease in deferred income taxes of $96,852, partially offset by an increase in amounts due to/from affiliates, net, of $152,688, a decrease in other assets of $6,899, an increase in
accounts payable of $27,367, an increase in other payables of $9,449 and an increase in accrued expenses of $155,829.



Net cash provided by investing activities was $265,379, representing the redemption of a certificate of deposit of $45,917, proceeds from the sale of
marketable equity securities of $4,781 and proceeds from the sale of investment stock of $250,000, partially offset by purchases of property and equipment of $25,963, the purchase of an investment of $6,500 and the increase in intangible assets of
$2,856.



Net cash provided by financing activities was $21,297,
representing proceeds from the issuance of long-term obligations of $38,207 and proceeds from the issuance of related party obligations of $47,819, partially offset by payments of long-term obligations of $64,724 and payments of fractional shares on
common stock exchanged of $5.



At March 31, 2004, the Company
had $219,119 in cash and cash equivalents, as compared to $23,914 at March 31, 2003.



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



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



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 is 25 years and one
month from the date of the note, payable in equal monthly installments of principal and interest. The note is secured by a mortgage on the Companys land and building in Largo, Florida. The note is 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. The outstanding principal balance on the note was approximately
$831,891 as of March 31, 2004.



Effective June 30, 2002, the
Company entered into a Conversion Agreement with Vertical Health Solutions, Inc., an affiliate of the Company, whereby the parties agreed to convert the Companys notes receivable from Vertical with a balance of unpaid principal and interest
due of $429,846, into 429,846 shares of Series A preferred stock of Vertical. 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 899,230 (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
269,680 (53,936 pre-split) shares of common stock of Vertical. 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.



Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.



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



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



None.



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Item 8A. CONTROLS AND PROCEDURES.



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



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PART 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          |  | 60  |  | Chairman of the Board and |  |               
|                         |  |     |  | Director                  |  | 1992          
|                         |  |     | 
|Mandeep K. Taneja        |  | 30  |  | Chief Executive Officer,  |  |               
|                         |  |     |  | President and Director    |  | 2000          
|                         |  |     | 
|Cani I. Shuman           |  | 47  |  | Chief Financial Officer,  |  |               
|                         |  |     |  | Secretary, Treasurer and  |  |               
|                         |  |     |  | Director                  |  | 2001          
|                         |  |     | 
|Kotha S. Sekharam, Ph.D. |  | 53  |  | Director                  |  | 1995          
|                         |  |     | 
|Rakesh K. Sharma, M.D.   |  | 47  |  | Director                  |  | 1999          
|                         |  |     | 
|Morton L. Stone          |  | 73  |  | Director                  |  | 2002          



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



Background of Executive Officers and Directors



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



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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 B.S. degree in Accounting from the University of South
Florida.



Dr. Kotha S. Sekharam has served as a director of the
Company since June 1996 and served as the Companys President from June 1996 through November 2000. Dr. Sekharam was a founder and 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 Innovative Companies, 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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Audit Committee



The Company has an audit committee, which consists of Dr. Kotha S. Sekharam, Dr. Rakesh K. Sharma and Morton L. Stone. 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.



Section 16(a) Beneficial Ownership Reporting Compliance



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



|                       |  |                                              
|---------------------- |  | ---------------------------------------------
|Name                   |  | Number of Transactions and Delinquent Reports
|Jugal K. Taneja        |  | 7                                            
|Manju Taneja           |  | 6                                            
|Kotha S. Sekharam      |  | 3                                            
|Mandeep K. Taneja      |  | 2                                            
|Mihir K. Taneja        |  | 2                                            
|Carnegie Capital, Ltd. |  | 1                                            
|Cani I. Shuman         |  | 1                                            
|William LaGamba        |  | 1                                            
|Morton L. Stone        |  | 1                                            



All of such reports were filed prior
to March 31, 2004.



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.



Item 10. EXECUTIVE COMPENSATION



SUMMARY COMPENSATION TABLE



|                                                           |  |                        |  |                        |                       |          |     |                                        |  |               
|---------------------------------------------------------- |  | ---------------------- |  | ---------------------- | --------------------- | -------- | --- | -------------------------------------- |  | --------------
|                                                           |  | Annual Compensation(1) |  | Long-Term Compensation
|                                                           |  |                        |  | Awards                
|Name and Principal
Position                                |  | Year                   |  | Salary($)              |                       | Bonus($) |     | Securities UnderlyingOptions/SARs #(2)
|Mandeep K. Taneja, Chief Executive Officerand President(3) |  | 200420032002           |  | $$$                    | 153,000105,00060,000  |          | $$$ | 9,360-0-5,000                          |  | 25,000100,0000
|Jugal K. Taneja, Chairman(4)                               |  | 200420032002           |  | $$$                    | 150,000195,000240,000 |          | $$$ | -0--0-10,000                           |  | 50,000200,0000

---

|(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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the year ended March 31, 2004, 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.



- 25 -



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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 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



- 26 -



---

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.



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s officers 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. The following represents the common stock options outstanding as of March 31, 2003 and
2004.



|                                           |  |        
|------------------------------------------ |  | -------
|Option balance outstanding, March 31, 2002 |  | 0      
|Granted                                    |  | 700,000
|Exercised                                  |  | 0      
|Forfeited                                  |  | 0      
|                                           |  |        
|Option balance outstanding, March 31, 2003 |  | 700,000
|Granted                                    |  | 205,000
|Exercised                                  |  | 0      
|Forfeited                                  |  | 0      
|                                           |  |        
|Option balance outstanding, March 31, 2004 |  | 905,000
|                                           |  |        



As of March 31, 2004,
of the 905,000 options outstanding, 233,324 options were vested, with 671,676 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.



- 27 -



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



The following table sets forth certain information, as of
June 24, 2004 with respect to the beneficial ownership of the outstanding Common Stock by (i) any holder of more than five (5%) percent; (ii) each of the Companys executive officers and directors; and (iii) the directors and executive officers
of the Company as a group. An asterisk indicates beneficial ownership of less than 1% of the outstanding Common Stock. Except as otherwise indicated, each of the shareholders listed below has sole voting and investment power over the shares
beneficially owned.



|              |  |                                                                                |  |                                         |  |                 |  
|------------- |  | ------------------------------------------------------------------------------ |  | --------------------------------------- |  | --------------- | -
|Title OfClass |  | Name And Address Of Beneficial
Owner(1)                                        |  | Amount And Nature Of BeneficialOwner(2) |  | PercentOf Class |  
|Common        |  | Jugal K. Taneja(3)                                                             |  | 4,758,372                               |  | 37.1            | %
|Common        |  | Manju Taneja(4)                                                                |  | 1,731,404                               |  | 13.6            | %
|Common        |  | William L. LaGamba(5)                                                          |  | 2,000,000                               |  | 15.7            | %
|Common        |  | Michele LaGamba(6)                                                             |  | 2,000,000                               |  | 15.7            | %
|Common        |  | Mandeep K. Taneja(7)                                                           |  | 1,513,328                               |  | 11.8            | %
|Common        |  | Mihir K. Taneja                                                                |  | 1,479,996                               |  | 11.6            | %
|Common        |  | Kotha S. Sekharam, Ph.D.(8)                                                    |  | 495,796                                 |  | 3.9             | %
|Common        |  | Morton L. Stone(9) 1080 Peppertree Lane, #302 Sarasota, FL 34242               |  | 166,664                                 |  | 1.3             | %
|Common        |  | Cani I. Shuman(10)                                                             |  | 33,332                                  |  | *               |  
|Common        |  | Rakesh K. Sharma, M.D.(11) 455 Pinellas Street, Suite 310 Clearwater, FL 33756 |  | 33,332                                  |  | *               |  
|Common        |  | All officers and directors as a group (6 persons)                              |  | 7,000,824                               |  | 53.8            | %

---

|(1) | Except as otherwise indicated, the address of each beneficial owner is c/o Dynamic Health Products, Inc. at 6911 Bryan Dairy Road, Suite 210, Largo, FL 33777.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 wife, 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) 280,000 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 66,664 shares issuable upon exercise of currently exercisable options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 78,664 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) 280,000 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 28 -



---

|(6) | Includes 712,000 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 33,332 shares issuable upon exercise of currently exercisable options.
|--- | -------------------------------------------------------------------------------

|(8) | Includes 40,000 shares owned by Madhavi Sekharam, Dr. Sekharams wife, as to which Dr. Sekharam exercises no investment or voting power and disclaims beneficial ownership.
Includes 33,332 shares issuable upon exercise of currently exercisable options.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 33,332 shares issuable upon exercise of currently exercisable options.
|--- | -------------------------------------------------------------------------------

|(10) | Includes 33,332 shares issuable upon exercise of currently exercisable options.
|---- | -------------------------------------------------------------------------------

|(11) | Includes 33,332 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 Innovative, whereby Innovative agreed to
lease the Companys land and 33,222 square foot building situated in Largo, Florida for term of ten years. The initial rental under the lease was approximately $192,000 annually. The lease provides for an annual cost-of-living increase. This
facility serves as Innovatives corporate headquarters and also serves as part of Innovatives offices, manufacturing, warehousing and shipping operations. Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company
is also a principal shareholder and Chairman of the Board of Innovative. As of March 31, 2004, the Companys investment in Innovative, consisting of 347,938 shares of its common stock, is included in marketable equity securities, net.



In January 2002, the Company issued 40,000 (10,000 pre-split)
shares of common stock of the Company and in May 2002 the Company issued 80,000 (20,000 pre-split) shares of its common stock. The 120,000 (30,000 pre-split) shares of common stock were issued in exchange for 30,000 shares of Series B 6% Cumulative
Convertible Preferred stock of the Company, which shares were issued in conjunction with a private placement undertaken in 1998.



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



On March 20, 2002, the Company entered into a Settlement Agreement whereby it resolved all disputes and agreed on dismissal
of all pending litigation between the Company and U.S. Diversified Technologies, Inc., the holder of 310,000 shares of Series A Convertible Preferred stock of the Company and Paul Santostasi, a principal shareholder of USDTI and former Vice Chairman
of the Company. Pursuant to the Settlement Agreement, the Company agreed to cause the transfer of $50,000 in cash and 287,500 shares of its investment in DrugMax to USDTI, in exchange for USDTIs 310,000 shares of Series A Convertible Preferred
stock of the Company. This exchange resulted in a recorded gain of $83,344 to the Company for the year



- 29 -



---

ended March 31, 2002. The Company also agreed to cause the transfer of 45,000 shares of its investment in DrugMax to Paul
Santostasi in satisfaction of $180,000 of its obligation to Mr. Santostasi, which resulted in $71,853 of compensation expense and a recorded gain of $11,280 to the Company for the year ended March 31, 2002. Upon full execution of a Release And
Settlement Agreement on October 2, 2002, the $50,000 in cash and the 332,500 shares were subsequently transferred.



On March 22, 2002, the Company entered into a Sublease and Consent agreement with Innovative Health Products, Inc., a wholly-owned subsidiary of
Innovative, whereby the Company agreed to sublease approximately 5,200 square feet of office and warehouse space for its executive offices and its operations in Largo, Florida. This facility 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.



Effective June 30, 2002, the Company entered into a Conversion Agreement with
Vertical Health Solutions, Inc., an affiliate of the Company, whereby the parties agreed to convert the Companys notes receivable from Vertical, with a balance of unpaid principal and interest due of $429,846, into 429,846 shares of Series A
preferred stock of Vertical. 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 899,230 (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 269,680 (53,936 pre-split) shares of common stock of
Vertical. 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 shares, or approximately 11.2% of Vertical. 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. For the years ended March 31, 2004 and 2003, the Company charged Vertical consulting fees totaling $8,725 and $6,063, respectively, for accounting and administrative services. The charge is on an hourly basis for services rendered. As of
March 31, 2004 and 2003, approximately $4,138 and $6,063, respectively, were due from Vertical and are included in amounts due from affiliates. As of March 31, 2004, the Companys investment in Vertical is included in marketable equity
securities, net.



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



On October 10, 2002, the Board of
Directors of the Company approved the declaration of a dividend distribution to holders of record of its issued and outstanding common shares as of October 10, 2002, in the form of approximately 1,933,000 shares of its investment in DrugMax, Inc., a
publicly traded Company. Jugal K. Taneja, a principal shareholder and Chairman of the



- 30 -



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Board of the Company is also a principal shareholder, Chief Executive Officer, and Chairman of the Board of DrugMax and
William LaGamba, a principal shareholder of the Company, is also a director, Chief Operating Officer and President of DrugMax. On November 22, 2002, the Company distributed 1,933,000 shares of DrugMax to its shareholders. The payment rate was
..626882 shares of DrugMax common stock for each share of the Companys common stock held on October 10, 2002. The Company only distributed whole shares and any fractional shares to which shareholders would otherwise be entitled were rounded
down to the nearest whole share. For the years ended March 31, 2004 and 2003, sales of products to subsidiaries of DrugMax were approximately zero and $5,760, respectively. As of March 31, 2004, $1,274 was due from DrugMax and is included in amounts
due from affiliates.



Effective December 20, 2002, the Company
granted options to purchase a total of 700,000 (125,000 pre-split) shares of common stock to its officers and directors under its 1999 Stock Option Plan. Effective January 23, 2004, the Company granted options to purchase a total of 205,000 shares
of common stock to its officers and directors under its 1999 Stock Option Plan. All of the foregoing options vest approximately equally over three years. As of March 31, 2004, 233,324 of such options were vested, with 671,676 being nonvested.



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 serves as the Companys corporate
headquarters and is also used for its offices, warehousing and shipping operations. The facility is sublet for a term of two years ending on December 31, 2005. The Company is in the process of finalizing a written agreement with Innovative. The
sublease will contain an annual option to continue the sublease subsequent to December 31, 2005 and a provision for an annual cost-of-living increase. The initial rental under the sublease is $41,066 annually.



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



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, 2004 and 2003, $1,281 and $4,278, respectively, were due to Tribeca and are included in obligations to affiliates.



For the years ended March 31, 2004 and 2003, purchases of products from
subsidiaries of Innovative were $698,559 and $164,922, respectively, and sales of products to subsidiaries of Innovative were $2,900 and $3,574, respectively. As of March 31, 2004 and 2003, $242,113 and $29,140, respectively, were due to
subsidiaries of Innovative and are included in obligations to affiliates.



- 31 -



---

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



For the years ended March 31, 2004 and 2003, purchases of products from T
& L, Inc. (T&L), an affiliate of Mandeep K. Taneja, a director, Chief Executive Officer and President of the Company, were approximately $89,642 and $2,262, respectively, and sales of products to T&L were approximately zero
and $37, respectively. For the year ended March 31, 2004, the Company charged T&L fees totaling $1,454 for prescription services provided. The charge is on an hourly basis for services rendered. As of March 31, 2004 and 2003, approximately
$5,192 and zero, respectively, were due from T&L and are included in amounts due from affiliates, and $1,898 and zero, 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, 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 is a 50% partner in Generilean, a Florida limited liability company in which the Company is 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.



- 32 -



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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)       
|     | 
|10.1 |  | Note and Mortgage in favor of GE Capital Small Business Finance Corporation from the Company, dated September 13, 1999. (4)
|     | 
|10.2 |  | Consulting Agreement between Dynamic Health Products, Inc. and Jugal K. Taneja, dated February 14, 2002. (5)               
|     | 
|14.1 |  | Code of Ethics of Dynamic Health Products, Inc. (6)                                                                        
|     | 
|21.1 |  | Dynamic Health Products, Inc.  List of Subsidiaries.                                                                      
|     | 
|31.1 |  | Certification Of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                    
|     | 
|31.2 |  | Certification Of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                    
|     | 
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    
|     | 
|32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    

---

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

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



- 33 -



---

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

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

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

|(6) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K.



During the three month period ending March 31, 2004, the Company filed no
reports on Form 8-K.



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-K and Form S-8s, for the years
ended March 31, 2004 and 2003 were $16,900 and $17,940, 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, 2004 and 2003 were $9,835 and $24,238, respectively.



During the years ended March 31, 2004 and 2003, 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 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.



- 34 -



---

SIGNATURES



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



|                    |  |                               |  |                                            
|------------------- |  | ----------------------------- |  | -------------------------------------------
|                    |  | DYNAMIC HEALTH PRODUCTS, INC.
|                    |  |                              
|Date: June 29, 2004 |  | 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 and on the dates indicated.



|          |  |                                        |  |                                                            |  |              
|--------- |  | -------------------------------------- |  | ---------------------------------------------------------- |  | -------------
|Signature |  | Title                                  |  | Date                                                      
|By:       |  | /s/ Jugal K. TanejaJugal K. Taneja     |  | Chairman of the Board and Director                         |  | June 29, 2004
|          |  |                                        | 
|By:       |  | /s/ Mandeep K. TanejaMandeep K. Taneja |  | Chief Executive Officer, President and Director            |  | June 29, 2004
|          |  |                                        | 
|By:       |  | /s/ Cani I. ShumanCani I. Shuman       |  | Chief Financial Officer, Secretary, Treasurer and Director |  | June 29, 2004
|          |  |                                        | 
|By:       |  | /s/ Kotha S. SekharamKotha S. Sekharam |  | Director                                                   |  | June 29, 2004
|          |  |                                        | 
|By:       |  | /s/ Rakesh K. SharmaRakesh K. Sharma   |  | Director                                                   |  | June 29, 2004



- 35 -



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



|                                                                                                       |  |               
|------------------------------------------------------------------------------------------------------ |  | --------------
|Report of Independent Registered Public Accounting Firm                                                |  | F - 2         
|                                                                                                       | 
|Consolidated Balance Sheets as of March 31, 2004 and 2003                                              |  | F - 3         
|                                                                                                       | 
|Consolidated Statements of Operations for the years ended March 31, 2004 and 2003                      |  | F - 4         
|                                                                                                       | 
|Consolidated Statements of Changes in Shareholders Equity for the years ended March 31, 2004 and 2003 |  | F - 5         
|                                                                                                       | 
|Consolidated Statements of Cash Flows for the years ended March 31, 2004 and 2003                      |  | F - 6  F - 7 
|                                                                                                       | 
|Notes to Consolidated Financial Statements                                                             |  | F - 8  F - 30



F - 1



---

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, 2004 and 2003
and the related consolidated statements of operations, changes in shareholders equity, and cash flows for the years ended March 31, 2004 and 2003. 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. 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, 2004 and 2003 and the consolidated results of operations and cash flows for the years ended March 31, 2004 and 2003, in
conformity with accounting principles generally accepted in the United States of America.



|                               
|-------------------------------
|                               
|/s/ BRIMMER, BUREK & KEELAN LLP
|Brimmer, Burek & Keelan LLP    



Tampa, Florida

June 9, 2004



F - 2



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31,



|                                                                                                                               |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                               |  | 2004 |            |   | 2003 |  
|ASSETS                                                                                                                         |  |      |            |   |      |   |            |  
|Current assets:                                                                                                                |  |      |            |   |      |   |            |  
|Cash and cash equivalents                                                                                                      |  | $    | 219,119    |   |      | $ | 23,914     |  
|Certificate of deposit                                                                                                         |  |      |           |   |      |   | 45,917     |  
|Marketable equity securities, net                                                                                              |  |      | 3,806,324  |   |      |   | 4,314      |  
|Accounts receivable, net                                                                                                       |  |      | 154,230    |   |      |   | 51,155     |  
|Inventories, net                                                                                                               |  |      | 189,193    |   |      |   | 25,662     |  
|Prepaid expenses                                                                                                               |  |      | 43,468     |   |      |   | 38,744     |  
|Other current assets                                                                                                           |  |      | 56,345     |   |      |   | 7,729      |  
|Due from affiliates                                                                                                            |  |      | 10,605     |   |      |   | 6,063      |  
|Note receivable from affiliate                                                                                                 |  |      | 40,481     |   |      |   | 37,426     |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total current assets                                                                                                           |  |      | 4,519,765  |   |      |   | 240,924    |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Property, plant and equipment, net                                                                                             |  |      | 1,314,399  |   |      |   | 1,374,305  |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Intangible assets, net                                                                                                         |  |      | 25,842     |   |      |   | 24,583     |  
|Investment in unconsolidated affiliate                                                                                         |  |      |           |   |      |   | 357,902    |  
|Other assets                                                                                                                   |  |      | 5,141      |   |      |   | 12,040     |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total assets                                                                                                                   |  | $    | 5,865,147  |   |      | $ | 2,009,754  |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                           |  |      |            |   |      |   |            |  
|Current liabilities:                                                                                                           |  |      |            |   |      |   |            |  
|Accounts payable                                                                                                               |  | $    | 126,086    |   |      | $ | 149,070    |  
|Other payables                                                                                                                 |  |      | 95,413     |   |      |   | 85,964     |  
|Current portion of long-term obligations                                                                                       |  |      | 27,023     |   |      |   | 36,533     |  
|Accrued expenses                                                                                                               |  |      | 68,411     |   |      |   | 42,416     |  
|Accrued income taxes                                                                                                           |  |      |           |   |      |   | 5,746      |  
|Obligations to affiliates                                                                                                      |  |      | 245,292    |   |      |   | 33,418     |  
|Note payable                                                                                                                   |  |      | 13,043     |   |      |   | 11,829     |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total current liabilities                                                                                                      |  |      | 575,268    |   |      |   | 364,976    |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Deferred income taxes                                                                                                          |  |      | 1,189,300  |   |      |   |           |  
|Long-term obligations, less current portion                                                                                    |  |      | 813,491    |   |      |   | 831,712    |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total liabilities                                                                                                              |  |      | 2,578,059  |   |      |   | 1,196,688  |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Commitments and contingencies                                                                                                  |  |      |            |   |      |   |            |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Shareholders equity:                                                                                                          |  |      |            |   |      |   |            |  
|Series A Convertible Preferred stock, $.01 par value; 400,000 shares authorized; no shares issued or outstanding               |  |      |           |   |      |   |           |  
|Series B 6% Cumulative Convertible Preferred stock, $.01 par value; 800,000 shares authorized; no shares issued or outstanding |  |      |           |   |      |   |           |  
|Common stock, $.01 par value; 20,000,000 shares authorized; 12,774,834 and 12,331,500 shares issued and outstanding            |  |      | 127,748    |   |      |   | 123,315    |  
|Additional paid-in capital                                                                                                     |  |      | 2,671,568  |   |      |   | 2,445,655  |  
|Retained earnings (deficit)                                                                                                    |  |      | (1,798,719 | ) |      |   | (1,690,048 | )
|Accumulated other comprehensive income:                                                                                        |  |      |            |   |      |   |            |  
|Unrealized gains (losses) on marketable equity securities, net of tax                                                          |  |      | 2,286,491  |   |      |   | (65,856    | )
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total shareholders equity                                                                                                     |  |      | 3,287,088  |   |      |   | 813,066    |  
|                                                                                                                               |  |      |            |   |      |   |            |  
|Total liabilities and shareholders equity                                                                                     |  | $    | 5,865,147  |   |      | $ | 2,009,754  |  
|                                                                                                                               |  |      |            |   |      |   |            |  



See accompanying notes
to consolidated financial statements.



F - 3



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED MARCH 31,



|                                                                       |  |      |            |   |      |   |            |  
|---------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                       |  | 2004 |            |   | 2003 |  
|Revenues:                                                              |  |      |            |   |      |   |            |  
|Distribution                                                           |  | $    | 1,677,405  |   |      | $ | 822,077    |  
|Prescription services                                                  |  |      | 215,134    |   |      |   | 8,359      |  
|                                                                       |  |      |            |   |      |   |            |  
|Total revenues                                                         |  |      | 1,892,539  |   |      |   | 830,436    |  
|                                                                       |  |      |            |   |      |   |            |  
|Cost of goods sold:                                                    |  |      |            |   |      |   |            |  
|Distribution                                                           |  |      | 768,854    |   |      |   | 422,206    |  
|Prescription services                                                  |  |      | 173,699    |   |      |   | 7,313      |  
|                                                                       |  |      |            |   |      |   |            |  
|Total cost of goods sold                                               |  |      | 942,553    |   |      |   | 429,519    |  
|                                                                       |  |      |            |   |      |   |            |  
|Gross profit:                                                          |  |      |            |   |      |   |            |  
|Distribution                                                           |  |      | 908,551    |   |      |   | 399,871    |  
|Prescription services                                                  |  |      | 41,435     |   |      |   | 1,046      |  
|                                                                       |  |      |            |   |      |   |            |  
|Total gross profit                                                     |  |      | 949,986    |   |      |   | 400,917    |  
|                                                                       |  |      |            |   |      |   |            |  
|Operating expenses:                                                    |  |      |            |   |      |   |            |  
|Selling, general and administrative expenses                           |  |      | 1,259,481  |   |      |   | 913,840    |  
|Amortization expense                                                   |  |      | 1,597      |   |      |   | 1,244      |  
|Depreciation expense                                                   |  |      | 84,534     |   |      |   | 94,307     |  
|Bad debt expense                                                       |  |      | 4,428      |   |      |   | 1,152,608  |  
|                                                                       |  |      |            |   |      |   |            |  
|Total operating expenses                                               |  |      | 1,350,040  |   |      |   | 2,161,999  |  
|                                                                       |  |      |            |   |      |   |            |  
|Operating loss before other income and expense                         |  |      | (400,054   | ) |      |   | (1,761,082 | )
|                                                                       |  |      |            |   |      |   |            |  
|Other income (expense):                                                |  |      |            |   |      |   |            |  
|Interest income                                                        |  |      | 3,104      |   |      |   | 17,375     |  
|Loss on distribution of investment                                     |  |      |           |   |      |   | (1,388,088 | )
|Impairment loss on investment in affiliated company                    |  |      |           |   |      |   | (166,939   | )
|Other income and expenses, net                                         |  |      | 283,895    |   |      |   | 264,202    |  
|Losses on marketable equity securities, net                            |  |      | (102,434   | ) |      |   | (21,570    | )
|Gain on sale of investment                                             |  |      | 71,843     |   |      |   |           |  
|Loss on disposition of equipment                                       |  |      | (1,335     | ) |      |   |           |  
|Equity in income (loss) of affiliated companies                        |  |      | (6,500     | ) |      |   | (3,585,370 | )
|Interest expense                                                       |  |      | (96,169    | ) |      |   | (68,263    | )
|                                                                       |  |      |            |   |      |   |            |  
|Total other income (expense)                                           |  |      | 152,404    |   |      |   | (4,948,653 | )
|                                                                       |  |      |            |   |      |   |            |  
|Loss before income taxes                                               |  |      | (247,650   | ) |      |   | (6,709,735 | )
|Income tax expense (benefit)                                           |  |      | (138,979   | ) |      |   | (2,418,146 | )
|                                                                       |  |      |            |   |      |   |            |  
|Net loss                                                               |  |      | (108,671   | ) |      |   | (4,291,589 | )
|Preferred stock dividends                                              |  |      |           |   |      |   |           |  
|                                                                       |  |      |            |   |      |   |            |  
|Net loss available to common shareholders                              |  | $    | (108,671   | ) |      | $ | (4,291,589 | )
|                                                                       |  |      |            |   |      |   |            |  
|Basic and diluted loss per share                                       |  | $    | (0.01      | ) |      | $ | (0.35      | )
|                                                                       |  |      |            |   |      |   |            |  
|Basic and diluted weighted average number of common shares outstanding |  |      | 12,387,611 |   |      |   | 12,300,228 |  
|                                                                       |  |      |            |   |      |   |            |  



See accompanying notes
to consolidated financial statements.



F - 4



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE YEARS ENDED MARCH 31, 2004 AND 2003



|                                                                                                                  |        |                         |         |                            |        |  |                             |         |  |                                       |         |   |                            |            |                                       |   |         |  |   |           |   |  |   |            |   |  |   |           |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------- | ------ | ----------------------- | ------- | -------------------------- | ------ |  | --------------------------- | ------- |  | ------------------------------------- | ------- | - | -------------------------- | ---------- | ------------------------------------- | - | ------- |  | - | --------- | - |  | - | ---------- | - |  | - | --------- | - |  | - | ---------- | -
|                                                                                                                  |        | Series APreferred Stock |         | Series B Preferred Stock   |        |  | Common Stock                |         |  |                                       |         |   |                            |            | Accumulated Other ComprehensiveIncome |   |         |  |  
|                                                                                                                  |        |                         |         | Additional Paid-in Capital |        |  | Retained Earnings (Deficit) |         |  | Unrealized Gains(Losses) onSecurities |         |   | Total Shareholders Equity |           
|                                                                                                                  | Shares |                         | Dollars |                            | Shares |  |                             | Dollars |  |                                       | Shares  |   | Dollars                    |            |                                       |   |        
|Balances at March 31, 2002 (Restated)                                                                             |        |                        |         | $                          |       |  | 20,000                      |         |  | $                                     | 50,000  |   |                            | 12,208,564 |                                       | $ | 122,086 |  | $ | 2,381,162 |   |  | $ | 5,017,791  |   |  | $ | (77,084   | ) |  | $ | 7,493,955  |  
|COMPREHENSIVE INCOME (LOSS)                                                                                       |        |                         |         |                            |        |  |                             |         |  |                                       |         |   |                            |            |                                       |   |         |  |   |           |   |  |   |            |   |  |   |           |   |  |   |            |  
|Net income (loss)                                                                                                 |        |                        |         |                            |       |  |                            |         |  |                                       |        |   |                            |           |                                       |   |        |  |   |          |   |  |   | (4,291,589 | ) |  |   |          |   |  |   | (4,291,589 | )
|Unrealized gains (losses) on marketable equity securities (net of tax of $6,315)                                  |        |                        |         |                            |       |  |                            |         |  |                                       |        |   |                            |           |                                       |   |        |  |   |          |   |  |   |           |   |  |   | 11,228    |   |  |   | 11,228     |  
|                                                                                                                  |        |                         |         |                            |        |  |                             |         |  |                                       |         |   |                            |            |                                       |   |         |  |   |           |   |  |   |            |   |  |   |           |   |  |   |            |  
|Comprehensive income (loss)                                                                                       |        |                         |         |                            |        |  |                             |         |  |                                       |         |   |                            |            |                                       |   |         |  |   |           |   |  |   |            |   |  |   |           |   |  |   | (4,280,361 | )
|Cash paid in lieu of fractional shares for common stock exchanged, in relation to August 1998 reverse stock split |        |                        |         |                            |       |  |                            |         |  |                                       |        |   |                            |           |                                       |   |        |  |   | (2        | ) |  |   |           |   |  |   |          |   |  |   | (2         | )
|Conversion of 20,000 shares of Series B preferred stock to 80,000 shares of common stock (Restated)               |        |                        |         |                            |       |  | (20,000                     | )       |  |                                       | (50,000 | ) |                            | 80,000     |                                       |   | 800     |  |   | 49,200    |   |  |   |           |   |  |   |          |   |  |   |           |  
|                                                                                                                  |        |                         |         |                            |        |  |                             |         |  |                                       |         |   |                            |            |                                       |   |         |  |   |           |   |  |   |            |   |  |   |           |   |  |   |            |  
|Issuance of 42,936 shares of common stock in payment of accrued preferred share dividends (Restated)              |        |                        |         |                            |       |  |                            |         |  |                                       |        |   |                            | 42,936     |                                       |   | 429     |  |   | 15,295    |   |  |   |           |   |  |   |          |   |  |   | 15,724     |  
|Dividend distribution of 1,933,000 shares of DrugMax, Inc. at $1.25 per share                                     |        |                        |         |                            |       |  |                            |         |  |                                       |        |   |                            |           |                                       |   |        |  |   |          |   |  |   | (2,416,250 | ) |  |   |          |   |  |   | (2,416,250 | )
|                                                                                                                  |        |                         |         |                            |        |  |                             |         |  |                                       |         |   |                            |            |                                       |   |         |  |   |           |   |  |   |            |   |  |   |           |   |  |   |            |  
|Balances at March 31, 2003 (Restated)                                                                             |        |                        |         |                            |       |  |                            |         |  |                                       |        |   |                            | 12,331,500 |                                       |   | 123,315 |  |   | 2,445,655 |   |  |   | (1,690,048 | ) |  |   | (65,856   | ) |  |   | 813,066    |  
|COMPREHENSIVE INCOME (LOSS)                                                                                       |        |                         |         |                            |        |  |                             |         |  |                                       |         |   |                            |            |                                       |   |         |  |   |           |   |  |   |            |   |  |   |           |   |  |   |            |  
|Net 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 obligation     |        |                        |         |                            |       |  |                            |         |  |                                       |        |   |                            | 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  |  
|                                                                                                                  |        |                         |         |                            |        |  |                             |         |  |                                       |         |   |                            |            |                                       |   |         |  |   |           |   |  |   |            |   |  |   |           |   |  |   |            |  



See accompanying notes
to consolidated financial statements.



F - 5



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31,



|                                                                                        |  |      |          |   |      |   |            |  
|--------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ---------- | -
|                                                                                        |  | 2004 |          |   | 2003 |  
|Cash flows from operating activities:                                                   |  |      |          |   |      |   |            |  
|Net loss                                                                                |  | $    | (108,671 | ) |      | $ | (4,291,589 | )
|Adjustments to reconcile net loss to net cash used in operating activities:             |  |      |          |   |      |   |            |  
|Depreciation and amortization                                                           |  |      | 86,131   |   |      |   | 95,551     |  
|Impairment loss on investment in affiliated company                                     |  |      |         |   |      |   | 166,939    |  
|Write off of uncollectible note receivable                                              |  |      |         |   |      |   | 1,028,411  |  
|Write off of uncollectible other receivables                                            |  |      |         |   |      |   | 151,637    |  
|Equity in (income) loss of affiliated companies                                         |  |      | 6,500    |   |      |   | 3,585,370  |  
|Gain on sale of investment                                                              |  |      | (71,843  | ) |      |   |           |  
|Loss on disposition of equipment                                                        |  |      | 1,335    |   |      |   |           |  
|Loss on distribution of investment                                                      |  |      |         |   |      |   | 1,388,088  |  
|Losses on sales of marketable equity securities, net of effect of deferred income taxes |  |      | 65,389   |   |      |   | 21,570     |  
|Changes in operating assets and liabilities:                                            |  |      |          |   |      |   |            |  
|Accounts receivable                                                                     |  |      | (103,075 | ) |      |   | (37,009    | )
|Inventories                                                                             |  |      | (163,531 | ) |      |   | 71,241     |  
|Due to/from affiliates, net                                                             |  |      | 152,688  |   |      |   | (125,198   | )
|Prepaid expenses                                                                        |  |      | (4,724   | ) |      |   | 2,690      |  
|Other current assets                                                                    |  |      | (48,616  | ) |      |   | (129,623   | )
|Other assets                                                                            |  |      | 6,899    |   |      |   | (294       | )
|Accounts payable                                                                        |  |      | 27,367   |   |      |   | (69,665    | )
|Other payables                                                                          |  |      | 9,449    |   |      |   | (11,559    | )
|Accrued expenses                                                                        |  |      | 155,829  |   |      |   | (962       | )
|Accrued income taxes                                                                    |  |      | (5,746   | ) |      |   | 5,746      |  
|Deferred income taxes                                                                   |  |      | (96,852  | ) |      |   | (2,446,556 | )
|                                                                                        |  |      |          |   |      |   |            |  
|Net cash used in operating activities                                                   |  |      | (91,471  | ) |      |   | (595,212   | )
|                                                                                        |  |      |          |   |      |   |            |  
|Cash flows from investing activities:                                                   |  |      |          |   |      |   |            |  
|Purchases of property and equipment                                                     |  |      | (25,963  | ) |      |   | (45,593    | )
|Purchase of certificate of deposit                                                      |  |      |         |   |      |   | (46,455    | )
|Redemption of certificate of deposit                                                    |  |      | 45,917   |   |      |   | 51,999     |  
|Purchase of investment                                                                  |  |      | (6,500   | ) |      |   |           |  
|Proceeds from sale of marketable equity securities                                      |  |      | 4,781    |   |      |   |           |  
|Proceeds from sale of investment                                                        |  |      | 250,000  |   |      |   |           |  
|Proceeds from related party receivables                                                 |  |      |         |   |      |   | 20,460     |  
|Increase in intangible assets                                                           |  |      | (2,856   | ) |      |   |           |  
|                                                                                        |  |      |          |   |      |   |            |  
|Net cash provided by (used in) investing activities                                     |  |      | 265,379  |   |      |   | (19,589    | )
|                                                                                        |  |      |          |   |      |   |            |  
|Cash flows from financing activities:                                                   |  |      |          |   |      |   |            |  
|Proceeds from issuance of long-term obligations                                         |  |      | 38,207   |   |      |   | 34,651     |  
|Payments of long-term obligations                                                       |  |      | (64,724  | ) |      |   | (62,147    | )
|Payment of fractional shares on common stock exchanged                                  |  |      | (5       | ) |      |   | (2         | )
|Proceeds from issuance of related party obligations                                     |  |      | 47,819   |   |      |   |           |  
|                                                                                        |  |      |          |   |      |   |            |  
|Net cash provided by (used in) financing activities                                     |  |      | 21,297   |   |      |   | (27,498    | )
|                                                                                        |  |      |          |   |      |   |            |  
|Net increase (decrease) in cash                                                         |  |      | 195,205  |   |      |   | (642,299   | )
|Cash and cash equivalents at beginning of period                                        |  |      | 23,914   |   |      |   | 666,213    |  
|                                                                                        |  |      |          |   |      |   |            |  
|Cash and cash equivalents at end of period                                              |  | $    | 219,119  |   |      | $ | 23,914     |  
|                                                                                        |  |      |          |   |      |   |            |  



See accompanying notes
to consolidated financial statements.



F - 6



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

FOR THE YEARS ENDED MARCH 31,



|                                                                                                  |  |      |         |      |   |          
|------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ---------
|                                                                                                  |  | 2004 |         | 2003
|Supplemental disclosure of cash flow information:                                                 |  |      |         |      |   |          
|Cash paid during the period for interest                                                          |  | $    | 89,548  |      | $ | 67,302   
|                                                                                                  |  |      |         |      |   |          
|Cash paid during the period for income taxes                                                      |  | $    | 50,664  |      | $ | 22,665   
|                                                                                                  |  |      |         |      |   |          
|Supplemental schedule of non-cash investing activities:                                           |  |      |         |      |   |          
|Exchange of notes receivable from affiliate to investment in preferred stock of affiliate         |  | $    |        |      | $ | 429,846  
|                                                                                                  |  |      |         |      |   |          
|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:                                           |  |      |         |      |   |          
|Distribution of investment                                                                        |  | $    |        |      | $ | 3,804,338
|                                                                                                  |  |      |         |      |   |          
|Dividend distribution of 1,933,000 shares of DrugMax, Inc.                                        |  | $    |        |      | $ | 2,416,250
|                                                                                                  |  |      |         |      |   |          
|Conversion of Series B 6% Cumulative Convertible Preferred stock into common stock                |  | $    |        |      | $ | 50,000   
|                                                                                                  |  |      |         |      |   |          
|Accrual of preferred stock dividends                                                              |  | $    |        |      | $ | 377      
|                                                                                                  |  |      |         |      |   |          
|Issuance of common stock in payment of accrued preferred share dividends                          |  | $    |        |      | $ | 16,101   
|                                                                                                  |  |      |         |      |   |          
|Issuance of common stock in payment of consulting services                                        |  | $    | 180,185 |      | $ |         
|                                                                                                  |  |      |         |      |   |          
|Issuance of common stock in payment of related party note payable                                 |  | $    | 50,166  |      | $ |         
|                                                                                                  |  |      |         |      |   |          



See accompanying notes
to consolidated financial statements.



F - 7



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Dynamic Health Products, Inc. (Company) creates, packages and
distributes a wide variety of proprietary and non-proprietary dietary supplements, over-the-counter drugs, and health and beauty care products, and provides prescription services. The Companys products are primarily marketed throughout the
United States to independent pharmacies, regional and national chain drug stores, mail order facilities, mass merchandisers, deep discounters, 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 are marketed directly to consumers through a variety of marketing techniques including general public advertising and direct mail
solicitations.



Principles of Consolidation



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



The accompanying consolidated financial statements for the year ended March 31, 2003 include the accounts of Dynamic Health Products, Inc. and its
principally wholly-owned subsidiaries, Pharma Labs Rx, Inc., 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, Dynamic Financials
Corporation and its subsidiary Bryan Capital Limited Partnership, and Todays Drug, Inc. Significant intercompany balances and transactions have been eliminated in consolidation.



Industry Segments



In accordance with Statement of Financial Accounting Standards No. 131, Disclosures About Segments Of An Enterprise And Related Information
(SFAS 131), a company is required to disclose selected financial and other related information about its operating segments. Operating segments are components of an enterprise about which separate financial information is available and is utilized
by the chief operating decision maker related to the allocation of resources and in the resulting assessment of the segments overall performance. As of and for the years ended March 31, 2004 and 2003, the Company had two industry segments:
distribution and prescription services (see Note 18).



F - 8



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)



Equity Method Investments



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



Cash and Cash Equivalents



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



Investments in Equity Securities



At March 31, 2004 and 2003, 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.



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 4).



Inventories



Inventories, net are stated at the lower of cost or market. Cost is determined using the first-in, first-out method (see
Note 5).



Property, Plant and Equipment



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



F - 9



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)



Intangible Assets



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



Impairment of Assets



The Companys
policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets, certain identifiable intangibles and goodwill when certain events have taken place that indicate that the remaining balance may not be
recoverable. When factors indicate that the intangible assets should be evaluated for possible impairment, the Company uses an estimate of related undiscounted cash flows. A deficiency in these cash flows relative to the carrying amounts is an
indication of the need for a write-down due to impairment. The impairment write-down would be the difference between the carrying amounts and the fair value of these assets. Losses on impairment are recognized by a charge to earnings. Factors
considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. There were no impairment losses during the year ended March 31, 2004. During the year ended March 31, 2003, there was an impairment
loss on the Companys investment in an affiliated company of $166,939 (see Note 10).



Income Taxes



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



Earnings (Loss) Per Common Share



Earnings (loss) per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings (loss) per
share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of
shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method (see Note 16). During the periods presented, common stock equivalents were not considered, as their
effect would be antidilutive.



F - 10



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)



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, 2004 and 2003, as well as the reported amounts of revenues and expenses for the years then ended. The actual outcome of the
estimates could differ from the estimates made in the preparation of the financial statements.



Revenue Recognition



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



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
years ended March 31, 2004 and 2003. If the Company had elected to recognize compensation expense for stock options based on the fair value at the grant date consistent with the method prescribed by SFAS No. 123, net income (loss) and related per
share amounts would have been reduced (increased) (see Note 14).



Advertising Costs



The Company charges
advertising costs to expense as incurred. Advertising expense was $49,466 and $20,683 for the years ended March 31, 2004 and 2003, respectively.



Research and Development Costs



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



F - 11



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)



Fair Value of Financial Instruments



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



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



Long-Term Obligations: The fair value of the Companys
fixed-rate long-term obligations is estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At March 31, 2004 and 2003, the fair value of the
Companys long-term obligations approximated its carrying value.



Reclassifications



Certain reclassifications
have been made to the financial statements as of and for the year ended March 31, 2003 to conform to the presentation as of and for the year ended March 31, 2004.



Restatements



The financial statements as of and for the year ended March 31, 2003 have been restated, and unless otherwise noted, all other information presented has
been adjusted to retroactively reflect the four-for-one forward split of the Companys common stock in August 2003 (see Note 15).



NOTE 2  RELATED PARTY TRANSACTIONS



On October 1, 1999, the Company entered into a triple-net lease agreement with Innovative Companies, Inc., formerly Go2Pharmacy, Inc.
(Innovative), a publicly traded company and an affiliate of the Company, whereby Innovative agreed to lease the Companys land and 33,222 square foot building situated in Largo, Florida for a term of ten years. The initial rental
under the lease was approximately $192,000 annually. The lease provides for an annual cost-of-living increase. This facility serves as Innovatives corporate headquarters and also serves as part of Innovatives offices, manufacturing,
warehousing and shipping operations. Jugal K. Taneja, a principal shareholder and Chairman of the Board of the Company is also a principal shareholder and Chairman of the Board of Innovative. As of March 31, 2004, the Companys investment in
Innovative, consisting of 347,938 shares of its common stock, is included in marketable equity securities, net (see Note 3).



F - 12



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 2  RELATED PARTY
TRANSACTIONS (Continued)



Effective June 30, 2002, the Company entered into a Conversion Agreement with Vertical Health
Solutions, Inc. (Vertical), an affiliate of the Company, whereby the parties agreed to convert the Companys notes receivable from Vertical, with a balance of unpaid principal and interest due of $429,846, into 429,846 shares of
Series A preferred stock of Vertical. 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 899,230 (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 269,680 (53,936 pre-split) shares of common stock
of Vertical. 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 shares, or approximately 11.2% of Vertical. 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. For the years ended March 31, 2004 and 2003, the Company charged Vertical consulting fees totaling $8,725 and $6,063, respectively, for accounting and administrative services. The charge is on an hourly basis for services
rendered. As of March 31, 2004 and 2003, approximately $4,138 and $6,063, respectively, were due from Vertical and are included in amounts due from affiliates. As of March 31, 2004, the Companys investment in Vertical is included in marketable
equity securities, net (see Note 3 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, 2004 and 2003, $1,281 and $4,278, respectively, were due to Tribeca and are included in obligations to affiliates.



On March 22, 2002, the Company entered into a Sublease and Consent agreement
with Innovative Health Products, Inc., a wholly-owned subsidiary of Innovative, whereby the Company agreed to sublease approximately 5,200 square feet of office and warehouse space for its executive offices and its operations in Largo, Florida. This
facility 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.



F - 13



---

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 2  RELATED PARTY
TRANSACTIONS (Continued)



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 serves as the Companys corporate headquarters and is also used for its offices,
warehousing and shipping operations. The facility is sublet for a term of two years ending on December 31, 2005. The Company is in the process of finalizing a written agreement with Innovative. The sublease will contain an annual option to continue
the sublease subsequent to December 31, 2005 and a provision for an annual cost-of-living increase. The initial rental under the sublease is $41,066 annually.



On October 10, 2002, the Board of Directors of the Company approved the declaration of a dividend distribution to holders of record of its issued and
outstanding common shares as of October 10, 2002, in the form of approximately 1,933,000 shares of its investment in DrugMax, Inc. (DrugMax), a publicly traded Company. Jugal K. Taneja, a principal shareholder and Chairman of the Board
of the Company is also a principal shareholder, Chief Executive Officer, and Chairman of the Board of DrugMax and William LaGamba, a principal shareholder of the Company, is also a Director, Chief Operating Officer and President of DrugMax. On
November 22, 2002, the Company distributed 1,933,000 shares of DrugMax to its shareholders. The payment rate was .626882 shares of DrugMax common stock for each share of the Companys common stock held on October 10, 2002. The Company only
distributed whole shares and any fractional shares to which shareholders would otherwise be entitled were rounded down to the nearest whole share. For the years ended March 31, 2004 and 2003, sales of products to subsidiaries of DrugMax were
approximately zero and $5,760, respectively. As of March 31, 2004, $1,274 was due from DrugMax and is included in amounts due from affiliates.



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, 2004 and 2003, purchases of products from subsidiaries of Innovative were $698,559 and $164,922, respectively, and sales of
products to subsidiaries of Innovative were $2,900 and $3,574, respectively. As of March 31, 2004 and 2003, $242,113 and $29,140, respectively, were due to subsidiaries of Innovative and are included in obligations to affiliates.



F - 14



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 2  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 years ended March 31, 2004 and 2003, purchases of
products from T & L, Inc. (T&L), an affiliate of Mandeep K. Taneja, a Director, Chief Executive Officer and President of the Company, were approximately $89,642 and $2,262, respectively, and sales of products to T&L were
approximately zero and $37, respectively. For the year ended March 31, 2004, the Company charged T&L fees totaling $1,454 for prescription services provided. The charge is on an hourly basis for services rendered. As of March 31, 2004 and 2003,
approximately $5,192 and zero, respectively, were due from T&L and are included in amounts due from affiliates, and $1,898 and zero, 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 is a 50% partner in Generilean, a Florida limited liability company in which the Company is 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.



NOTE 3  MARKETABLE EQUITY SECURITIES, NET



At March 31, 2004 investments in marketable equity securities, net are summarized as follows.



|                                     |  |                       |           |                       |   |            |  |   |          
|------------------------------------ |  | --------------------- | --------- | --------------------- | - | ---------- |  | - | ---------
|                                     |  | Gross Unrealized Gain |           | Gross Unrealized Loss |   | Fair Value
|Available for sale equity securities |  | $                     | 3,572,643 |                       | $ |           |  | $ | 3,806,324
|                                     |  |                       |           |                       |   |            |  |   |          



F - 15



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 3  MARKETABLE EQUITY
SECURITIES, NET (Continued)



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, 2004 and 2003, the Company realized losses of $102,434 and $21,570, respectively, and no gains from the sale of available for sale equity
securities.



NOTE 4  ACCOUNTS RECEIVABLE, NET



At March 31, 2004 and 2003, accounts receivable, net consist of the
following:





|                                          |  |      |         |      |   |        |  
|----------------------------------------- |  | ---- | ------- | ---- | - | ------ | -
|                                          |  | 2004 |         | 2003 |  
|Accounts receivable                       |  | $    | 154,230 |      | $ | 52,080 |  
|Less allowance for uncollectible accounts |  |      |        |      |   | (925   | )
|                                          |  |      |         |      |   |        |  
|Total                                     |  | $    | 154,230 |      | $ | 51,155 |  
|                                          |  |      |         |      |   |        |  



For the years ended
March 31, 2004 and 2003, bad debt expense charged to operations for estimated uncollectible accounts receivable was $42 and $933, respectively, whereas uncollectible accounts receivable written off during the years amounted to $967 and $29,
respectively.



NOTE 5  INVENTORIES



At March 31, 2004 and 2003, inventories, net consist of the following:



|                              |  |      |         |   |      |   |         |  
|----------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                              |  | 2004 |         |   | 2003 |  
|Raw materials                 |  | $    | 29,457  |   |      | $ | 17,679  |  
|Work in process               |  |      | 82,909  |   |      |   | 6,866   |  
|Finished goods                |  |      | 96,677  |   |      |   | 57,417  |  
|                              |  |      |         |   |      |   |         |  
|                              |  |      | 209,043 |   |      |   | 81,962  |  
|Less reserve for obsolescence |  |      | (19,850 | ) |      |   | (56,300 | )
|                              |  |      |         |   |      |   |         |  
|Total                         |  | $    | 189,193 |   |      | $ | 25,662  |  
|                              |  |      |         |   |      |   |         |  



NOTE 6  NOTES RECEIVABLE, NET



At March 31, 2004 and 2003, the balances for notes
receivable, net were zero. For the year ended March 31, 2003, bad debt expense charged to operations for uncollectible notes receivable was $1,028,411, associated with a note receivable resulting from the November 2001 sale of a subsidiary of the
Company, whereas uncollectible notes receivable written off during the year ended March 31, 2003 amounted to $1,291,143.



F - 16



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 7  PROPERTY, PLANT AND EQUIPMENT, NET



At March 31, 2004 and 2003, property, plant and equipment, net consist of
the following:



|                                               |  |      |           |   |      |   |           |  
|---------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                               |  | 2004 |           |   | 2003 |  
|Land and building                              |  | $    | 1,535,212 |   |      | $ | 1,535,212 |  
|Machinery and equipment                        |  |      | 23,435    |   |      |   | 13,697    |  
|Furniture, fixtures and equipment              |  |      | 96,005    |   |      |   | 140,482   |  
|Leasehold improvements                         |  |      | 1,278     |   |      |   | 7,456     |  
|                                               |  |      |           |   |      |   |           |  
|                                               |  |      | 1,655,930 |   |      |   | 1,696,847 |  
|Less accumulated depreciation and amortization |  |      | (341,531  | ) |      |   | (322,542  | )
|                                               |  |      |           |   |      |   |           |  
|Total                                          |  | $    | 1,314,399 |   |      | $ | 1,374,305 |  
|                                               |  |      |           |   |      |   |           |  



Depreciation expense
charged to operations was $84,534 and $94,307 for the years ended March 31, 2004 and 2003, respectively.



The Company subleases a facility, which serves as the Companys corporate headquarters and is also used for its offices, warehousing and shipping
operations (see Note 2).



NOTE 9  INTANGIBLE ASSETS, NET



At March 31, 2004 and 2003, intangible assets, net
consist of the following:



|                              |  |      |        |   |      |   |        |  
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                              |  | 2004 |        |   | 2003 |  
|Lease costs                   |  | $    |       |   |      | $ | 500    |  
|Loan costs                    |  |      | 28,613 |   |      |   | 28,613 |  
|Trademark                     |  |      | 2,856  |   |      |   |       |  
|                              |  |      |        |   |      |   |        |  
|                              |  |      | 31,469 |   |      |   | 29,113 |  
|Less accumulated amortization |  |      | (5,627 | ) |      |   | (4,530 | )
|                              |  |      |        |   |      |   |        |  
|Total                         |  | $    | 25,842 |   |      | $ | 24,583 |  
|                              |  |      |        |   |      |   |        |  



Amortization expense
charged to operations was $1,597 and $1,244 for the years ended March 31, 2004 and 2003, respectively.



F - 17



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



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. At March 31, 2003, the Companys investment in Vertical amounted $357,902. For the period from April 1, 2002 through December 31, 2002, $47,206 was recorded
as the Companys share of Verticals loss.



The
results of operations of the Companys equity-basis affiliate, Vertical, for the nine months ended December 31, 2002, are summarized below:



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



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.



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 year ended March 31, 2004, no financial information is provided for such period.



F - 18



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 10  INVESTMENTS IN
UNCONSOLIDATED AFFILIATES (Continued)



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, 2004 and 2003, zero and $4,278, respectively, were due to Tribeca and are included in obligations to affiliates.



The results of operations of the Companys equity-basis
affiliate, Tribeca, for the twelve months ended March 31, 2004 and 2003, are summarized below:



|                                        |  |      |         |   |      |   |         |  
|--------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                        |  | 2004 |         |   | 2003 |  
|Condensed Income Statement Information: |  |      |         |   |      |   |         |  
|Net sales                               |  | $    | 4,207   |   |      | $ | 50,408  |  
|Gross profit                            |  |      |        |   |      |   | 23,118  |  
|Net loss                                |  |      | (27,467 | ) |      |   | (68,040 | )



Investment in DrugMax, Inc.



The Company accounted for its investment in DrugMax under
the equity method until November 22, 2002, at which time the Company distributed all of its remaining investment in DrugMax to its shareholders, which consisted of approximately 1,933,000 shares of DrugMax common stock (see Note 2). For the year
ended March 31, 2003, the Company realized a loss on the distribution of this investment in the amount of $1,388,088. For the period from April 1, 2002 through November 21, 2002, $3,490,001 was recorded as the Companys share of DrugMaxs
loss.



The combined results of operations and financial
position of the Companys equity-basis affiliate, DrugMax, for the nine months ended December 31, 2002 are summarized below:



|                                        |  |   |             |  
|--------------------------------------- |  | - | ----------- | -
|Condensed Income Statement Information: |  |   |             |  
|Net sales                               |  | $ | 222,073,763 |  
|Gross profit                            |  |   | 6,144,490   |  
|Net income (loss)                       |  |   | (12,859,887 | )



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



On October 2, 2002, the Company transferred 332,500 shares of its investment in DrugMax upon full execution of a Release And Settlement Agreement. The
settlement was agreed upon on March 20, 2002.



F - 19



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



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. At this time, Generilean is not actively conducting operations.



NOTE 11  INCOME TAXES



Income tax expense (benefit) for the years ended March 31, 2004 and 2003 are as follows:



|                                      |  |      |          |   |      |   |            |  
|------------------------------------- |  | ---- | -------- | - | ---- | - | ---------- | -
|                                      |  | 2004 |          |   | 2003 |  
|Current income tax expense (benefit)  |  | $    | (24,700  | ) |      | $ | 6,250      |  
|Deferred income tax expense (benefit) |  |      | (114,279 | ) |      |   | (2,424,396 | )
|                                      |  |      |          |   |      |   |            |  
|Income tax expense (benefit)          |  | $    | (138,979 | ) |      | $ | (2,418,146 | )
|                                      |  |      |          |   |      |   |            |  



Income taxes for the
years ended March 31, 2004 and 2003 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:



|                                                |  |      |         |   |      |   |            |  
|----------------------------------------------- |  | ---- | ------- | - | ---- | - | ---------- | -
|                                                |  | 2004 |         |   | 2003 |  
|Computed tax expense at the statutory rate      |  | $    | (91,630 | ) |      | $ | (2,481,300 | )
|Increase (decrease) in taxes resulting from:    |  |      |         |   |      |   |            |  
|State income taxes, net of federal tax benefit  |  |      |        |   |      |   |           |  
|Receivable and inventory allowances             |  |      | (13,700 | ) |      |   | 21,000     |  
|Gain on sale of subsidiary                      |  |      |        |   |      |   | (27,000    | )
|Equity in loss of affiliated companies          |  |      | 3,400   |   |      |   | 1,314,300  |  
|Depreciation                                    |  |      | 11,230  |   |      |   | 33,800     |  
|Distribution of investment stock                |  |      |        |   |      |   | 905,800    |  
|Loss on sale of securities                      |  |      | 66,000  |   |      |   |           |  
|Bad debt expense on note receivable             |  |      |        |   |      |   | 273,000    |  
|Unrealized loss on marketable equity securities |  |      |        |   |      |   | 24,000     |  
|Net operating loss utilization                  |  |      |        |   |      |   | (33,260    | )
|Business credits utilization                    |  |      |        |   |      |   | (24,090    | )
|                                                |  |      |         |   |      |   |            |  
|Current income tax expense (benefit)            |  | $    | (24,700 | ) |      | $ | 6,250      |  
|                                                |  |      |         |   |      |   |            |  



F - 20



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 11  INCOME TAXES
(Continued)



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



|                                                  |  |      |           |   |      |   |          |  
|------------------------------------------------- |  | ---- | --------- | - | ---- | - | -------- | -
|                                                  |  | 2004 |           |   | 2003 |  
|Deferred tax assets:                              |  |      |           |   |      |   |          |  
|Bad debts                                         |  | $    |          |   |      | $ | 350      |  
|Inventories                                       |  |      | 7,500     |   |      |   | 21,200   |  
|Net operating loss carryforward                   |  |      | 110,400   |   |      |   | 44,000   |  
|Unrealized losses on marketable equity securities |  |      |          |   |      |   | 24,800   |  
|Depreciation                                      |  |      | 38,500    |   |      |   | 34,500   |  
|Investment in unconsolidated subsidiary           |  |      |          |   |      |   | 27,000   |  
|                                                  |  |      |           |   |      |   |          |  
|Gross deferred tax assets                         |  |      | 156,400   |   |      |   | 151,850  |  
|Less valuation allowance                          |  |      |          |   |      |   | (151,850 | )
|                                                  |  |      |           |   |      |   |          |  
|                                                  |  | $    | 156,400   |   |      | $ |         |  
|                                                  |  |      |           |   |      |   |          |  
|Deferred tax liabilities:                         |  |      |           |   |      |   |          |  
|Unrealized gain on marketable equity securities   |  | $    | 1,345,700 |   |      | $ |         |  
|                                                  |  |      |           |   |      |   |          |  
|Gross deferred tax liability                      |  | $    | 1,345,700 |   |      | $ |         |  
|                                                  |  |      |           |   |      |   |          |  
|Net increase (decrease) in valuation allowance    |  | $    | (151,850  | ) |      | $ |         |  
|                                                  |  |      |           |   |      |   |          |  



As of March 31, 2004
and 2003, the Company had an accrued income tax liability of zero and $5,746, respectively and a net deferred income tax liability of $1,189,300 and zero, 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, 2013.



F - 21



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 12  LONG-TERM OBLIGATIONS



Long-term obligations consist of the following at March 31, 2004 and 2003:



|                                                                                                                                                                                                                                                 |  |      |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                 |  | 2004 |         | 2003
|Note payable collateralized by real property, due in monthly payments of approximately $6,483, including interest at prime (5.00% at March 31,
2004 and 2003) plus 2.25% through October 2024. The note is guaranteed by the Companys Chairman. |  | $    | 831,891 |      | $ | 847,912
|Capitalized lease obligations for equipment, due in monthly principal and interest payments of approximately $1,813 through
2004.                                                                                                                |  |      |        |      |   | 11,710 
|Other                                                                                                                                                                                                                                            |  |      | 8,623   |      |   | 8,623  
|                                                                                                                                                                                                                                                 |  |      |         |      |   |        
|                                                                                                                                                                                                                                                 |  |      | 840,514 |      |   | 868,245
|Less current maturities                                                                                                                                                                                                                          |  |      | 27,023  |      |   | 36,533 
|                                                                                                                                                                                                                                                 |  |      |         |      |   |        
|Total                                                                                                                                                                                                                                            |  | $    | 813,491 |      | $ | 831,712
|                                                                                                                                                                                                                                                 |  |      |         |      |   |        



At March 31, 2004,
aggregate maturities of long-term obligations are as follows:



|                      |  |   |        
|--------------------- |  | - | -------
|Year Ending March 31, |  |  
|2005                  |  | $ | 27,023 
|2006                  |  |   | 16,021 
|2007                  |  |   | 16,021 
|2008                  |  |   | 16,021 
|2009                  |  |   | 16,021 
|Thereafter            |  |   | 749,407
|                      |  |   |        
|Total                 |  | $ | 840,514
|                      |  |   |        



F - 22



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 13  COMMITMENTS AND CONTINGENCIES



Operating Leases



The Company has operating leases for facilities and certain machinery and equipment that expire at various dates through 2008. 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, 2004:





|                      |  |   |        
|--------------------- |  | - | -------
|Year Ending March 31, |  |  
|2005                  |  | $ | 58,124 
|2006                  |  |   | 54,003 
|2007                  |  |   | 8,179  
|2008                  |  |   | 1,363  
|2009                  |  |   |       
|Thereafter            |  |   |       
|                      |  |   |        
|                      |  | $ | 121,669
|                      |  |   |        



Total rent expense for
the years ended March 31, 2004 and 2003 was approximately $52,736 and $52,202, respectively.



Consulting Agreement



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



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



F - 23



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 14  STOCK OPTIONS



The Companys Stock Option Plan (SOP) was adopted in March 1999 to provide for the grant to employees up to
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.



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:



|                        |  |         |   |  |         |  
|----------------------- |  | ------- | - |  | ------- | -
|                        |  | 2004    |   |  | 2003    |  
|Risk-free interest rate |  | 3.06    | % |  | 2.93    | %
|Dividend yield          |  |        |   |  |        |  
|Volatility              |  | 250     | % |  | 250     | %
|Average expected term   |  | 5 years |   |  | 5 years |  



F - 24



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 14  STOCK OPTIONS
(Continued)



The following summarizes information about the aggregate stock option activity for the years ended
March 31, 2004 and 2003:



|                                                                                              |  |                 |  |                              |      |                 |         |                              |   |    
|--------------------------------------------------------------------------------------------- |  | --------------- |  | ---------------------------- | ---- | --------------- | ------- | ---------------------------- | - | ---
|                                                                                              |  | 2004            |  | 2003                        
|                                                                                              |  | Numberof Shares |  | WeightedAverageExercisePrice |      | Numberof Shares |         | WeightedAverageExercisePrice
|Outstanding, beginning of year                                                                |  | 700,000         |  | $                            | .17  |                 |        |                              | $ |   
|Granted                                                                                       |  | 205,000         |  |                              | 1.04 |                 | 700,000 |                              |   | .17
|Exercised                                                                                     |  |                |  |                              |     |                 |        |                              |   |   
|Expired and forfeited                                                                         |  |                |  |                              |     |                 |        |                              |   |   
|                                                                                              |  |                 |  |                              |      |                 |         |                              |   |    
|Outstanding, end of year                                                                      |  | 905,000         |  | $                            | .37  |                 | 700,000 |                              | $ | .17
|                                                                                              |  |                 |  |                              |      |                 |         |                              |   |    
|Options vested, end of year                                                                   |  | 233,324         |  | $                            | .17  |                 |        |                              | $ |   
|                                                                                              |  |                 |  |                              |      |                 |         |                              |   |    
|Weighted average fair value of options granted during the years ended March 31, 2004 and 2003 |  |                 |  | $                            | .995 |                 |         |                              | $ | .16
|                                                                                              |  |                 |  |                              |      |                 |         |                              |   |    



As of March 31, 2004,
there were 905,000 options outstanding. As of March 31, 2003, there were 700,000 (125,000 pre-split) options outstanding. Options outstanding and exercisable under the plan as of March 31, 2004 were:



|                         |  |                 |  |                              |     |                                               |      |                 |         |                              |   |    
|------------------------ |  | --------------- |  | ---------------------------- | --- | --------------------------------------------- | ---- | --------------- | ------- | ---------------------------- | - | ---
|                         |  | Outstanding     |  | Exercisable                 
|Range of Exercise Prices |  | NumberofOptions |  | WeightedAverageExercisePrice |     | WeightedAverageRemaining ContractedLife (yrs) |      | NumberofOptions |         | WeightedAverageExercisePrice
|$ .16 - $1.10            |  | 905,000         |  | $                            | .37 |                                               | 8.20 |                 | 233,324 |                              | $ | .17



F - 25



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 14  STOCK OPTIONS
(Continued)



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:





|                                    |  |      |          |   |      |   |            |  
|----------------------------------- |  | ---- | -------- | - | ---- | - | ---------- | -
|                                    |  | 2004 |          |   | 2003 |  
|Net income (loss):                  |  |      |          |   |      |   |            |  
|As reported                         |  | $    | (108,671 | ) |      | $ | (4,291,589 | )
|                                    |  |      |          |   |      |   |            |  
|Pro forma                           |  | $    | (177,082 | ) |      | $ | (4,291,589 | )
|                                    |  |      |          |   |      |   |            |  
|Net income (loss) per common share: |  |      |          |   |      |   |            |  
|Basic income (loss) per share:      |  |      |          |   |      |   |            |  
|As reported                         |  | $    | (0.01    | ) |      | $ | (0.35      | )
|                                    |  |      |          |   |      |   |            |  
|Pro forma                           |  | $    | (0.01    | ) |      | $ | (0.35      | )
|                                    |  |      |          |   |      |   |            |  
|Diluted income (loss) per share:    |  |      |          |   |      |   |            |  
|As reported                         |  | $    | (0.01    | ) |      | $ | (0.35      | )
|                                    |  |      |          |   |      |   |            |  
|Pro forma                           |  | $    | (0.01    | ) |      | $ | (0.35      | )
|                                    |  |      |          |   |      |   |            |  



NOTE 15  SHAREHOLDERS
EQUITY



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



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



In May 2002, the Company issued 80,000 (20,000 pre-split)
shares of common stock of the Company in exchange for 20,000 shares of Series B 6% Cumulative Convertible Preferred stock of the Company, which shares were issued in conjunction with a private placement undertaken in 1998.



In September 2002, the Company issued 42,936 (10,734 pre-split) shares of
common stock of the Company in payment of $16,101 of accrued preferred share dividends.



F - 26



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 15  SHAREHOLDERS
EQUITY (Continued)



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



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 payment of 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 payment of $50,000 for consulting services provided to the Company.



F - 27



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 16  EARNINGS (LOSS) PER SHARE



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



|                                                   |  |      |            |   |      |   |            |  
|-------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                   |  | 2004 |            |   | 2003 |  
|Numerator:                                         |  |      |            |   |      |   |            |  
|Net income (loss)                                  |  | $    | (108,671   | ) |      | $ | (4,291,589 | )
|Less preferred stock dividends                     |  |      |           |   |      |   |           |  
|                                                   |  |      |            |   |      |   |            |  
|Net income (loss) available to common shareholders |  | $    | (108,671   | ) |      | $ | (4,291,589 | )
|                                                   |  |      |            |   |      |   |            |  
|Denominator:                                       |  |      |            |   |      |   |            |  
|Weighted average shares outstanding                |  |      | 12,387,611 |   |      |   | 12,300,228 |  
|Effect of dilutive securities:                     |  |      |            |   |      |   |            |  
|Employee stock options                             |  |      |           |   |      |   |           |  
|Series A Convertible Preferred Stock               |  |      |           |   |      |   |           |  
|Series B Cumulative Convertible Preferred Stock    |  |      |           |   |      |   |           |  
|                                                   |  |      |            |   |      |   |            |  
|Weighted average fully diluted shares outstanding  |  |      | 12,387,611 |   |      |   | 12,300,228 |  
|                                                   |  |      |            |   |      |   |            |  
|Net earnings (loss) per common share              |  |      |            |   |      |   |            |  
|Basic and diluted                                  |  | $    | (0.01      | ) |      | $ | (0.35      | )
|                                                   |  |      |            |   |      |   |            |  



NOTE 17  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, 2004, three customers represented approximately 35% on consolidated revenue. For the year ended March 31, 2003, two
customers represented approximately 26% of consolidated revenue. 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, 2004, the Company had cash deposits in excess of the Federal Deposit Insurance Companys $100,000 insurance limit.



NOTE 18  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS



For the years ended March 31, 2004 and 2003, the Company had two industry
segments: Distribution and Prescription Services. The channels of distribution include health food, 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 a distribution center located in Largo, Florida.



F - 28



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 18  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, 2004 and 2003.



|                        |  |      |           |   |      |   |           |  
|----------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                        |  | 2004 |           |   | 2003 |  
|Revenues                |  |      |           |   |      |   |           |  
|Distribution            |  | $    | 1,677,405 |   |      | $ | 822,077   |  
|Prescription Services   |  |      | 215,134   |   |      |   | 8,359     |  
|                        |  |      |           |   |      |   |           |  
|                        |  | $    | 1,892,539 |   |      | $ | 830,436   |  
|                        |  |      |           |   |      |   |           |  
|Intersegment sales      |  | $    |          |   |      | $ |          |  
|                        |  |      |           |   |      |   |           |  
|Gross profit            |  |      |           |   |      |   |           |  
|Distribution            |  | $    | 908,551   |   |      | $ | 399,871   |  
|Prescription Services   |  |      | 41,435    |   |      |   | 1,046     |  
|                        |  |      |           |   |      |   |           |  
|                        |  | $    | 949,986   |   |      | $ | 400,917   |  
|                        |  |      |           |   |      |   |           |  
|Operating income (loss) |  |      |           |   |      |   |           |  
|Distribution            |  | $    | 229,304   |   |      | $ | (74,510   | )
|Prescription Services   |  |      | (23,222   | ) |      |   | (8,657    | )
|                        |  |      |           |   |      |   |           |  
|                        |  | $    | 206,082   |   |      | $ | (83,167   | )
|                        |  |      |           |   |      |   |           |  
|Assets                  |  |      |           |   |      |   |           |  
|Distribution            |  | $    | 597,537   |   |      | $ | 201,862   |  
|Prescription Services   |  |      | 2,142,421 |   |      |   | 8,642     |  
|Corporate               |  |      | 3,125,189 |   |      |   | 1,799,250 |  
|                        |  |      |           |   |      |   |           |  
|                        |  | $    | 5,865,147 |   |      | $ | 2,009,754 |  
|                        |  |      |           |   |      |   |           |  



NOTE 19  SUBSEQUENT EVENTS



On June 14, 2004, the Board of Directors of the Company
approved the declaration of a dividend distribution to holders of record of its issued and outstanding common shares as of July 1, 2004, in the form of approximately 1.3 million shares of Vertical Health Solutions, Inc., which the Company owns. The
payment date is July 15, 2004.



F - 29



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



NOTE 19  SUBSEQUENT EVENTS (Continued)



In June 2004, the Company entered into a Proposal Letter with an institutional investor, pursuant to which such investor
will purchase a $6,000,000 convertible note from the Company. The closing is subject to various terms and conditions including negotiations of definitive agreements between the investor and the Company.



F - 30