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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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

For the fiscal year ended March 31, 2006



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

For the transition period from  to

Commission file number 0-23031



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DYNAMIC HEALTH PRODUCTS, INC.

(Name of small business issuer in its charter)



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



|                                                    |  |           
|--------------------------------------------------- |  | ----------
|12399 Belcher Road South, Suite 140, Largo, Florida |  | 33773     
|(Address of principal executive offices)            |  | (Zip Code)

Issuers telephone number (727) 683-0670



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Securities registered under
Section 12(b) of the Exchange Act: None

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



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

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

Issuers revenues for its most recent fiscal year were $50,142,206.

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

The aggregate market value of the voting common stock
held by non-affiliates of the Registrant was $1,371,232, based upon the last reported trade of the stock on June 26, 2006, which was 15,000 shares at $0.26 per share.

The number of shares outstanding of the Issuers common stock at $.01 par value as of June 26, 2006 was 15,055,035.



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PART I

Item 1. DESCRIPTION OF BUSINESS.

The Companys executive offices are located at 12399 Belcher Road South, Suite
140, Largo, Florida 33773 and its telephone number is (727) 683-0670. References in this Annual Report on Form 10-KSB refer to Dynamic Health Products, Inc. and, as applicable, its subsidiaries as the Company or Dynamic,
unless the context otherwise requires.

General

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

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

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

The Company has grown primarily through acquisitions. In June 1998, the Company acquired, through a merger with a wholly-owned subsidiary of the Company, Energy Factors, Inc. (Energy Factors), a Florida corporation, which had a
33,222 square foot office, laboratory, manufacturing and warehouse facility located in Largo, Florida. After the acquisition, the Company changed the name of Energy Factors to Innovative Health Products, Inc. In February 2000, its name was changed
to Go2Pharmacy.com, Inc., in September 2000, its name was changed to Go2Pharmacy, Inc., in September 2002, its name was changed to Innovative Companies, Inc., and in June 2004, its name was changed to GeoPharma, Inc. (GeoPharma).
GeoPharma creates, manufacturers, and packages a wide variety of proprietary and non-proprietary



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dietary supplements, and health and beauty care products, and manufactures generic and over-the-counter drugs. On
November 7, 2000, the United States Securities and Exchange Commission (SEC) declared GeoPharmas registration of 1,000,000 shares of its common stock to be effective. Prior to the offering, the Company owned all of the issued
and outstanding common stock of GeoPharma. In March 2001, the Company distributed 2,324,984 shares of GeoPharma common stock to its shareholders. As of March 31, 2006 and 2005, the Company held 347,938 shares of common stock of GeoPharma.

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

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

In September 1998, the Company formed Incredible Products of Florida, Inc., a Florida corporation,
to market dietary supplements through distributors and radio infomercials. In May 1999, the Company formed Online Meds Rx, Inc. (OMR), formerly Dynamic Life, Inc., as a Florida corporation. In March 2000, Incredible was merged into OMR.
OMR marketed dietary supplements, over-the-counter drugs, and health and beauty care products primarily through distributors and through direct marketing to consumers. The operations of OMR, as previously conducted, are now carried out through the
Herbal Health Products, Inc. In March 2003, OMR began providing prescription services through direct mail and through its web sites. In September 2004, OMR discontinued its prescription services operations. At this time, OMR is not actively
conducting operations.

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

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. In April 2004, PNV discontinued its prescription services operations. At this time, PNV is not actively conducting operations.

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

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

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

Products

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

Product Development

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

Marketing and Sales

The Companys products are marketed directly to its wholesale and retail customers through the Companys in-house salespeople. The Company distributes markets and distributes a wide variety of sports
nutrition products, performance drinks, non-prescription dietary supplements, over-the-counter drugs, health and beauty care products, health food and nutritional



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products, soft goods and other related products to gyms, health food stores, regional and national chain drugstore,
internet companies, mail order facilities, mass merchandisers, deep discounters, distributors and brokers. The Companys products are also marketed through catalog sales, direct mail and through the Companys web sites.

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

Competition

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

The Company faces substantial competition from other regional and national distributors in the sports nutrition products, performance drinks,
non-prescription dietary supplements, over-the-counter drugs, health and beauty care products, health food and nutritional products, soft goods and other related products industries, both domestic and abroad. The Companys branded products face
substantial competition from broad line manufacturers, major private label manufacturers and, more recently, large pharmaceutical companies and pharmacies, both domestic and abroad. Increased competition from such companies could have a material
adverse affect on the Company because such companies have greater financial and other resources available to them and possess marketing and distribution capabilities far greater than those of the Company.

The Company competes on the basis of competitive pricing, its ability to develop new product lines and customer service. Due to the Companys larger
purchasing power, the Company is able to offer its products at what we believe are more attractive prices to our customers. The Company works closely with contract manufacturers to continue to develop future products and to expand our product line
to satisfy the continuing changing needs of customers. The Company has trained in-house customer service personnel available to address all of our customers needs. The Companys ability to compete favorably with its competitors with
respect to its branded products will depend primarily upon its development of brand recognition across multiple distribution channels, its ability to quickly develop new products with market potential, to successfully advertise, market and promote
its products, as well as its product quality and the development of a strong and effective distribution network.

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, 2006, the Company had no backlog sales orders.

Research and Development

The Company contracts
research and development primarily through its affiliate,



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

Trademarks

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

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

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

Principal Suppliers and Sources of Supply

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



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Quality Control

Although the Company does not directly manufacture its products, we endeavor to purchase products manufactured in accordance with the Good Manufacturing Practices (GMPs) prescribed by the United
States Food and Drug Administration, all other applicable regulatory standards, and rigorous quality control procedures used by the manufacturers of the products which the Company purchases. The Company utilized licensed pharmacies for its
fulfillment of prescription medications and those pharmacies were solely responsible for ensuring that the products and services provided met acceptable standards.

Government Regulation

Although the manufacture, packaging, labeling, advertising, promotion, distribution and sale of the
Companys products are subject to regulation by numerous government agencies, such regulations apply to the manufacturers of the products, but the Company is not directly regulated.

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

The Companys advertising of its products is subject to regulation by the U.S. Federal
Trade Commission (FTC) under the Federal Trade Commission Act (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. If the FTC were to 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.



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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.

Employees

As of March 31, 2006 the Company had 92 employees, of which 89 were full-time employees and three were part-time employees, as compared to 85
employees, of which 82 were full-time employees and three part-time employees as of March 31, 2005. Of such full-time employees, 18 were engaged in marketing and sales, 10 were devoted to customer service, 43 were devoted to warehousing and
distribution, one was devoted to web site development and database administration, and 17 were responsible for management and administration. Of such part-time employees, one was devoted to customer service and two were devoted to warehousing and
distribution. None of the Companys employees are covered by a collective bargaining agreement. The Company considers its relations with its employees to be good.

In each case, the employees are permitted to participate in employee benefit plans of the Company that may be in effect from time to time, to the extent eligible, and each employee may be entitled to receive an annual
bonus as determined at the sole discretion of the Companys Board of Directors based on the Boards evaluation of the employees performance and the financial performance of the Company. Each employee 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 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.



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Except for historical information, the Companys Annual Report on Form 10-KSB for the year ended
March 31, 2006, 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.

Consolidation in the Health and Nutritional Product Distribution Industry May Make It More Difficult for Us to Compete with Larger Companies, We May
be Required to Sell Products At Prices Below Our Profit Margin.The health and nutritional product distribution industry is subject to significant economic factors, including consolidation of our competitors. Some of our competitors are
consolidating to create integrated delivery systems with greater market presence and negotiation power with manufacturers. As the health and nutritional product distribution industry consolidates, competition for customers will become more intense
and the importance of acquiring each customer will become greater. A forced reduction in our prices to meet these challenges may reduce our operating margins and increase our losses.

We Rely on Strategic Relationships to Generate Revenue, the Loss of Which Would Cause Our Revenues to Decrease.Our success relies on establishing
and maintaining strategic relationships with leaders in the health and nutritional product distribution industry. We believe that these relationships will enable us to extend our distribution, obtain specialized industry expertise, and increase
overall revenue. We may be unable or unwilling to establish such relationships due to preexisting relationships that these market leaders or we have with other competitors. Furthermore, our strategic relationships may change rapidly in the event
that current or future partners decide to compete with us. Consequently, we intend to maintain independence from any particular customer or partner through the use of oral agreements rather than written contracts. Consequently, these agreements may
be terminated by the customers at any time. If we lose the right to distribute products under such agreements, we may lose the ability to market certain of our products. Our inability to establish or maintain our strategic relationships may reduce
our revenues and increase our losses from operations.

Our Business is Subject to Government Regulation, the Failure to Comply with
Which Could Result in Significant Penalties.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



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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.

Our Business Depends Upon Third Party Manufacturers, the Loss or Unavailability of Which Would Require Us to Find Substitute Manufacturers, Resulting
in Delays in Production and Additional Expenses.Many of our products are produced for us by third party manufacturers. We cannot assure that these manufacturers will provide the products we need, in the quantities we request, or at a price we
are willing to pay. In general, we do not maintain written agreements with these manufacturers. Because of the lack of such agreements, there can be no assurance that products we need will be available. Our inability to obtain adequate supplies of
product from third party manufacturers at favorable prices, or at all, may increase our expenses and reduce our operating margins, resulting in increased losses.

Our Products Have Limited Trademark Protection, Which Could Permit Others to Market Similar Products, Resulting in Decreased Sales by Dynamic Health.Our policy is to pursue registration of all of the
trademarks associated with our key proprietary products. We rely on common law trademark rights to protect our unregistered trademarks as well as our trade dress rights. Generally, common law trademark rights are limited to the geographic area in
which the trademark is actually used, while a United States federal trademark registration enables the registrant to stop the unauthorized use of the trademark by any third party anywhere in the United States. Although sales outside the United
States currently constitute less than 1% of our revenues, we intend to register our trademarks in certain foreign jurisdictions where our products are sold. We cannot assure that the protection available in such jurisdictions, if any, will be as
extensive as the protection available to us in the United States. In addition, because we have no patents on our proprietary products, another company may replicate them. Inadequate trademark and patent protection of our proprietary products may
reduce sales of our products.

Our Articles of Incorporation and Bylaws Contain Provisions that May Discourage Takeovers or Make Them
More Difficult, Regardless of Whether or Not such a Takeover Would Be Advantageous for Our Stockholders.Certain provisions of our articles of incorporation and bylaws, as well as certain sections of the Florida Business Corporation Act, and our
board of directors ability to issue shares of preferred stock and to establish voting rights, preferences and other terms of our stock, may be deemed to have an anti-takeover effect and may discourage takeover attempts that are not first
approved by our board of directors. This anti-takeover effect may discourage takeovers which stockholders may deem to be in their best interests.

Possible Adverse Publicity About Our Products Could Adversely Affect Sales of These Products. We are 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. We are 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 affect us regardless of whether such reports are
scientifically supported or whether the claimed harmful effects would be present at the dosages recommended for such products.



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

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

Competition.The wholesale and retail product distribution industries are highly competitive.
Numerous companies, many of which have greater size and greater financial, personnel, distribution, marketing and other resources than the Company, compete with us in the development, marketing and distribution of our products. Competition from such
companies could have a material adverse effect on the Company. The Company also faces competition in both the health food store and mass market distribution channels from private label products offered by sports nutrition product and performance
drink manufacturers and distributors, health and natural food store chains, drugstore chains, mass merchandisers and supermarket chains. See Business  Competition.

Our Products Could Infringe 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.

The Loss of a Significant Customer Could Result in a Substantial Decrease in Revenues. For the year ended March 31,
2006, 11% of consolidated revenues were received from one customer, DPS Nutrition Inc., representing a concentration of credit risk. If the Companys major customers substantially reduced their volume of purchases from the Company, the
Companys business, financial condition, results of operations and cash flows could be materially adversely affected.

General Risks

We May Grow In Excess of our Ability to Manage Such Growth, Which Could Result in Inefficiencies.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.



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Possible Future Acquisitions May be Difficult to Assimilate and Adequate Funding May not be
Available. 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.

Control by Certain Stockholders Could Make it Difficult for Others to Control Election of our Directors or other Corporate Actions. Directors,
executive officers and related family members beneficially own approximately 59.1% of the outstanding shares of the Companys common stock. Therefore, these stockholders will have significant control over the election of the Companys
directors and most of the Companys corporate actions.

Exposure to Natural Disaster Could Result in Unforseen Expenses or
Disruptions to Our Business. One of the Companys facilities 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.

Our Common Stock is Subject to the Penny Stock Rules of the SEC and the Trading Market in Our
Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a penny stock, for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise
price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the



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rules require:



| |  | that a broker or dealer approve a persons account for transactions in penny stocks; and
|- |  | ----------------------------------------------------------------------------------------



| |  | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

In order to approve a persons account for transactions in penny stocks, the broker or dealer must:



| |  | Obtain financial information and investment experience objectives of the person; and
|- |  | ------------------------------------------------------------------------------------



| |  | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be
capable of evaluating the risks of transactions in penny stocks.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The broker or dealer must also deliver, prior to any
transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:



| |  | sets forth the basis on which the broker or dealer made the suitability determination; and
|- |  | ------------------------------------------------------------------------------------------



| |  | that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
|- |  | ----------------------------------------------------------------------------------------------------------

Generally, brokers may be less willing to execute transactions in securities subject to the penny stock rules. This may make it more
difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights
and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in
penny stocks.

Item 2. DESCRIPTION OF PROPERTY.

On January 1, 2004, the Company entered into a verbal agreement with GeoPharma, Inc., 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 served as the Companys corporate headquarters and was also used for a portion of the Companys office, warehousing and shipping operations, until
May 1, 2005. The initial rental under the sublease was $41,066 annually.

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



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

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

On March 29, 2005, the Company entered
into an assignment and assumption of lease agreement with Dynamic Marketing, Inc., effective March 31, 2005, whereby the Company agreed to assume the lease for approximately 14,725 square feet of warehouse space for its warehousing and shipping
operations in Henderson, Nevada, for the balance of the lease term. This facility is used for a portion of the Companys warehousing and shipping operations. The lease is for a term of 62 months commencing on December 8, 2000 and ending on
April 30, 2006. The initial rental under the lease on March 31, 2005 was $76,568 annually.

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

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

As of March 31, 2006, the Company had equipment, furniture, vehicles and leasehold improvements, net of accumulated depreciation, in the amount of $743,846.

Item 3. LEGAL PROCEEDINGS.

The Company was involved in litigation with Hi-Tech Pharmaceuticals,
Inc. (Hi-Tech), whereby Hi-Tech filed a lawsuit against the Company on August 25, 2003 with the United States District Court for the Northern District of Georgia over claims regarding intellectual property matters, in connection
with the use of the Companys product named StaminaPro. Hi-Tech sought unspecified monetary damages as well as non-monetary relief. In addition, the Company instituted counterclaims against Hi-Tech and Jared Wheat, the President of Hi-Tech,
seeking relief for libel, slander and tortious interference in amounts in excess of $75,000, exclusive of interest and costs. On May 3, 2006, the parties elected to settle their differences in full as to all matters in dispute and upon receipt
of full payment of $20,000 by the Company to Hi-Tech, the lawsuit was dismissed.

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



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

None.

PART II

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

Market for Securities

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. The quotations below
reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions. High and low sales prices since that time, by quarter-ended date, are as follows:



|                   |  |      |      |     |   |     
|------------------ |  | ---- | ---- | --- | - | ----
|                   |  | High |      | Low
|June 30, 2004      |  | $    | 1.15 |     | $ | 0.51
|September 30, 2004 |  | $    | 1.25 |     | $ | 0.51
|December 31, 2004  |  | $    | 1.85 |     | $ | 0.75
|March 31, 2005     |  | $    | 1.58 |     | $ | 0.98
|June 30, 2005      |  | $    | 1.60 |     | $ | 0.57
|September 30, 2005 |  | $    | 0.97 |     | $ | 0.45
|December 31, 2005  |  | $    | 0.95 |     | $ | 0.35
|March 31, 2006     |  | $    | 0.48 |     | $ | 0.36

As of June 8, 2006, there were approximately 550 stockholders of record of the Companys
common stock, according to ADP and the Companys stock transfer agent, Registrar and Transfer Company, located in Cranford, New Jersey.

Dividend
Policy

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



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Recent Sales of Unregistered Securities

None.

The following table shows information
with respect to each equity compensation plan under which our common stock is authorized for issuance as of the fiscal year ended March 31, 2006.

EQUITY COMPENSATION PLAN INFORMATION



|                                                           |  |                                                                                       |  |                                                                          |      |                                                                                                                                       |          
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Plan category                                              |  | Number ofsecurities tobe issued uponexercise
ofoutstandingoptions,warrants and rights |  | Weightedaverage exercise price of outstandingoptions, warrants andrights |      | Number of securitiesremaining available forfuture issuance underequity compensationplans
(excludingsecurities reflected incolumn (a))
|                                                           |  | (a)                                                                                   |  | (b)                                                                      |      | (c)                                                                                                                                  
|Equity compensation plans approved by security holders     |  | 1,710,000                                                                             |  | $                                                                        | 0.72 |                                                                                                                                       | 4,290,000
|Equity compensation plans not approved by security holders |  |                                                                                      |  | $                                                                        | 0.00 |                                                                                                                                       |         



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

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

Overview

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

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

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

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

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



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Effective October 1, 2004, we acquired Bob OLeary Health Food Distributor Co., Inc. The
results of operations of BOSS have been included in our results of operations since the date of acquisition, October 1, 2004.

Effective March 31, 2005, through our wholly-owned subsidiary, Dynamic Marketing I, Inc., we acquired Dynamic Marketing, Inc. On March 30, 2005, through the filing by Dynamic Marketing I, Inc. of Articles of Merger, effective
March 31, 2005, Dynamic Marketing, Inc. merged into Dynamic Marketing I, Inc. with Dynamic Marketing I, Inc. being the surviving entity. The results of operations of DMI have been included in our results of operations since the date of
acquisition, March 31, 2005.

Results of Operations

Fiscal Year Ended March 31, 2006 Compared To Fiscal Year Ended March 31, 2005

Revenues

We generated revenues of $50,142,206 for the year ended March 31, 2006, an increase of $34,062,678 or 211.8%, compared to $16,079,528 for the year
ended March 31, 2005. The increase was primarily attributable to revenues associated with BOSS of approximately $39.9 million and revenues associated with DMI of approximately $9.7 million. The increase in revenues associated with BOSS was due
to organic growth of 34.1%, resulting from BOSSs expansion of its distribution channels with the opening of distribution centers in Henderson, Nevada and Largo, Florida in May 2005, the expansion of BOSSs in-house sales force and
BOSSs purchase of a customer list in February 2005. Our revenues associated with Herbal decreased by approximately $510,300, primarily due to a decrease in Herbals sales of its branded products, while Herbal has experienced an increase
in revenues attributable to the introduction of new products of approximately $200,800. Prescription services revenues were zero and $70,897, respectively, for the years ended March 31, 2006 and 2005. We discontinued our prescription services
operations in September 2004. We expect organic growth of up to 15% in the future, based on expansion of marketing efforts through our in-house sales force.

Gross Profit

We achieved a gross profit of $9,157,007 for the year ended March 31, 2006, an
increase of $6,006,112 or 190.6%, compared to $3,150,895 for the year ended March 31, 2005. Gross margin, as a percentage of revenues, decreased to 18.3% for the year ended March 31, 2006 from 19.6% for the year ended March 31, 2005.
Prescription services gross profit was zero and $8,082, respectively, for the years ended March 31, 2006 and 2005. The decrease in our gross margin was primarily due to a reduction in purchase volume discounts and a change in our mix of sales,
which can vary in any given quarter. We expect gross margins of 18% to 19% in the future.

Operating Expenses

We incurred operating expenses of $9,681,745 for the year ended March 31, 2006, compared to $4,249,369 for the year ended March 31, 2005. For
the year ended March 31, 2006, these expenses include various selling, general and administrative expenses of $9,226,697, and amortization and depreciation expenses of $455,048, compared to $4,079,092 in various selling, general and
administrative expenses, and amortization and depreciation expenses of $170,277 for the year ended March 31, 2005.



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For the years ended March 31, 2006 and 2005, selling, general and administrative expenses included
non-cash amortization of deferred consulting fees of $308,754 and $356,877, respectively.

Operating expenses, excluding amortization and
depreciation expenses decreased to 18.4% of revenues for the year ended March 31, 2006, from 25.4% of revenues for the year ended March 31, 2005. The decrease in operating expenses as a percentage of revenues was primarily attributable to
our growth in revenues associated with BOSS and DMI, as well as a decrease in legal fees, and was partially offset by expenses associated with BOSS and DMI, as well as an increase in accounting fees, an increase in amortization of deferred
consulting fees, an increase in the write off of bad debts and an increase in tradeshow expenses. We have improved our operating efficiencies as a result of our expansion of distribution facilities and integration of personnel and information
systems, following our acquisition of DMI.

Operating Income (Loss)

Operating loss decreased by 52.2%, or $573,736, to $524,738 for the year ended March 31, 2006 from $1,098,474 for the year ended March 31, 2005.
As a percentage of revenues, operating loss was 1.0% and 6.8%, respectively, for the years ended March 31, 2006 and 2005.

Excluding
amortization and depreciation expenses, and the non-cash amortization of deferred consulting fees, operating income (loss) would have been $239,064 and ($571,320), respectively, for the years ended March 31, 2006 and 2005.

Other Income (Expense)

Other income
(expense) increased $9,346,402 to $6,110,906 for the year ended March 31, 2006 from ($3,245,496) for the year ended March 31, 2005. Below is a discussion of each of the various line items of other income (expense).

Derivative instrument income (expense), net, was $10,314,794 for the year ended March 31, 2006, compared to ($3,838,170) for the year ended
March 31, 2005 and derivative instrument interest expense was $3,311,752 for the year ended March 31, 2006, compared to $1,227,038 for the year ended March 31, 2005. The accounting for derivative financial instruments is very complex
and has had a material non-cash effect on our net income (loss) for the years ended March 31, 2006 and 2005. We expect the accounting for these derivative financial instruments to have a material non-cash effect on our net income (loss) in any
given reporting period during the life of the derivative financial instruments. The effect on our future earnings (losses) cannot be predicted since various factors effect both the valuation and corresponding charges or credits to income at each
reporting period, as further discussed below under Derivative Instruments.

Interest income was $23,912 for the year ended
March 31, 2006, compared to $5,357 for the year ended March 31, 2005. The increase in interest income was due to interest received on the note receivable and higher cash amounts held in interest bearing accounts in banks.

In June 2004, our Board of Directors approved the declaration of a pro rata dividend distribution to our common shareholders of record in the form of
shares of common stock of Vertical Health Solutions, Inc., a publicly traded company. In July 2004, we distributed approximately 1.3 million shares of Vertical common stock to our shareholders. This resulted in a gain of $1,349,966 for the year
ended March 31, 2005, on the distribution of the investment.



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In October 2004, we sold rental property, consisting of land and a building to an affiliated company,
GeoPharma, for $1,925,000. This resulted in a gain of $654,241 for the year ended March 31, 2005, from the sale of the property. The sale price was determined by an independent third-party appraisal.

For the year ended March 31, 2006, other income and expenses, net, consisted primarily of legal and consulting fees incurred in connection with a
potential acquisition that was not consummated. For the year ended March 31, 2005, other income and expenses, net, consisted primarily of income resulting from rental of the property sold to GeoPharma in October 2004.

Interest expense was $749,873 for the year ended March 31, 2006, compared to $283,452 for the year ended March 31, 2005. Interest expense
increased for the year ended March 31, 2006, primarily due to the $6 million convertible term note that funded on September 30, 2004, in connection with the acquisition of BOSS and the $4 million convertible minimum borrowing note and
revolving note in connection with the acquisition of DMI. Approximately $60,500 of the interest expense for the year ended March 31, 2006 relates to the non-cash amortization of the debt discount based on the Black-Scholes option pricing model,
applied to the Postponement Agreement entered into in July 2005, in connection with the September 30, 2004 convertible term note.

Income Taxes

As of March 31, 2006 and 2005, we had an accrued income tax liability of $5,819 and $5,009, respectively,
and an estimated deferred income tax liability of $186,300 and $336,999, respectively, which primarily represents the potential future tax expense associated with unrealized gains on marketable equity securities, and is partially offset due to
potential utilization of net operating losses not previously recognized. The net operating losses may be carried forward for up to up to 20 years.

Net Income (Loss) Per Share

Net income (loss) per share increased 220.6%, or $10,281,455, to $5,903,910, or $0.75 per basic
share and $0.74 per diluted share, for the year ended March 31, 2006, compared to net income (loss) of ($4,377,545), or ($0.34) per basic and diluted share for the year ended March 31, 2005.

Derivative Instruments

Derivative
instrument income (expense), net, represents the net unrealized (non-cash) change, during the years ended March 31, 2006 and 2005, in the fair value of our derivative financial instrument assets or liabilities related to certain warrants and
embedded derivatives in our debt instruments that have been bifurcated and accounted for separately.

Derivative instrument interest
expense, with a corresponding increase in the face amount of the debts, for the years ended March 31, 2006 and 2005, represents the (non-cash) accretion of debt discount as a result of the bifurcation of the embedded conversion features and
related warrants. We calculated the accretion using the effective interest rate method over



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the term of the debts. Due to the effect of the payment streams associated with the debts, the straight-line amount of
the accretion is substantially equivalent to the effective interest rate method and therefore is the resulting method we used for our calculations.

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

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

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

In connection with the
September 30, 2004 convertible debt, we executed an interest rate index (IRI) whereby if the price of our common stock had increased by a specified amount, there would have been a reduction in the stated interest rate payable on
that instrument. This initially created a derivative instrument asset. The IRI agreement provided for a potential reduction but not an increase in the stated interest rate. The fair value of the derivative instrument asset so created would increase
if we projected a potential increase in the price of our common stock. This resulted in derivative instrument income for the year ended March 31, 2005. Since the price of our common stock decreased during the year ended March 31, 2006, the
resulting fair value of the IRI was zero at March 31, 2006 and this resulted in derivative instrument expense being recorded during the year ended March 31, 2006. For a full discussion on Derivative Instruments, see Note 15 to our
consolidated financial statements for the years ended March 31, 2006 and 2005.



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Inflation And Seasonality

We believe that there was no material effect on our operations or our financial condition as a result of inflation for the years ended March 31, 2006
and 2005. We also believe that our business is not seasonal; however, significant promotional activities can have a direct impact on our sales volume in any given quarter.

Economic And Industry Conditions

We
believe that there was no material effect on our operations or our financial condition a result of general economic and industry conditions for the years ended March 31, 2006 and 2005. However, should there be a material deterioration of
general economic or industry conditions, our results of operations could be impacted in any given quarter.

Financial Condition, Liquidity and Capital
Resources

We finance our operations and growth primarily through cash flows from operations, borrowing under our revolving credit
facility, operating leases, trade payables, and the sale of equity and debt securities. We had a working capital deficit of $688,507 at March 31, 2006, compared to a working capital deficit of $7,469,416 at March 31, 2005.

Net cash used in operating activities was $35,319 for the year ended March 31, 2006, as compared to net cash provided by operating activities of
$164,611 for the year ended March 31, 2005. The usage of cash was primarily attributable to an increase in accounts receivable of $96,523 based on increases in credit sales, a decrease in amounts due to/from affiliates, net, of $56,959 based on
net payments made on accounts, an increase in other assets of $12,308, a decrease in accounts payable of $69,923 and accrued expenses of $41,238, based on payments made on accounts, a decrease in deferred income taxes of $321,777 as a result of the
increase in marketable equity securities, net, and an increase in available net operating loss carry forwards, partially offset by a decrease in inventories of $422,467 due to a reduction in restocking levels and to the increase in our product
sales, a decrease in prepaid expenses of $216,804 primarily due to the timing of insurance policy renewals, a decrease in other current assets of $54,699, an increase in other payables of $138,637 primarily based on an increase in prepayments
received from customers and an increase in accrued income taxes of $810.

Net cash used in investing activities was $8,144, representing
purchases of property and equipment of $122,702, an adjustment to the purchase price of DM of $17,517 based upon net adjustments to goodwill upon finalization of DMs books and records, an adjustment to the purchase price of a customer list of
$7,306 due to an increase from estimated expenses to actual expenses, and the purchase of a trademark of $435, partially offset by proceeds from the sale of property of $2,000, proceeds from repayments on a note receivable of $135,345 and proceeds
from repayments on a note receivable from an affiliate of $2,471.

Net cash used in financing activities was $818,086, representing
payments of long-term obligations of $593,631, the excess of payments versus advances received of $260,611 on our short-term revolving note, payment of short-term obligations of $38,843 and payments of fractional shares on common stock exchanged of
$1, partially offset by proceeds from the issuance of common stock of $75,000.

At March 31, 2006, we had $1,009,012 in cash and cash
equivalents, as compared to $1,870,561 at March 31, 2005.



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We believe that cash expected to be generated from operations and current cash reserves will be
sufficient for us to meet our capital expenditures and working capital needs, for our operations as presently conducted, with our recent introduction of new products and increased revenues associated with acquisitions we made during the year ended
March 31, 2005. Our future liquidity and cash requirements will depend on a wide range of factors, including the level of business in existing operations, expansion of facilities and possible acquisitions. In particular, if cash flows from
operations are not sufficient, it will be necessary for us to seek additional financing. While there can be no assurance that such financing would be available in amounts and on terms acceptable to us, we believe that such financing would likely be
available on acceptable terms.

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

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

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

In February 2004, we issued 260,000 shares of our common stock to William LaGamba, a principal shareholder, in payment of consulting services provided to
us 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 us.

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

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



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On June 14, 2004 our Board of Directors approved the declaration of a pro rata dividend distribution
to holders of record of our 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 we owned. On July 7, 2004, our Board of Directors amended
the record date to July 16, 2004 and the distribution date to July 26, 2004. The payment rate was one share of Vertical common stock for each ten shares of our common stock held on July 16, 2004. We only distributed whole shares and
any fractional shares to which our shareholders would otherwise be entitled were rounded down to the nearest whole share.

On July 26,
2004, we distributed approximately 1.3 million shares of Vertical common stock to our shareholders. This resulted in a gain of $1,349,966 for the year ended March 31, 2005.

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

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

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

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

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

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

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



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

The aggregate cost of this acquisition was as follows:



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

The aggregate purchase price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 954,472  
|Inventory              |  |   | 2,476,313
|Cash acquired          |  |   | 277,780  
|Property and equipment |  |   | 232,926  
|Other assets           |  |   | 192,347  
|Trademarks             |  |   | 8,062    
|Customer list          |  |   | 285,000  
|Goodwill               |  |   | 3,270,984
|                       |  |   |          
|                       |  | $ | 7,412,884
|                       |  |   |          

We conducted an analysis in connection with the acquisition of BOSS, to determine the existence of
any intangible assets, for valuation purposes. It was determined that the only significant intangible assets were the customer list, which was valued based upon comparable recent customer lists purchased by us, trademarks, which were valued at fair
value, and goodwill. Goodwill associated with this acquisition will not be deductible for income tax purposes.

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

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



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



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

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

Beginning on December 1, 2004, and each month thereafter, we shall pay $187,500 of the outstanding principal, together with accrued interest on
the convertible note, in cash or registered stock. The monthly payments shall be payable in registered stock if: (i) we have an effective registration statement under which the stock can be sold; (ii) the average closing price of our
common stock as reported by Bloomberg, L.P. on our principal trading market for the five trading days immediately preceding such repayment date shall be greater than or equal to 110% of the fixed conversion rate; and (iii) the amount of such
conversion does not exceed 25% of the aggregate dollar trading volume of our common stock for the twenty 22 day trading period immediately preceding the applicable repayment date. If the conversion criteria are not met, the investor shall convert
only such part of the monthly payment that meets the conversion criteria. Any part of the monthly payment due on a repayment date that the investor has not been able to convert into shares of common stock due to failure to meet the conversion
criteria, shall be paid by us in cash at the rate of 102% of the principal portion of the monthly payment otherwise due on such repayment date. As of March 31, 2006 and 2005, the outstanding principal balance on the convertible note was
$4,500,000 and $5,062,500, respectively. As of March 31, 2006 and 2005, 989,758 shares of our common stock have been issued to Laurus in payment of $750,000 of principal and $140,782 of interest on the note.

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

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

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

Our obligations under the Security Agreement, Securities Purchase Agreement and the Note are secured by a first priority lien on all of our assets and
all future assets acquired,



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including a pledge by us of shares representing 100% of our share capital of GeoPharma, Inc. and DrugMax, Inc., and a put
option on the pledged shares of GeoPharma, Inc. and DrugMax, Inc. at $6.00 and $4.00 per share, respectively.

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

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

On October 17, 2004, a meeting of the Compensation
Committee of our Board of Directors was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of our common stock, effective October 1, 2004, to Jugal Taneja, our Chairman and a principal shareholder, as
compensation for Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair value of our common stock on
September 30, 2004). The options vest approximately equally over a three-year period, commencing October 1, 2005. The value of the options, $498,763, as determined by reference to the Black-Scholes option pricing model, has been recorded
as deferred consulting fees and is being amortized over the life of the loan. For the years ended March 31, 2006 and 2005, the amount amortized as consulting fees was $166,254 and $83,127, respectively. As of March 31, 2006 and 2005, the
balance of deferred consulting fees for these options was $249,381 and $415,636, respectively, of which the current portion was $166,254 and $166,245, respectively, and the long-term portion was $83,127 and $249,391, respectively.

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

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

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

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



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In February 2005, we entered into an agreement whereby we acquired certain assets of Protech
Distributing, Inc., a California corporation. The assets acquired consisted of a customer list and inventory. We paid cash in the amount of $160,306 for the customer list and purchased inventory for $108,761. The assets acquired did not constitute a
business within the meaning of SFAS 141.

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

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

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

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

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

The aggregate cost of this acquisition was as follows:



|                                |  |   |          
|------------------------------- |  | - | ---------
|Assumption of liabilities       |  | $ | 3,695,998
|Cash paid                       |  |   | 75,000   
|Cash paid for acquisition costs |  |   | 28,809   
|Common stock issued             |  |   | 165,000  
|Stock options issued            |  |   | 387,500  
|                                |  |   |          
|                                |  | $ | 4,352,307
|                                |  |   |          



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The aggregate purchase price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 1,117,371
|Inventory              |  |   | 1,025,853
|Cash acquired          |  |   | 66,821   
|Property and equipment |  |   | 459,134  
|Other assets           |  |   | 358,982  
|Customer list          |  |   | 165,000  
|Goodwill               |  |   | 1,159,146
|                       |  |   |          
|                       |  | $ | 4,352,307
|                       |  |   |          

An analysis was conducted in connection with the acquisition of DM, to determine the existence of
any intangible assets, for valuation purposes. It was determined that the only significant intangible assets were the customer list, which was valued based upon comparable recent customer lists purchased by us, and goodwill. Goodwill associated with
this acquisition will not be deductible for income tax purposes.

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



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



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



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

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

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

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



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

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

We paid a fee at closing to Laurus Capital Management LLC, the manager of the Laurus Master Funds, Ltd., equal to 3.9% of the total maximum funds to be borrowed under our agreements with Laurus. In addition, we incurred loan costs in the
amount of $221,674 associated with the $4 million of funding received on March 29, 2005, in connection with the acquisition of DM.

We
are obligated to file a registration statement registering the resale of shares of our common stock issuable upon conversion of the March 29, 2005 convertible notes, exercise of the warrant and exercise of the option. If the registration
statement is not filed by April 28, 2005, or declared effective within 75 days thereafter, or if the registration is suspended other than as permitted, in the registration rights agreement between us and Laurus, we are obligated to pay Laurus
certain fees and the obligations may be deemed to be in default.

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

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

On August 19, 2005, we filed such Registration Statement on Form S-2 for the registration of up to 3,219,690 shares of our
common stock, including up to 2,194,690 shares of common stock underlying the March 29, 2005 Secured Convertible Notes issued to Laurus, in the



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principal amount of $4,000,000, up to 750,000 shares issuable upon the exercise of common stock purchase warrants, and up
to 275,000 shares issued in connection with the July 19, 2005 Postponement Agreement. Such Registration Statement was subsequently withdrawn by us on May 11, 2006.

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

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



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



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



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



| |  |  | In connection with the foregoing, we issued an aggregate of 425,000 restricted shares of our common stock to Laurus.
| | - |  | --------------------------------------------------------------------------------------------------------------------

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

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

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



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On March 29, 2005, we entered into an Assignment and Assumption of Lease agreement with Dynamic
Marketing, Inc., effective March 31, 2005, whereby we agreed to assume the lease for approximately 14,725 square feet of warehouse space for our warehousing and shipping operations in Henderson, Nevada, for the balance of the lease term. This
facility is used for a portion of our warehousing and shipping operations. The lease is for a term of 62 months commencing on December 8, 2000 and ending on April 30, 2006. The initial rental under the lease on March 31, 2005 was
$76,568 annually.

On April 12, 2005, we issued a note payable to Royal Premium Budget, Inc., for insurance expenses associated with a
new policy, in the principal amount of $11,622. The principal together with interest at the rate of 13.5% per annum was payable in nine monthly installments commencing April 12, 2005 in the amount of $1,365. Upon cancellation of the policy
on June 1, 2005, the insurance company repaid the balance on the note.

On May 3, 2005, we received a promissory note in
conversion of accounts receivable from Health Express Food, Inc. in the principal amount of $330,993. The note shall be paid to us in twenty-three (23) monthly installments of $15,000, including principal and interest at 8% per annum,
commencing June 15, 2005. As of March 31, 2006, the remaining principal balance on the note was $195,648.

On July 21, 2005,
we entered into a capital lease with NEC Financial Services, Inc. for the purchase of equipment, in the principal amount of $22,979. The principal together with interest at the rate of 11.326% per annum is payable in 60 monthly installments
commencing July 21, 2005 in the amount of $499. As of March 31, 2006, the principal balance on the lease was $20,111.

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

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

On September 21, 2005, we issued a
note payable to AFCO Credit Corporation, for insurance expenses associated with a new policy, in the principal amount of $30,296. The principal together with interest at the rate of 8.25% per annum is payable in one monthly installment
commencing October 21, 2005 in the amount of $3,483 and eight remaining monthly installments commencing November 21, 2005 in the amount of $3,478. As of March 31, 2006, the principal balance on the note was $10,296.

Item 7. FINANCIAL STATEMENTS.

All financial
information required by this Item is attached hereto following Item 14 of this Annual Report on Form 10-KSB.

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

None.



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Item 8A. CONTROLS AND PROCEDURES.

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

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

Item 8B. OTHER INFORMATION.

None.



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PART III

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

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



|                         |  |     |  |                                                            |  |               
|------------------------ |  | --- |  | ---------------------------------------------------------- |  | --------------
|Name                     |  | Age |  | Position                                                   |  | Director Since
|Jugal K. Taneja          |  | 62  |  | Chairman of the Board and Director                         |  | 1992          
|Mandeep K. Taneja        |  | 32  |  | Chief Executive Officer, President and Director            |  | 2000          
|Cani I. Shuman           |  | 49  |  | Chief Financial Officer, Secretary, Treasurer and Director |  | 2001          
|Kotha S. Sekharam, Ph.D. |  | 55  |  | Director                                                   |  | 1995          
|Rakesh K. Sharma, M.D.   |  | 48  |  | Director                                                   |  | 1999          
|Morton L. Stone          |  | 75  |  | Director                                                   |  | 2002          
|Robert A. Herrmann, Jr.  |  | 57  |  | Director                                                   |  | 2006          

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

Background of
Executive Officers and Directors

Jugal K. Taneja has served as the Companys Chairman of the Board since its inception. Until June
1998 and from November 1999 until February 2002, he also served as the Companys Chief Executive Officer. In addition to his service to the Company, Mr. Taneja operates several other companies. He has served as Co-Chairman of DrugMax, Inc.
since December 2004. He previously served as Chairman of the Board of DrugMax, Inc., and from October 2000 until December 2004 has served as DrugMaxs Chief Executive Officer. He previously served as DrugMaxs Chief Executive Officer from
its inception in October 1993 through April 1995, and again from January 1996 until August 1999. Further, he served at various times over the years as DrugMaxs President and Secretary. DrugMax is a publicly-held company operating as a business
to business wholesaler and retailer of pharmaceuticals, over-the counter drugs, health and beauty care products and private label dietary supplements. Mr. Taneja also serves as a



34



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##### Table of Contents

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

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

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

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

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

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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##### Table of Contents

Robert A. Herrmann, Jr. became a director of the Company in March 2006. In June 2006 Mr. Herrmann
became President of Innovative Health Products, Inc., a wholly-owned subsidiary of GeoPharma, Inc. Prior to that Mr. Herrmann performed business consulting services in Southern California since November 2005. From September 2004 to November
2005 Mr. Herrmann served as President of Metabolife International Incorporated. From December 1999 to September 2004 Mr. Herrmann served as Vice President of Operations for Metabolife International Incorporated. Mr. Herrmann holds a
Masters in business administration from The University of Missouri in Kansas City, Kansas and Bachelor of Science degrees in business administration and marketing from Pittsburg State University, Pittsburg, Kansas.

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.

Compensation Committee

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

Executive Committee

The Company has an executive committee, which consists of Mandeep K. Taneja, Cani I. Shuman and
Dr. Kotha S. Sekharam

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3, 4 and 5, furnished to the Company during the years ended March 31, 2005 and 2006, the Company is not aware of
any director, officer or beneficial owner of more than ten percent of the Companys common stock that failed to file reports required by Section 16(a) of the Securities Exchange Act of 1934 on a timely basis during the year ended
March 31, 2006, except the following:



|                   |  |                       
|------------------ |  | ----------------------
|Name               |  | Number of Late Filings
|William L. LaGamba |  | 11                    
|Mandeep K. Taneja  |  | 3                     
|Jugal K. Taneja    |  | 1                     

Code of Ethics

The Company has adopted its Code of Ethics and Business Conduct for Officers, Directors and Employees, that applies to all of the officers, directors and employees of the Company. The Code of Ethics was filed as an
exhibit to the Companys March 31, 2003 Annual Report on Form 10-KSB.



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##### Table of Contents

Item 10. EXECUTIVE COMPENSATION.

The following table sets forth certain summary information with respect to the compensation paid to the Companys executive officers for the fiscal
years ended March 31, 2006, 2005 and 2004. Other than as listed below, the Company had no executive officers whose total annual salary and bonus exceeded $100,000 for that fiscal year.

SUMMARY COMPENSATION TABLE



|                                                                |  |                         |        |                        |  |               |         |                             |  |                              |  |                                         |  |                |  |                         
|--------------------------------------------------------------- |  | ----------------------- | ------ | ---------------------- |  | ------------- | ------- | --------------------------- |  | ---------------------------- |  | --------------------------------------- |  | -------------- |  | ------------------------
|                                                                |  | Annual Compensation (1) |        | Long-Term Compensation
|                                                                |  |                         | Awards |                        |  |               | Payouts
|Name and Principal Position                                     |  | Year                    |        | Salary($)              |  | Bonus($)      |         | Other AnnualCompensation($) |  | RestrictedStockAward(shares) |  | SecuritiesUnderlyingOptions/SARs (#)(2) |  | LTIPPayouts($) |  | All OtherCompensation($)
|Mandeep K. Taneja, Chief Executive OfficerAnd President (3)     |  | 200620052004            |        | 156,000156,000153,000  |  |     9,360   |         |                          |  |   40,000                   |  |   25,000                              |  |             |  |                      
|                                                                |  |                         |        |                        |  |               |         |                            
|Cani I. Shuman, Chief Financial Officer,Secretary and Treasurer |  | 200620052004            |        | 78,00078,00075,000     |  |   4,6804,680 |         |                          |  |   30,000                   |  |   25,000                              |  |             |  |                      
|                                                                |  |                         |        |                        |  |               |         |                            
|Jugal K. Taneja, Chairman (4) (5)                               |  | 20062005                |        | 150,000150,000         |  |             |         |                           |  | 50,000                      |  |                                        |  |              |  |                       
|                                                                |  | 2004                    |        | 150,000                |  |              |         |                            |  |                             |  | 50,000                                  |  |               |  |                        

---

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

|(2) | On 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 January 23, 2005. The exercise price of the options is $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 is $1.10, based on the closing price of the Companys
stock on the OTC Bulletin Board the business date prior to the date of the grant.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

During the year ended March 31, 2006, 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.



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Consulting Agreement

Jugal K. Taneja has been a valuable employee of the Company and management of the Company realized that Mr. Taneja has demonstrated a keen understanding of the Companys operations, such that it is desirable
to retain Mr. Tanejas services under a consulting agreement. On February 14, 2002, the Company entered into a Consulting Agreement with Jugal K. Taneja, to reflect his current position as a consultant to the Company. During the three
year term of the Consulting Agreement, commencing January 1, 2002, Mr. Taneja shall be deemed to be an independent contractor and is free to devote his time, energy and skill to any such person, firm or company as he deems advisable. The
annual compensation payable under the agreement was $240,000, as consideration for the services to be rendered under the agreement. On October 1, 2002, upon mutual agreement between the parties, the annual base compensation payable under the
agreement was reduced to $150,000. The agreement contains confidentiality and non-compete provisions. The agreement has continued under the same terms and amounts, however, there is not written agreement at this time.

Employment Agreements

On September 30, 2004,
the Company, through its wholly-owned subsidiary, BOSS, entered into an Employment Agreement with Joseph Mies to serve as BOSSs Chief Operating Officer, effective October 1, 2004. The Employment Agreement provides for an initial
three-year term ending September 30, 2007, with an annual base compensation of $100,000. The agreement contains a provision for bonus compensation. The agreement also contains termination provisions for disability, for cause, and for good
reason, and it also contains confidentiality and non-competition provisions that prohibit him from competing with the Company under certain circumstances.

On March 30, 2005, the Company, through its wholly-owned subsidiary, DMI, entered into an Employment Agreement with Gregg Madsen to serve as DMIs Chief Operating Officer, effective March 31, 2005. The
Employment Agreement provides for an initial three-year term ending March 30, 2008, with an annual base compensation of $125,000. The agreement contains a provision for bonus compensation. The agreement also contains termination provisions for
disability, for cause, and for good reason, and it also contains confidentiality and non-competition provisions that prohibit him from competing with the Company under certain circumstances. In addition, On March 30, 2005, Mr. Madsen was
granted options to purchase 300,000 shares of the Companys common stock. The options vest over a three-year period beginning March 31, 2005. On October 3, 2005, upon mutual agreement between the parties, the agreement was orally
modified promoting Mr. Madsen to Vice President of Business Development for Dynamic Health Products, Inc. In connection with the promotion, Mr. Madsen resigned as Chief Operating Officer of DMI. In addition, Mr. Madsens annual
base compensation was increased to $150,000.



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##### Table of Contents

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 reserved for
subsequently granted options. The number of options outstanding and the exercise price thereof are subject to adjustment in the case of certain transactions such as mergers, recapitalizations, stock splits or stock dividends. The 1999 Plan is
effective for ten years, unless sooner terminated or suspended.



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##### Table of Contents

On January 23, 2004, the Board of Directors of the Company approved the granting of 205,000 options,
to be allocated to each of the Companys officers and directors. The exercise price of the options is $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 is $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.

On October 17, 2004, a meeting of the Compensation Committee of the Board of Directors of the Company was held. At the meeting, the Compensation
Committee granted options to purchase 500,000 shares of the Companys common stock, effective October 1, 2004, to Jugal Taneja, the Companys Chairman and a principal shareholder of the Company, as compensation for
Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair value of the Companys common stock on
September 30, 2004). The options vest approximately equally over a three-year period, commencing October 1, 2005. For the options granted, the balance of deferred consulting fees as of March 31, 2006 and 2005 was $249,382 and
$415,636, respectively. The initial valuation of these options was $498,763. For the years ended March 31, 2006 and 2005, the Company included compensation expense in the amount of $166,254 and $83,127, respectively, in selling, general and
administrative expenses in the statements of operations, for these options.

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

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

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

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



40



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##### Table of Contents

The following represents the common stock options outstanding as of March 31, 2005 and 2006.



|                                           |  |          
|------------------------------------------ |  | ---------
|Option balance outstanding, March 31, 2004 |  | 905,000  
|Granted                                    |  | 1,050,000
|Exercised                                  |  | 0        
|Forfeited                                  |  | 0        
|                                           |  |          
|Option balance outstanding, March 31, 2005 |  | 1,955,000
|Granted                                    |  | 5,000    
|Exercised                                  |  | 0        
|Forfeited                                  |  | 0        
|                                           |  |          
|Option balance outstanding, March 31, 2006 |  | 1,960,000
|                                           |  |          

As of March 31, 2006, of the 1,960,000 options outstanding, 1,186,663 options were vested,
with 773,337 being nonvested.

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

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

The following table sets forth certain information, as of
March 31, 2006 with respect to the beneficial ownership of the outstanding Common Stock by (i) each person known to the Company to own 5% or more of the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) the executive officers of the Company, and (iv) all directors and officers of the Company as a group. Except as otherwise indicated, each of the shareholders listed below has sole voting and investment power over the shares
beneficially owned.



|               |  |                                                   |  |                                             |  |                              |  
|-------------- |  | ------------------------------------------------- |  | ------------------------------------------- |  | ---------------------------- | -
|Title Of Class |  | Name And Address Of Beneficial Owner(1)           |  | Amount And Nature Of BeneficialOwnership(2) |  | Approximate Percent Of Class |  
|               |  |                                                  
|Common         |  | Jugal K. Taneja(3)                                |  | 4,931,707                                   |  | 33.2                         | %
|Common         |  | Manju Taneja(4)                                   |  | 1,781,404                                   |  | 12.3                         | %
|Common         |  | William L. LaGamba(5)                             |  | 1,642,100                                   |  | 11.4                         | %
|Common         |  | Michele LaGamba(6)                                |  | 1,642,100                                   |  | 11.4                         | %
|Common         |  | Mandeep K. Taneja(7)                              |  | 1,643,762                                   |  | 11.3                         | %
|Common         |  | Mihir K. Taneja                                   |  | 1,479,996                                   |  | 10.2                         | %
|Common         |  | Kotha S. Sekharam, Ph.D.(8)                       |  | 585,797                                     |  | 4.0                          | %
|Common         |  | Morton L. Stone(9)                                |  | 231,033                                     |  | 1.6                          | %
|Common         |  | Cani I. Shuman(10)                                |  | 146,666                                     |  | 1.0                          | %
|Common         |  | Rakesh K. Sharma, M.D.(11)                        |  | 123,333                                     |  | 0.8                          | %
|Common         |  | Robert A. Herrmann, Jr.                           |  | 0                                           |  | 0                            | %
|Common         |  | All officers and directors as a group (7 persons) |  | 7,662,298                                   |  | 49.5                         | %

---

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



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##### Table of Contents

|(2) | Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to the shares shown. Except where
indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them. Percentages are
based upon the assumption that each shareholder has exercised all of the currently exercisable options he or she owns which are currently exercisable or exercisable within 60 days and that no other shareholder has exercised any options he or she
owns.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 1,652,740 shares beneficially owned by Manju Taneja, Jugal K. Tanejas spouse, as to which Mr. Taneja exercises no investment or voting power and disclaims
beneficial ownership. Also includes (i) 2,680,304 shares owned by Carnegie Capital, Ltd. and (ii) 70,000 shares owned by First Delhi Family Partnership, Ltd. Mr. Taneja is the general partner of Carnegie Capital, Ltd. and First Delhi
Family Partnership, Ltd. As such, Mr. Taneja holds sole voting and investment power with respect to the shares held of record by Carnegie Capital, Ltd. and First Delhi Family Partnership, Ltd. Includes 399,999 shares issuable upon exercise of
currently exercisable options.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 128,664 shares beneficially owned by Jugal K. Taneja, as to which Manju Taneja exercises no investment or voting power and disclaims beneficial ownership. Excludes
(i) 2,680,304 shares owned by Carnegie Capital, Ltd., and (ii) 70,000 shares owned by First Delhi Family Partnership, Ltd., as to which Mrs. Taneja exercises no investment or voting power and disclaims beneficial ownership.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 658,100 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 505,000 shares held by Mr. LaGamba as custodian for their minor children.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes 479,000 shares owned by William L. LaGamba, and 505,000 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 116,666 shares issuable upon exercise of currently exercisable options.
|--- | --------------------------------------------------------------------------------

|(8) | Includes 40,000 shares owned by Madhavi Sekharam, Dr. Sekharams spouse, as to which Dr. Sekharam exercises no investment or voting power and disclaims beneficial
ownership. Includes 123,333 shares issuable upon exercise of currently exercisable options.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 123,333 shares issuable upon exercise of currently exercisable options.
|--- | --------------------------------------------------------------------------------

|(10) | Includes 116,666 shares issuable upon exercise of currently exercisable options.
|---- | --------------------------------------------------------------------------------

|(11) | Includes 123,333 shares issuable upon exercise of currently exercisable options.
|---- | --------------------------------------------------------------------------------

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On October 1, 1999, the Company entered into a
triple-net lease agreement with GeoPharma, Inc. (GeoPharma), a publicly traded company and an affiliate of the Company, whereby GeoPharma agreed to lease the Companys land and 33,222 square foot building situated in Largo, Florida
for a term of ten years. The initial rental under the lease was approximately $192,000 annually. The lease provides for an annual cost-of-living increase. This facility serves as GeoPharmas corporate headquarters and also serves as part of
GeoPharmas



42



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##### Table of Contents

offices, manufacturing, warehousing and shipping operations. On October 25, 2004, the Company sold the building to
GeoPharma for $1,925,000 in cash. This resulted in a gain of $654,241 to the Company for the year ended March 31, 2005. The sale price was determined by an independent third-party appraisal. Jugal K. Taneja, a principal shareholder and Chairman
of the Board of the Company is also a principal shareholder and Chairman of the Board of GeoPharma. As of March 31, 2006 and 2005, the Companys investment in GeoPharma, consisting of 347,938 shares of its common stock, is included in
marketable equity securities, net.

On June 14, 2004, the Board of Directors of the Company, approved the declaration of a pro rata
dividend distribution to holders of record of its issued and outstanding common shares as of July 1, 2004, in the form of approximately 1.3 million shares of Vertical Health Solutions, Inc. (Vertical), which the Company owned.
On July 7, 2004, the Board of Directors of the Company amended the record date to July 16, 2004 and the distribution date to July 26, 2004. The payment rate was one share of Vertical common stock for each ten shares of the
Companys common stock held on July 16, 2004. The Company only distributed whole shares and any fractional shares to which shareholders would otherwise be entitled were rounded down to the nearest whole share. On July 26, 2004, the
Company distributed approximately 1.3 million shares of Vertical common stock to its shareholders. This resulted in a gain of $1,349,966 to the Company for the year ended March 31, 2005.

For the year ended March 31, 2005, the Company charged Vertical consulting fees totaling $5,213 for accounting and administrative services. The
charge was on an hourly basis for services rendered. The Company did not provide consulting services to Vertical during the year ended March 31, 2006. As of March 31, 2006 and 2005, $325 and $325, respectively, were due from Vertical and
are included in amounts due from affiliates. As of March 31, 2006 and 2005, the Companys investment in Vertical, consisting of 253,337 shares of its common stock, is included in marketable equity securities, net.

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, 2006 and 2005, zero and $301, respectively, was due from
Tribeca and is included in due from affiliates.

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

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



43



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##### Table of Contents

For the years ended March 31, 2006 and 2005, purchases of products from subsidiaries of GeoPharma
were $182,872 and $476,952, respectively, and sales of products to subsidiaries of GeoPharma $31,157 and $18,774, respectively. As of March 31, 2006 and 2005, $26,554 and $66,151, respectively, were due to subsidiaries of GeoPharma and are
included in obligations to affiliates. As of March 31, 2006 and 2005, $2,175 and zero, respectively, were due from GeoPharma.

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.

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

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

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

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



44



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##### Table of Contents

PART IV

Item 13. EXHIBITS.



|      |  |                                                                                                                                                                            
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Articles of Incorporation of Direct Rx Healthcare, Inc., filed January 27, 1998. (1)                                                                                       
|      | 
|3.2   |  | Articles of Amendment to Articles of Incorporation of Nu-Wave Health Products, Inc., dated August 11, 1998. (2)                                                            
|      | 
|3.3   |  | Articles of Amendment to Articles of Incorporation of Dynamic Health Products, Inc., filed September 1, 1998. (3)                                                          
|      | 
|3.4   |  | Articles of Restatement of the Articles of Incorporation of Dynamic Health Products, Inc., filed April 16, 1999. (3)                                                       
|      | 
|3.5   |  | Certificate of Amendment to Restated Articles of Incorporation of Dynamic Health Products, Inc., filed October 25, 2004.(7)                                                
|      | 
|10.1  |  | Stock Purchase Agreement by and among the Company, Robert T. OLeary, Linda OLeary, and Bob OLeary Health Food Distributor Co., Inc., dated as of September 10, 2004.
(5)
|      | 
|10.2  |  | Securities Purchase Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                        
|      | 
|10.3  |  | Master Security Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                            
|      | 
|10.4  |  | Registration Rights Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                        
|      | 
|10.5  |  | Guaranty issued by Jugal K. Taneja to Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                                        
|      | 
|10.6  |  | Subsidiary Guaranty between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                                  
|      | 
|10.7  |  | Supplemental Stock Pledge Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                  
|      | 
|10.8  |  | Subsidiary Stock Pledge Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                    
|      | 
|10.9  |  | Secured Convertible Term Note issued by the Company to Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                       
|      | 
|10.10 |  | Common Stock Purchase Warrant issued by the Company to Laurus Master Fund, Ltd., dated as of September 30, 2004. (6)                                                       



45



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##### Table of Contents

|      |  |                                                                                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 |  | Agreement And Plan Of Merger by and among the Company and Gregg Madsen and Dynamic Marketing, Inc., dated as of March 2, 2005. (8)                        
|      | 
|10.12 |  | Security Agreement by and among the Company and Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                                                 
|      | 
|10.13 |  | Secured Revolving Note issued by the Company to Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                                                 
|      | 
|10.14 |  | Secured Convertible Minimum Borrowing Note issued by the Company to Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                             
|      | 
|10.15 |  | Common Stock Purchase Warrant issued by the Company to Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                                          
|      | 
|10.16 |  | Registration Rights Agreement between the Company and Laurus Master Fund, Ltd., dated as of March 29, 2005. (9)                                           
|      | 
|10.17 |  | Amendment No. 1 to Master Security Agreement between the Company and Laurus Master Fund, Ltd., dated as of September 30, 2004. (9)                        
|      | 
|10.18 |  | Employment Agreement between the Company and Joseph Mies, dated as of September 30, 2004. (11)                                                            
|      | 
|10.19 |  | Employment Agreement between the Company and Gregg Madsen, dated as of March 30, 2005. (10)                                                               
|      | 
|10.20 |  | Lease Agreement by and between the Company and Robert OLeary and Linda OLeary, dated as of October 1, 2004. (11)                                        
|      | 
|10.21 |  | Warehouse/Office Lease by and between the Company and Yale Mosk & Co, dated as of February 8, 2005. (11)                                                  
|      | 
|10.22 |  | Lease Agreement by and between the Company and GAM Realty, LLC, dated as of March 29, 2005. (11)                                                          
|      | 
|10.23 |  | Industrial Real Estate Lease by and between Dynamic Marketing, Inc. and Pacific Industrial Park L.L.C., dated as of December 8, 2000. (11)                
|      | 
|10.24 |  | Promissory Note and Security Agreement by Health Express Food, Inc. to Dynamic Marketing I, Inc., dated as of May 23, 2005. (12)                          
|      | 
|10.25 |  | Postponement Agreement by and between Laurus Master Fund, Ltd. and Dynamic Health Products, Inc., dated as of July 19, 2005. (13)                         
|      | 
|10.26 |  | Postponement and Amendment Agreement by and among Laurus Master Fund, Ltd., Dynamic Health Products, Inc. and Subsidiary, dated as of April 28, 2006. (14)
|      | 
|10.27 |  | Amended and Restated Secured Revolving Note issued to Laurus Master Fund, Ltd., effective as of March 29, 2005. (14)                                      



46



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##### Table of Contents

|      |  |                                                                                                                                                                
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.28 |  | Amended and Restated Secured Convertible Minimum Borrowing Note issued to Laurus Master Fund, Ltd., effective as of March 29, 2005. (14)                       
|      | 
|10.29 |  | Amended and Restated Secured Convertible Term Note issued to Laurus Master Fund, Ltd., effective as of September 30, 2004. (14)                                
|      | 
|10.30 |  | Amended and Restated Registration Rights Agreement, restated as of April 28, 2006, by and between Laurus Master Fund, Ltd. and the Company. (14)               
|      | 
|10.31 |  | Amendment Agreement by and among Laurus Master Fund, Ltd., Dynamic Health Products, Inc. and Subsidiary, dated as of May 24, 2006. (15)                        
|      | 
|14.1  |  | Code of Ethics of Dynamic Health Products, Inc. (4)                                                                                                            
|      | 
|21.1  |  | Dynamic Health Products, Inc.  List of Subsidiaries.                                                                                                          
|      | 
|31.1  |  | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
|      | 
|31.2  |  | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
|      | 
|32.1  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).              
|      | 
|32.2  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).              

---

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

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

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

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

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

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

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



47



---

##### Table of Contents

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

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

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

|(11) | Incorporated by reference to the Companys Annual Report on Form 10-KSB for the year ended March 31, 2005, file number 0-23031, filed in Washington, D.C. on July 14,
2005.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to the Companys Quarterly Report on Form 10-QSB for the Quarter ended June 30, 2005, file number 0-23031, filed in Washington, D.C. on
August 15, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to the Companys Registration Statement on Form S-2, dated August 19, 2005, file number 333-127692, filed in Washington, D.C. on August 19,
2005.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to the Companys Current Report on Form 8-K, dated April 28, 2006, file number 0-23031, filed in Washington, D.C. on May 3, 2006.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to the Companys Current Report on Form 8-K, dated May 24, 2006, file number 0-23031, filed in Washington, D.C. on May 31, 2006.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

Total fees billed for professional services rendered by the Companys principal
accountant for the audit and review of the Companys financial statements included in the Companys Form 10-QSBs and Form 10-KSBs, and services provided in connection with the Companys Form 8-Ks, Form S-2s and Form S-8s, for the
years ended March 31, 2006 and 2005 were $85,725 and $16,900, respectively.

Tax Fees

Total fees billed for professional services rendered by the Companys principal accountant for tax services relating to the preparation of the
Companys federal and state income tax returns and tax advice and planning during the years ended March 31, 2006 and 2005 were $3,911 and $8,353, respectively.

All Other Fees

Total fees billed for professional services rendered by the Companys principal
accountant for consultation related to research of various accounting issues addressed in SEC comments received by the Company and assistance in preparation of responses to the SEC during the years ended March 31, 2006 and 2005 were $25,951 and
zero, respectively.

During the years ended March 31, 2006 and 2005, the Companys principal accountant only performed audit, tax
and other related services, as indicated above.



48



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##### Table of Contents

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.



49



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##### Table of Contents

SIGNATURES

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



|                    |  |                               |  |                                            
|------------------- |  | ----------------------------- |  | -------------------------------------------
|                    |  | DYNAMIC HEALTH PRODUCTS, INC.
|                    |  |                              
|Date: June 29, 2006 |  | By:                           |  | /s/ Mandeep K. Taneja                      
|                    |  |                               |  | Mandeep K. Taneja, Chief Executive Officer,
|                    |  |                               |  | President and Director                     

In accordance with the Exchange Act this report has been signed below by the following persons on
behalf of the registrant in the capacities as on June 29, 2006.



|          |  |                                         |  |                                                                               |  | 
|--------- |  | --------------------------------------- |  | ----------------------------------------------------------------------------- |  | 
|Signature |  | Title                                   |  |                                                                              
|By:       |  | /s/ Jugal K. Taneja                     |  | Chairman of the Board and Director                                            |  | 
|          |  | Jugal K. Taneja                         |  |                                                                               |  | 
|          |  |                                         | 
|By:       |  | /s/ Mandeep K. Taneja Mandeep K. Taneja |  | Chief Executive Officer, President and Director (principal executive officer) |  | 
|          |  |                                         | 
|By:       |  | /s/ Cani I. Shuman                      |  | Chief Financial Officer, Secretary, Treasurer and Director                    |  | 
|          |  | Cani I. Shuman                          |  | (principal financial and accounting officer)                                  |  | 
|          |  |                                         |  |                                                                               |  | 
|          |  |                                         | 
|By:       |  | /s/ Kotha S. Sekharam                   |  | Director                                                                      |  | 
|          |  | Kotha S. Sekharam                       |  |                                                                               |  | 
|          |  |                                         | 
|By:       |  |                                         |  | Director                                                                      |  | 
|          |  | Rakesh K. Sharma                        |  |                                                                               |  | 
|          |  |                                         | 
|By:       |  |                                         |  | Director                                                                      |  | 
|          |  | Morton L. Stone                         |  |                                                                               |  | 
|          |  |                                         | 
|By:       |  |                                         |  | Director                                                                      |  | 
|          |  | Robert A. Herrmann, Jr.                 |  |                                                                               |  | 



50



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##### Table of Contents

CONTENTS



|                                                           |  |           
|---------------------------------------------------------- |  | ----------
|TABLE OF CONTENTS                                          |  | F-1       
|                                                           | 
|INDEPENDENT AUDITORS REPORT                               |  | F-2       
|                                                           | 
|FINANCIAL STATEMENTS                                       |  |           
|CONSOLIDATED BALANCE SHEETS                                |  | F-3       
|                                                           | 
|CONSOLIDATED STATEMENTS OF OPERATIONS                      |  | F-4       
|                                                           | 
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY |  | F-5       
|                                                           | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                      |  | F-6  F-7 
|                                                           | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 |  | F-8  F-45

F - 1



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Dynamic Health Products, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Dynamic Health Products, Inc. and Subsidiaries as of March 31, 2006 and 2005 and the related consolidated statements of operations, changes in shareholders equity,
and cash flows for the years ended March 31, 2006 and 2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Dynamic Health Products, Inc. and Subsidiaries as of March 31, 2006 and 2005 and the consolidated results of operations and cash flows for the years ended March 31, 2006 and 2005, in conformity with accounting principles
generally accepted in the United States of America.

As described in Note 1 to the consolidated financial statements, the Company has restated its
consolidated financial statements, as of March 31, 2005 and for the year then ended.



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

Tampa, Florida

June 9, 2006

F - 2



---

##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31,



|                                                                                                                               |  |      |            |   |            |   |            |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---------- | - | ---------- | -
|                                                                                                                               |  | 2006 |            |   | 2005       |  
|                                                                                                                               |  |      |            |   | (Restated) |  
|ASSETS                                                                                                                         |  |      |            |   |            |   |            |  
|Current assets:                                                                                                                |  |      |            |   |            |   |            |  
|Cash and cash equivalents                                                                                                      |  | $    | 1,009,012  |   |            | $ | 1,870,561  |  
|Marketable equity securities, net                                                                                              |  |      | 1,637,763  |   |            |   | 1,162,546  |  
|Accounts receivable, net                                                                                                       |  |      | 2,485,954  |   |            |   | 2,720,424  |  
|Inventories, net                                                                                                               |  |      | 4,478,970  |   |            |   | 4,901,437  |  
|Prepaid expenses                                                                                                               |  |      | 223,515    |   |            |   | 389,978    |  
|Deferred consulting fees                                                                                                       |  |      | 215,004    |   |            |   | 308,745    |  
|Other current assets                                                                                                           |  |      | 163,766    |   |            |   | 218,465    |  
|Due from affiliates                                                                                                            |  |      | 2,500      |   |            |   | 959        |  
|Note receivable                                                                                                                |  |      | 165,708    |   |            |   |           |  
|Note receivable from affiliate                                                                                                 |  |      | 44,082     |   |            |   | 43,528     |  
|Derivative financial instruments                                                                                               |  |      |           |   |            |   | 245,584    |  
|                                                                                                                               |  |      |            |   |            |   |            |  
|Total current assets                                                                                                           |  |      | 10,426,274 |   |            |   | 11,862,227 |  
|                                                                                                                               |  |     
|Property, plant and equipment, net                                                                                             |  |      | 743,846    |   |            |   | 759,519    |  
|                                                                                                                               |  |     
|Note receivable                                                                                                                |  |      | 29,940     |   |            |   |           |  
|Goodwill                                                                                                                       |  |      | 4,145,130  |   |            |   | 4,127,613  |  
|Intangible assets, net                                                                                                         |  |      | 749,217    |   |            |   | 1,041,998  |  
|Deferred consulting fees                                                                                                       |  |      | 83,127     |   |            |   | 298,141    |  
|Other assets                                                                                                                   |  |      | 77,517     |   |            |   | 65,209     |  
|                                                                                                                               |  |      |            |   |            |   |            |  
|Total assets                                                                                                                   |  | $    | 16,255,051 |   |            | $ | 18,154,707 |  
|                                                                                                                               |  |      |            |   |            |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                           |  |      |            |   |            |   |            |  
|Current liabilities:                                                                                                           |  |      |            |   |            |   |            |  
|Revolving note payable, net                                                                                                    |  | $    | 1,609,240  |   |            | $ | 1,000,000  |  
|Current portion of long-term obligations                                                                                       |  |      | 2,093,540  |   |            |   | 326,056    |  
|Capital lease obligation                                                                                                       |  |      |           |   |            |   | 546        |  
|Accounts payable                                                                                                               |  |      | 5,090,685  |   |            |   | 5,160,608  |  
|Other payables                                                                                                                 |  |      | 411,530    |   |            |   | 272,893    |  
|Accrued expenses                                                                                                               |  |      | 343,744    |   |            |   | 384,982    |  
|Accrued income taxes                                                                                                           |  |      | 5,819      |   |            |   | 5,009      |  
|Obligations to affiliates                                                                                                      |  |      | 26,551     |   |            |   | 78,944     |  
|Note payable                                                                                                                   |  |      | 10,296     |   |            |   | 18,851     |  
|Derivative financial instruments                                                                                               |  |      | 1,523,376  |   |            |   | 12,083,754 |  
|                                                                                                                               |  |      |            |   |            |   |            |  
|Total current liabilities                                                                                                      |  |      | 11,114,781 |   |            |   | 19,331,643 |  
|                                                                                                                               |  |     
|Long-term obligations, less current portion                                                                                    |  |      | 61,899     |   |            |   | 75,215     |  
|Deferred income taxes                                                                                                          |  |      | 186,300    |   |            |   | 336,999    |  
|                                                                                                                               |  |      |            |   |            |   |            |  
|Total liabilities                                                                                                              |  |      | 11,362,980 |   |            |   | 19,743,857 |  
|                                                                                                                               |  |      |            |   |            |   |            |  
|                                                                                                                               |  |     
|Commitments and contingencies                                                                                                  |  |      |            |   |            |   |            |  
|                                                                                                                               |  |     
|Shareholders equity:                                                                                                          |  |      |            |   |            |   |            |  
|Preferred stock, undesignated; 800,000 shares authorized; no shares issued or outstanding                                      |  |      |           |   |            |   |           |  
|Series A Convertible Preferred stock, $.01 par value; 400,000 shares authorized; no shares issued or outstanding               |  |      |           |   |            |   |           |  
|Series B 6% Cumulative Convertible Preferred stock, $.01 par value; 800,000 shares authorized; no shares issued or outstanding |  |      |           |   |            |   |           |  
|Common stock, $.01 par value; 45,000,000 shares authorized; 14,463,630 and 14,024,592 shares issued and outstanding            |  |      | 144,636    |   |            |   | 140,246    |  
|Additional paid-in capital                                                                                                     |  |      | 4,004,048  |   |            |   | 3,735,266  |  
|Retained earnings (deficit)                                                                                                    |  |      | (272,354   | ) |            |   | (6,176,264 | )
|Accumulated other comprehensive income:                                                                                        |  |      |            |   |            |   |            |  
|Unrealized gains (losses) on marketable equity securities, net of tax                                                          |  |      | 1,015,741  |   |            |   | 711,602    |  
|                                                                                                                               |  |      |            |   |            |   |            |  
|Total shareholders equity                                                                                                     |  |      | 4,892,071  |   |            |   | (1,589,150 | )
|                                                                                                                               |  |      |            |   |            |   |            |  
|Total liabilities and shareholders equity                                                                                     |  | $    | 16,255,051 |   |            | $ | 18,154,707 |  
|                                                                                                                               |  |      |            |   |            |   |            |  

See accompanying notes to consolidated financial statements.



F - 3



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##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED MARCH 31,



|                                                             |  |      |            |   |            |   |            |  
|------------------------------------------------------------ |  | ---- | ---------- | - | ---------- | - | ---------- | -
|                                                             |  | 2006 |            |   | 2005       |  
|                                                             |  |      |            |   | (Restated) |  
|                                                             |  |     
|Revenues                                                     |  | $    | 50,142,206 |   |            | $ | 16,079,528 |  
|                                                             |  |     
|Cost of goods sold                                           |  |      | 40,985,199 |   |            |   | 12,928,633 |  
|                                                             |  |      |            |   |            |   |            |  
|                                                             |  |     
|Gross profit                                                 |  |      | 9,157,007  |   |            |   | 3,150,895  |  
|                                                             |  |     
|Operating expenses:                                          |  |      |            |   |            |   |            |  
|Selling, general and administrative expenses                 |  |      | 9,226,697  |   |            |   | 4,079,092  |  
|Amortization expense                                         |  |      | 300,522    |   |            |   | 101,580    |  
|Depreciation expense                                         |  |      | 154,526    |   |            |   | 68,697     |  
|                                                             |  |      |            |   |            |   |            |  
|Total operating expenses                                     |  |      | 9,681,745  |   |            |   | 4,249,369  |  
|                                                             |  |      |            |   |            |   |            |  
|                                                             |  |     
|Operating loss before other income and expense               |  |      | (524,738   | ) |            |   | (1,098,474 | )
|                                                             |  |     
|Other income (expense):                                      |  |      |            |   |            |   |            |  
|Interest income                                              |  |      | 23,912     |   |            |   | 5,357      |  
|Other income and expenses, net                               |  |      | (161,347   | ) |            |   | 93,600     |  
|Gain on distribution of investment                           |  |      |           |   |            |   | 1,349,966  |  
|Gain (loss) on sale of property                              |  |      | (4,828     | ) |            |   | 654,241    |  
|Derivative instrument income (expense), net                  |  |      | 10,314,794 |   |            |   | (3,838,170 | )
|Derivative instrument interest expense                       |  |      | (3,311,752 | ) |            |   | (1,227,038 | )
|Interest expense                                             |  |      | (749,873   | ) |            |   | (283,452   | )
|                                                             |  |      |            |   |            |   |            |  
|Total other income (expense)                                 |  |      | 6,110,906  |   |            |   | (3,245,496 | )
|                                                             |  |      |            |   |            |   |            |  
|                                                             |  |     
|Income (loss) before income taxes                            |  |      | 5,586,168  |   |            |   | (4,343,970 | )
|                                                             |  |     
|Income tax expense (benefit)                                 |  |      | (317,742   | ) |            |   | 33,575     |  
|                                                             |  |      |            |   |            |   |            |  
|Net income (loss)                                            |  |      | 5,903,910  |   |            |   | (4,377,545 | )
|                                                             |  |     
|Preferred stock dividends                                    |  |      |           |   |            |   |           |  
|                                                             |  |      |            |   |            |   |            |  
|Net income (loss) available to common shareholders           |  | $    | 5,903,910  |   |            | $ | (4,377,545 | )
|                                                             |  |      |            |   |            |   |            |  
|                                                             |  |     
|Basic income (loss) per share                                |  | $    | 0.41       |   |            | $ | (0.34      | )
|                                                             |  |      |            |   |            |   |            |  
|Basic weighted average number of common shares outstanding   |  |      | 14,308,264 |   |            |   | 12,991,512 |  
|                                                             |  |      |            |   |            |   |            |  
|Diluted income (loss) per share                              |  | $    | 0.40       |   |            | $ | (0.34      | )
|                                                             |  |      |            |   |            |   |            |  
|Diluted weighted average number of common shares outstanding |  |      | 14,711,722 |   |            |   | 12,991,512 |  
|                                                             |  |      |            |   |            |   |            |  

See accompanying notes to consolidated financial statements.



F - 4



---

##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY

FOR THE YEARS ENDED MARCH 31, 2006 AND 2005



|                                                                                                                  |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------- |  | --------------- |  | --------------- | - | ------------ | - | ------- | - | -------------------------- |  | ---------- | --------------------------- | - | ------- | --------------------------------------- | - | ---------- | -------------------------- | -------------------------------------- | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                  |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            | Accumulated Other Comprehensive Income |   |            |   | 
|                                                                                                                  |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |           
|                                                                                                                  |  | Series A        |  | Series B        |   |              |   |         |   | Additional Paid-in Capital |  |            | Retained Earnings (Deficit) |   |         | Unrealized Gains (Losses) on Securities |   |            | Total Shareholders Equity |                                       
|                                                                                                                  |  | Preferred Stock |  | Preferred Stock |   | Common Stock |   |         |   |                           
|                                                                                                                  |  | Shares          |  | Dollars         |   | Shares       |   | Dollars |   | Shares                     |  | Dollars    |                             |   |         |                                        
|Balances at March 31, 2004                                                                                        |  |                |  | $               |  |              |  |         | $ |                           |  | 12,774,834 |                             | $ | 127,748 |                                         | $ | 2,671,568  |                            |                                        | $ | (1,798,719 | ) |  | $ | 2,286,491  |   |  | $ | 3,287,088  |  
|COMPREHENSIVE INCOME (LOSS)                                                                                       |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   |            |  
|Net income (loss)                                                                                                 |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   |           |                            |                                        |   | (4,377,545 | ) |  |   |            |   |  |   | (4,377,545 | )
|Unrealized gains (losses) on marketable equity securities (net of tax of $885.875)                                |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   |           |                            |                                        |   |           |   |  |   | (1,574,889 | ) |  |   | (1,574,889 | )
|                                                                                                                  |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   |            |  
|Comprehensive income (loss)                                                                                       |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   | (5,952,434 | )
|Issuance of 300,000 common stock warrants for consulting services                                                 |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   | 270,000    |                            |                                        |   |           |   |  |   |            |   |  |   | 270,000    |  
|Dividend distribution of 1,277,483 shares of Vertical Health Solutions, Inc.                                      |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   | (1,532,979 | )                          |                                        |   |           |   |  |   |            |   |  |   | (1,532,979 | )
|Issuance of 500,000 common stock options for guarantee of long-term debt                                          |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   | 498,763    |                            |                                        |   |           |   |  |   |            |   |  |   | 498,763    |  
|Issuance of 35,000 shares of common stock for consulting services                                                 |  |                |  |                 |  |              |  |         |   |                           |  | 35,000     |                             |   | 350     |                                         |   | 35,000     |                            |                                        |   |           |   |  |   |            |   |  |   | 35,350     |  
|Issuance of 200,000 common stock warrants for consulting services                                                 |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   | 195,000    |                            |                                        |   |           |   |  |   |            |   |  |   | 195,000    |  
|Conversion of long-term debt and interest to common stock at $.90 per share, net of registration costs            |  |                |  |                 |  |              |  |         |   |                           |  | 989,758    |                             |   | 9,898   |                                         |   | 877,697    |                            |                                        |   |           |   |  |   |            |   |  |   | 887,595    |  
|Issuance of 75,000 shares of common stock for employee bonuses                                                    |  |                |  |                 |  |              |  |         |   |                           |  | 75,000     |                             |   | 750     |                                         |   | 110,250    |                            |                                        |   |           |   |  |   |            |   |  |   | 111,000    |  
|Issuance of 50,000 shares of common stock for consulting services                                                 |  |                |  |                 |  |              |  |         |   |                           |  | 50,000     |                             |   | 500     |                                         |   | 58,500     |                            |                                        |   |           |   |  |   |            |   |  |   | 59,000     |  
|Issuance of 100,000 shares of common stock for purchase of Dynamic Marketing, Inc.                                |  |                |  |                 |  |              |  |         |   |                           |  | 100,000    |                             |   | 1,000   |                                         |   | 164,000    |                            |                                        |   |           |   |  |   |            |   |  |   | 165,000    |  
|Issuance of 250,000 common stock options for purchase of Dynamic Marketing, Inc.                                  |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   | 387,500    |                            |                                        |   |           |   |  |   |            |   |  |   | 387,500    |  
|Cash paid in lieu of fractional shares for common stock exchanged, in relation to August 1998 reverse stock split |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   | (33        | )                          |                                        |   |           |   |  |   |            |   |  |   | (33        | )
|                                                                                                                  |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   |            |  
|Balances at March 31, 2005 (Restated)                                                                             |  |                |  |                 |  |              |  |         |   |                           |  | 14,024,592 |                             |   | 140,246 |                                         |   | 3,735,266  |                            |                                        |   | (6,176,264 | ) |  |   | 711,602    |   |  |   | (1,589,150 | )
|COMPREHENSIVE INCOME (LOSS)                                                                                       |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   |            |  
|Net income (loss)                                                                                                 |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   |           |                            |                                        |   | 5,903,910  |   |  |   |            |   |  |   | 5,903,910  |  
|Unrealized gains (losses) on marketable equity securities (net of tax of $171,078)                                |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   |           |                            |                                        |   |           |   |  |   | 304,139    |   |  |   | 304,139    |  
|                                                                                                                  |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   |            |  
|Comprehensive income (loss)                                                                                       |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   | 6,208,049  |  
|Issuance of 275,000 shares of common stock in connection with Postponement Agreement                              |  |                |  |                 |  |              |  |         |   |                           |  | 275,000    |                             |   | 2,750   |                                         |   | 187,000    |                            |                                        |   |           |   |  |   |            |   |  |   | 189,750    |  
|Issuance of 14,038 shares of common stock as employer contribution to profit sharing plan                         |  |                |  |                 |  |              |  |         |   |                           |  | 14,038     |                             |   | 140     |                                         |   | 8,283      |                            |                                        |   |           |   |  |   |            |   |  |   | 8,423      |  
|Issuance of 150,000 shares of common stock at $.50 per share                                                      |  |                |  |                 |  |              |  |         |   |                           |  | 150,000    |                             |   | 1,500   |                                         |   | 73,500     |                            |                                        |   |           |   |  |   |            |   |  |   | 75,000     |  
|Cash paid in lieu of fractional shares for common stock exchanged, in relation to August 1998 reverse stock split |  |                |  |                 |  |              |  |         |   |                           |  |           |                             |   |        |                                         |   | (1         | )                          |                                        |   |           |   |  |   |            |   |  |   | (1         | )
|                                                                                                                  |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   |            |  
|Balances at March 31, 2006                                                                                        |  |                |  | $               |  |              |  |         | $ |                           |  | 14,463,630 |                             | $ | 144,636 |                                         | $ | 4,004,048  |                            |                                        | $ | (272,354   | ) |  | $ | 1,015,741  |   |  | $ | 4,892,071  |  
|                                                                                                                  |  |                 |  |                 |   |              |   |         |   |                            |  |            |                             |   |         |                                         |   |            |                            |                                        |   |            |   |  |   |            |   |  |   |            |  



See accompanying notes to
consolidated financial statements.



F - 5



---

##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31,



|                                                                                                   |  |      |             |   |            |   |            |  
|-------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---------- | - | ---------- | -
|                                                                                                   |  | 2006 |             |   | 2005       |  
|                                                                                                   |  |      |             |   | (Restated) |  
|Cash flows from operating activities:                                                              |  |      |             |   |            |   |            |  
|Net income (loss)                                                                                  |  | $    | 5,903,910   |   |            | $ | (4,377,545 | )
|                                                                                                   |  |     
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |      |             |   |            |   |            |  
|Depreciation and amortization                                                                      |  |      | 455,048     |   |            |   | 170,277    |  
|Common stock issued for consulting fees                                                            |  |      |            |   |            |   | 94,350     |  
|Common stock issued for employee bonuses                                                           |  |      |            |   |            |   | 111,000    |  
|Amortization of deferred consulting fees                                                           |  |      | 308,755     |   |            |   | 356,877    |  
|Amortization of debt discount to interest expense                                                  |  |      | 60,493      |   |            |   |           |  
|Derivative instrument (income) expense, net                                                        |  |      | (10,314,794 | ) |            |   | 3,838,170  |  
|Derivative instrument interest expense                                                             |  |      | 3,311,752   |   |            |   | 1,227,038  |  
|Common stock issued in payment of interest expense                                                 |  |      |            |   |            |   | 140,781    |  
|(Gain) loss on sale property                                                                       |  |      | 4,828       |   |            |   | (654,241   | )
|Gain on distribution of marketable equity securities                                               |  |      |            |   |            |   | (1,349,966 | )
|Changes in operating assets and liabilities:                                                       |  |      |             |   |            |   |            |  
|Accounts receivable                                                                                |  |      | (96,523     | ) |            |   | (490,791   | )
|Inventories                                                                                        |  |      | 422,467     |   |            |   | (1,210,078 | )
|Due to/from affiliates, net                                                                        |  |      | (56,959     | ) |            |   | (213,419   | )
|Prepaid expenses                                                                                   |  |      | 216,804     |   |            |   | (94,108    | )
|Other current assets                                                                               |  |      | 54,699      |   |            |   | 134,542    |  
|Other assets                                                                                       |  |      | (12,308     | ) |            |   | (19,919    | )
|Accounts payable                                                                                   |  |      | (69,923     | ) |            |   | 2,662,829  |  
|Other payables                                                                                     |  |      | 138,637     |   |            |   | 138,068    |  
|Accrued expenses                                                                                   |  |      | (41,238     | ) |            |   | (337,838   | )
|Accrued income taxes                                                                               |  |      | 810         |   |            |   | 5,009      |  
|Deferred income taxes                                                                              |  |      | (321,777    | ) |            |   | 33,575     |  
|                                                                                                   |  |      |             |   |            |   |            |  
|Net cash provided by (used in) operating activities                                                |  |      | (35,319     | ) |            |   | 164,611    |  
|                                                                                                   |  |      |             |   |            |   |            |  
|                                                                                                   |  |     
|Cash flows from investing activities:                                                              |  |      |             |   |            |   |            |  
|Purchases of property and equipment                                                                |  |      | (122,702    | ) |            |   | (55,830    | )
|Proceeds from sale of property                                                                     |  |      | 2,000       |   |            |   | 1,911,110  |  
|Purchase of Bob OLeary Health Food Distributor Co., Inc., net of cash acquired                    |  |      |            |   |            |   | (5,409,895 | )
|Purchase of Dynamic Marketing, Inc., net of cash acquired                                          |  |      |            |   |            |   | (1,983,337 | )
|Adjustment to purchase price of Dynamic Marketing, Inc.                                            |  |      | (17,517     | ) |            |   |           |  
|Repayments of note receivable                                                                      |  |      | 135,345     |   |            |   |           |  
|Repayments of note receivable from affiliate                                                       |  |      | 2,471       |   |            |   |           |  
|Purchase of customer list                                                                          |  |      |            |   |            |   | (153,000   | )
|Adjustment to purchase price of customer list                                                      |  |      | (7,306      | ) |            |   |           |  
|Purchase of trademark                                                                              |  |      | (435        | ) |            |   | (1,977     | )
|                                                                                                   |  |      |             |   |            |   |            |  
|Net cash provided by (used in) investing activities                                                |  |      | (8,144      | ) |            |   | (5,692,929 | )
|                                                                                                   |  |      |             |   |            |   |            |  
|                                                                                                   |  |     
|Cash flows from financing activities:                                                              |  |      |             |   |            |   |            |  
|Proceeds from issuance of long-term obligations                                                    |  |      |            |   |            |   | 5,734,500  |  
|Payments of long-term obligations                                                                  |  |      | (593,631    | ) |            |   | (1,253,891 | )
|Proceeds from issuance of short-term obligations                                                   |  |      | 10,400,590  |   |            |   | 2,812,500  |  
|Payments of short-term obligations                                                                 |  |      | (10,700,044 | ) |            |   | (35,638    | )
|Payments of loan costs                                                                             |  |      |            |   |            |   | (74,492    | )
|Payments of common stock registration costs                                                        |  |      |            |   |            |   | (3,186     | )
|Payments of fractional shares on common stock exchanged                                            |  |      | (1          | ) |            |   | (33        | )
|Proceeds from issuance of common stock                                                             |  |      | 75,000      |   |            |   |           |  
|Proceeds from issuance of related party obligations                                                |  |      |            |   |            |   | 150,000    |  
|Payments of related party obligations                                                              |  |      |            |   |            |   | (150,000   | )
|                                                                                                   |  |      |             |   |            |   |            |  
|Net cash provided by (used in) financing activities                                                |  |      | (818,086    | ) |            |   | 7,179,760  |  
|                                                                                                   |  |      |             |   |            |   |            |  
|                                                                                                   |  |     
|Net increase (decrease) in cash                                                                    |  |      | (861,549    | ) |            |   | 1,651,442  |  
|Cash at beginning of period                                                                        |  |      | 1,870,561   |   |            |   | 219,119    |  
|                                                                                                   |  |      |             |   |            |   |            |  
|Cash at end of period                                                                              |  | $    | 1,009,012   |   |            | $ | 1,870,561  |  
|                                                                                                   |  |      |             |   |            |   |            |  

See accompanying notes to consolidated financial statements.



F - 6



---

##### Table of Contents

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

FOR THE YEARS ENDED MARCH 31,



|                                                                                    |  |      |         |            |   |          
|----------------------------------------------------------------------------------- |  | ---- | ------- | ---------- | - | ---------
|                                                                                    |  | 2006 |         | 2005      
|                                                                                    |  |      |         | (Restated)
|Supplemental disclosure of cash flow information:                                   |  |      |         |            |   |          
|Cash paid during the period for interest                                            |  | $    | 616,759 |            | $ | 108,790  
|                                                                                    |  |      |         |            |   |          
|Cash paid during the period for income taxes                                        |  | $    |        |            | $ | 5,250    
|                                                                                    |  |      |         |            |   |          
|Supplemental schedule of non-cash investing activities:                             |  |      |         |            |   |          
|Issuance of common stock for payment of purchase of Dynamic Marketing, Inc.         |  | $    |        |            | $ | 165,000  
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock options for payment of purchase of Dynamic Marketing, Inc. |  | $    |        |            | $ | 387,500  
|                                                                                    |  |      |         |            |   |          
|Conversion of accounts receivable to note receivable                                |  | $    | 330,993 |            | $ |         
|                                                                                    |  |      |         |            |   |          
|Supplemental schedule of non-cash financing activities:                             |  |      |         |            |   |          
|Dividend distribution of 1,277,483 shares of Vertical Health Solutions, Inc.        |  | $    |        |            | $ | 1,532,979
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock warrants for funding                                       |  | $    |        |            | $ | 4,911,658
|                                                                                    |  |      |         |            |   |          
|Payment of loan costs for the issuance of long-term obligations                     |  | $    |        |            | $ | 453,000  
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock options for guarantee of long-term obligation              |  | $    |        |            | $ | 498,763  
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock for payment of long-term obligation                        |  | $    |        |            | $ | 750,000  
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock warrants for consulting services                           |  | $    |        |            | $ | 465,000  
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock for consulting services                                    |  | $    |        |            | $ | 94,350   
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock for employee bonuses                                       |  | $    |        |            | $ | 111,000  
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock for employer contribution to profit sharing plan           |  | $    | 8,423   |            | $ |         
|                                                                                    |  |      |         |            |   |          
|Issuance of common stock for postponement agreement                                 |  | $    | 189,750 |            | $ |         
|                                                                                    |  |      |         |            |   |          
|Issuance of long-term obligation for purchase of equipment                          |  | $    | 22,979  |            | $ |         
|                                                                                    |  |      |         |            |   |          
|Issuance of short-term obligations for prepaid expenses                             |  | $    | 41,917  |            | $ | 41,446   
|                                                                                    |  |      |         |            |   |          

See accompanying notes to consolidated financial statements.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Dynamic Health Products, Inc. (Company) develops, markets and distributes a wide variety of sports nutrition products, performance drinks,
non-prescription dietary supplements, over-the-counter drugs, health and beauty care products, health food and nutritional products, soft goods and other related products. The Companys products are primarily marketed throughout the United
States to independent pharmacies, regional and national chain drug stores, mail order facilities, mass merchandisers, deep discounters, gyms, health food stores, internet companies, distributors and brokers.

a. Principles of Consolidation

The accompanying
consolidated financial statements as of and for the years ended March 31, 2006 and 2005 include the accounts of Dynamic Health Products, Inc. and its principally wholly-owned subsidiaries (collectively the Company), Pharma Labs Rx,
Inc. (FL), Dynamic Life Products, Inc., Herbal Health Products, Inc., Online Meds Rx, Inc., and its subsidiary Dynamic Financial Consultants, LLC, Bryan Capital Limited Partnership, Pharma Labs Rx, Inc. (NV), Bob OLeary Health Food Distributor
Co., Inc., Dynamic Marketing I, Inc. and DYHP Acquisitions, Inc. Significant intercompany balances and transactions have been eliminated in consolidation.

b. Cash and Cash Equivalents

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

c. Investments in Equity Securities

At March 31, 2006 and 2005, the marketable equity securities are classified as available for sale. In accordance with Statement of Financial
Accounting Standards No. 115, Accounting For Certain Investments In Debt And Equity Securities (SFAS 115), marketable equity securities available for sale are recorded in the Companys financial statements at fair market value.
The corresponding unrealized gain or loss in the fair market value in relation to cost is accounted for as a separate component of shareholders equity, net of tax.

d. Accounts Receivable

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

e. Inventories

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



f. Property, Plant and Equipment

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

g. 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.

h. Intangible Assets

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

i. Impairment
of Assets

In accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting For The
Impairment Or Disposal Of Long-Lived Assets (SFAS 144), the Companys policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets, certain identifiable intangibles and goodwill when certain events
have taken place that indicate that the remaining unamortized balance may not be recoverable. When factors indicate that the intangible assets should be evaluated for possible impairment, the Company uses an estimate of related undiscounted cash
flows. A deficiency in these cash flows relative to the carrying amounts is an indication of the need for a write-down due to impairment. The impairment write-down would be the difference between the carrying amounts and the fair value of these
assets. Losses on impairment are recognized by a charge to earnings. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. There were no impairment losses recorded as of and for
the years ended March 31, 2006 and 2005.



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



j. 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.

k. Earnings (Loss) Per Common Share

Earnings (loss)
per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted average number
of shares of common stock outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect
of common stock equivalents, using the treasury stock method (see Note 20).

l. 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, 2006 and 2005, as well as the reported amounts of revenues and expenses for the years ended March 31, 2006 and
2005. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.

m. Revenue Recognition

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



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



n. Advertising Costs

In accordance with Statement of Position No. 93-7, Reporting On Advertising Costs (SOP 93-7), the Company charges advertising costs, including those for catalog sales and direct mail, to expense as
incurred. Costs for direct-response advertising through infomercials are expensed as the advertising program first occurs. Advertising expenses are included in selling, general and administrative expenses in the statements of operations and were
$421,038 and $254,478 for the years ended March 31, 2006 and 2005, respectively.

For cooperative advertising allowances received from
third party manufacturers and vendors, the Company applies EITF Issue No. 02-16 Accounting By A Customer (Including A Reseller) For Certain Consideration Received From A Vendor. These allowances are included as a reduction in cost
of goods sold and were $318,455 and $144,450, respectively, for the years ended March 31, 2006 and 2005, respectively.

o. Research and Development
Costs

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

p. 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, 2006 and 2005, except for the amortization of deferred compensation expense that arose in connection with those options granted on October 1, 2004, to Jugal Taneja, the Chairman of the Board of the Company, for
his guarantee of the Laurus convertible debt (see Note 3). If the Company had elected to recognize compensation expense for stock options based on the fair value at the grant date consistent with the method prescribed by SFAS No. 123, net
income (loss) and related per share amounts would have been reduced (increased) (see Note 18).

The Company has adopted only the disclosure
provision of SFAS No. 123, as it relates to employee awards. APB No. 25 is applied in accounting for the plan. Accordingly, no compensation expense is recognized related to the stock based compensation plans (see Note 18).

q. 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



Short-Term Obligations: The fair value of the Companys fixed-rate short-term obligations
is estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At March 31, 2006 and 2005, the fair value of the Companys short-term
obligations approximated its carrying value.

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

Long-Term
Obligations: The fair value of the Companys fixed-rate long-term obligations is estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At
March 31, 2006 and 2005, the fair value of the Companys fixed-rate long-term obligations approximated its carrying value.

r. Recently Issued
Accounting Standards

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

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



s. Reclassifications

Certain reclassifications have been made to the financial statements as of and for the year ended March 31, 2005 to conform to the presentation as of and for the year ended March 31, 2006.

t. Restatements

Financial Derivatives

The Company corrected its accounting for derivative financial instruments to conform to the
requirements of Statements of Financial Accounting Standards No. 133, as amended, and Emerging Issues Task Force No. 00-19. The Company previously accounted for these instruments under EITF 00-27 and EITF 98-5. Embedded conversion features that
meet the definition of derivative financial instruments have, where applicable, been bifurcated from host instruments and, in all instances derivative financial instruments have been recorded as assets or liabilities and are carried at fair value.
Net fair value adjustments included in earnings (loss) related to these instruments amounted to $7,003,042 for the year ended March 31, 2006. The effect of the restatement on the earnings (loss) reported on the Companys comparative
statement of operations for the year ended March 31, 2005 was ($4,479,657) and earnings (loss) per share was impacted by ($0.34) per share.

Derivative Financial Instruments

The Company generally does not use derivative financial instruments
to hedge exposures to cash-flow or market risks. However certain other financial instruments, such as warrants to acquire common stock and the embedded conversion features of debt instruments that are indexed to the Companys common stock, are
classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial
accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting
period. Fair value for option based derivative financial instruments is determined using the Black-Scholes option pricing model. Fair value for cash flow derivatives is determined using discounted future cash flows of the probable expected outcomes
of the derivative contract.

Aggregate Purchase Price Allocations

The Company corrected its accounting for the aggregate purchase price allocations, in connection with the October 1, 2004 acquisition of Bob
OLeary Health Food Distributor Co., Inc. and the March 31, 2005 acquisition of Dynamic Marketing, Inc., whereby intangible assets, specifically customer lists amounting to $285,000 and $165,000, respectively, that were not previously
identified, were valued separately and apart from goodwill. The effect of the restatement on the comparative statement of operations for the year ended March 31, 2005 was $28,500. Per share earnings (loss) was impacted by zero.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



NOTE 2  ACQUISITIONS

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

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

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

In conjunction with the
acquisition, the Company completed the placement of $6 million in secured convertible notes and warrants to Laurus Master Fund, Ltd. (see Note 14).

The aggregate cost of this acquisition was as follows:



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

The aggregate purchase price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 954,472  
|Inventory              |  |   | 2,476,313
|Cash acquired          |  |   | 277,780  
|Property and equipment |  |   | 232,926  
|Other assets           |  |   | 192,347  
|Trademarks             |  |   | 8,062    
|Customer list          |  |   | 285,000  
|Goodwill               |  |   | 2,985,984
|                       |  |   |          
|                       |  | $ | 7,412,884
|                       |  |   |          



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



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

The unaudited pro
forma effect of the acquisition of BOSS on the Companys revenues, net income (loss) and net income (loss) per share, had the acquisition occurred on April 1, 2004, for the year ended March 31, 2005 is as follows:



|                         |  |   |           
|------------------------ |  | - | ----------
|Revenues                 |  | $ | 31,205,545
|                         |  |   |           
|Net income               |  | $ | 539,928   
|                         |  |   |           
|Basic income per share   |  | $ | 0.03      
|                         |  |   |           
|Diluted income per share |  | $ | 0.03      
|                         |  |   |           

Acquisition of Dynamic Marketing, Inc.

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

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

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



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

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

The aggregate cost of this acquisition was as follows:



|                                |  |   |          
|------------------------------- |  | - | ---------
|Assumption of liabilities       |  | $ | 3,695,998
|Cash paid                       |  |   | 75,000   
|Cash paid for acquisition costs |  |   | 28,809   
|Common stock issued             |  |   | 165,000  
|Stock options issued            |  |   | 387,500  
|                                |  |   |          
|                                |  | $ | 4,352,307
|                                |  |   |          

The aggregate purchase price was allocated as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Accounts receivable    |  | $ | 1,117,371
|Inventory              |  |   | 1,025,853
|Cash acquired          |  |   | 66,821   
|Property and equipment |  |   | 459,134  
|Other assets           |  |   | 358,982  
|Customer list          |  |   | 165,000  
|Goodwill               |  |   | 1,159,146
|                       |  |   |          
|                       |  | $ | 4,352,307
|                       |  |   |          

An analysis was conducted in connection with the acquisition of DM, to determine the existence of
any intangible assets, for valuation purposes. It was determined that the only significant intangible assets were the customer list, which was valued based upon comparable recent customer lists purchased by the Company, and goodwill. Goodwill
associated with this acquisition will not be deductible for income tax purposes.

The unaudited pro forma effect of the acquisition of DM
on the Companys revenues, net income (loss) and net income (loss) per share, had the acquisition occurred on April 1, 2004, for the year ended March 31, 2005 is as follows:



|                                |  |   |            |  
|------------------------------- |  | - | ---------- | -
|Revenues                        |  | $ | 29,646,194 |  
|                                |  |   |            |  
|Net income (loss)               |  | $ | (152,873   | )
|                                |  |   |            |  
|Basic income (loss) per share   |  | $ | (0.01      | )
|                                |  |   |            |  
|Diluted income (loss) per share |  | $ | (0.01      | )
|                                |  |   |            |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



Acquisition of Certain Assets of Protech Distributing, Inc.

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

NOTE 3  RELATED PARTY TRANSACTIONS

On October 1, 1999, the Company entered into a triple-net lease agreement with GeoPharma, Inc. (GeoPharma), a publicly traded company and an affiliate of the Company, whereby GeoPharma agreed to lease
the Companys land and 33,222 square foot building situated in Largo, Florida for a term of ten years. The initial rental under the lease was approximately $192,000 annually. The lease provides for an annual cost-of-living increase. This
facility serves as GeoPharmas corporate headquarters and also serves as part of GeoPharmas offices, manufacturing, warehousing and shipping operations. On October 25, 2004, the Company sold the building to GeoPharma for $1,925,000
in cash. This resulted in a gain of $654,241 to the Company for the year ended March 31, 2005. The sale price was determined by an independent third-party appraisal. Jugal K. Taneja, a principal shareholder and Chairman of the Board of the
Company is also a principal shareholder and Chairman of the Board of GeoPharma. As of March 31, 2006 and 2005, the Companys investment in GeoPharma, consisting of 347,938 shares of its common stock, is included in marketable equity
securities, net (see Note 4).

On June 14, 2004, the Board of Directors of the Company, approved the declaration of a pro rata
dividend distribution to holders of record of its issued and outstanding common shares as of July 1, 2004, in the form of approximately 1.3 million shares of Vertical Health Solutions, Inc. (Vertical), which the Company owned.
On July 7, 2004, the Board of Directors of the Company amended the record date to July 16, 2004 and the distribution date to July 26, 2004. The payment rate was one share of Vertical common stock for each ten shares of the
Companys common stock held on July 16, 2004. The Company only distributed whole shares and any fractional shares to which shareholders would otherwise be entitled were rounded down to the nearest whole share. On July 26, 2004, the
Company distributed approximately 1.3 million shares of Vertical common stock to its shareholders. This resulted in a gain of $1,349,966 to the Company for the year ended March 31, 2005.

For the year ended March 31, 2005, the Company charged Vertical consulting fees totaling $5,213 for accounting and administrative services. The
charge was on an hourly basis for services rendered. As of March 31, 2006 and 2005, approximately $325 and $325, respectively, were due from Vertical and are included in amounts due from affiliates. As of March 31, 2006 and 2005, the
Companys investment in Vertical, consisting of 253,337 shares of its common stock, is included in marketable equity securities, net (see Note 4).

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



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, 2006 and 2005, zero and $301, respectively, was due from Tribeca and is included in due from affiliates.

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

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

For the
years ended March 31, 2006 and 2005, purchases of products from subsidiaries of GeoPharma were $182,872 and $476,952, respectively, and sales of products to subsidiaries of GeoPharma $31,157 and $18,774, respectively. As of March 31, 2006
and 2005, $26,554 and $66,151, respectively, were due to subsidiaries of GeoPharma and are included in obligations to affiliates. As of March 31, 2006 and 2005, $2,175 and zero, respectively, were due from GeoPharma.

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.

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

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

On October 17, 2004, a meeting of the Compensation Committee of the Board of Directors of the Company was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of the
Companys common stock, effective October 1, 2004, to Jugal Taneja, the Companys Chairman and a principal shareholder of the Company, as compensation for Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of
financing in the amount of $6 million, to fund the BOSS



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



acquisition. The exercise price of the options is $1.14 (110% of the fair value of the Companys common stock on
September 30, 2004). The options vest approximately equally over a three-year period, commencing October 1, 2005. The value of the options, as determined by reference to the Black-Scholes option pricing model, has been recorded as a
prepaid expense and is being amortized over the life of the loan.

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

NOTE 4  MARKETABLE EQUITY SECURITIES, NET

At March 31, 2006 and 2005, investments in
marketable equity securities, net are summarized as follows:

Available for sale equity securities:



|                           |  |      |           |      |   |          
|-------------------------- |  | ---- | --------- | ---- | - | ---------
|                           |  | 2006 |           | 2005
|Cost of securities         |  | $    | 50,667    |      | $ | 50,667   
|Plus gross unrealized gain |  |      | 1,587,096 |      |   | 1,111,879
|                           |  |      |           |      |   |          
|Fair value                 |  | $    | 1,637,763 |      | $ | 1,162,546
|                           |  |      |           |      |   |          
|Gross unrealized loss      |  | $    |          |      | $ |         
|                           |  |      |           |      |   |          

Realized gains and losses from available for sale equity securities are determined on the basis of
the specific cost of the security sold versus the sale price of the security. For the years ended March 31, 2006 and 2005, the Company had no realized losses. For the year ended March 31, 2006, the Company had no realized gains. The change
in marketable equity securities included in earnings for the year ended March 31, 2005 was $1,349,966, of which $1,222,218 of unrealized holding gains were reclassified from accumulated other comprehensive income into earnings.

NOTE 5  ACCOUNTS RECEIVABLE, NET

At
March 31, 2006 and 2005, accounts receivable, net consist of the following:



|                                          |  |      |           |   |      |   |           |  
|----------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                          |  | 2006 |           |   | 2005 |  
|Accounts receivable                       |  | $    | 2,701,935 |   |      | $ | 2,881,250 |  
|Less allowance for uncollectible accounts |  |      | (215,981  | ) |      |   | (160,826  | )
|                                          |  |      |           |   |      |   |           |  
|Total                                     |  | $    | 2,485,954 |   |      | $ | 2,720,424 |  
|                                          |  |      |           |   |      |   |           |  

For the years ended March 31, 2006 and 2005, bad debt expense charged to operations for
estimated uncollectible accounts receivable was $105,127 and $28,151, respectively, whereas uncollectible accounts receivable written off during the years amounted to $49,972 and $19,151, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



NOTE 6 - INVENTORIES

At March 31, 2006 and 2005, inventories, net consist of the following:



|                              |  |      |           |   |      |   |           |  
|----------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                              |  | 2006 |           |   | 2005 |  
|Raw materials                 |  | $    | 93,344    |   |      | $ | 126,559   |  
|Work in process               |  |      | 502       |   |      |   | 1,000     |  
|Finished goods                |  |      | 4,483,098 |   |      |   | 4,890,970 |  
|                              |  |      |           |   |      |   |           |  
|                              |  |      | 4,576,944 |   |      |   | 5,018,529 |  
|Less reserve for obsolescence |  |      | (97,974   | ) |      |   | (117,092  | )
|                              |  |      |           |   |      |   |           |  
|Total                         |  | $    | 4,478,970 |   |      | $ | 4,901,437 |  
|                              |  |      |           |   |      |   |           |  

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT, NET

At March 31, 2006 and 2005, property, plant and equipment, net consist of the following:



|                                               |  |      |           |   |      |   |          |  
|---------------------------------------------- |  | ---- | --------- | - | ---- | - | -------- | -
|                                               |  | 2006 |           |   | 2005 |  
|Machinery and equipment                        |  | $    | 470,131   |   |      | $ | 417,484  |  
|Furniture, fixtures and equipment              |  |      | 400,748   |   |      |   | 322,313  |  
|Vehicles                                       |  |      | 102,663   |   |      |   | 105,736  |  
|Leasehold improvements                         |  |      | 28,299    |   |      |   | 20,200   |  
|                                               |  |      |           |   |      |   |          |  
|                                               |  |      | 1,001,841 |   |      |   | 865,733  |  
|Less accumulated depreciation and amortization |  |      | (257,995  | ) |      |   | (106,214 | )
|                                               |  |      |           |   |      |   |          |  
|Total                                          |  | $    | 743,846   |   |      | $ | 759,519  |  
|                                               |  |      |           |   |      |   |          |  

Depreciation expense charged to operations was $154,526 and $68,697 for the years ended
March 31, 2006 and 2005, respectively.

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

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



NOTE 8  GOODWILL, NET

At March 31, 2006 and 2005, goodwill, net, consists of the following:



|                              |  |      |           |      |   |          
|----------------------------- |  | ---- | --------- | ---- | - | ---------
|                              |  | 2006 |           | 2005
|Goodwill                      |  | $    | 4,145,130 |      | $ | 4,127,613
|Less accumulated amortization |  |      |          |      |   |         
|                              |  |      |           |      |   |          
|Total                         |  | $    | 4,145,130 |      | $ | 4,127,613
|                              |  |      |           |      |   |          

As of March 31, 2006 and 2005, goodwill represented an intangible asset, resulting from the
acquisitions of BOSS and DM. Goodwill is analyzed each September 30 for impairment as it has an indeterminant life. Based on the Companys analysis performed, no impairment losses were required to have been recorded during the fiscal years
ended March 31, 2006 and 2005. For income tax purposes, no deductible expense is anticipated for the acquisition goodwill.

NOTE 9 
INTANGIBLE ASSETS, NET

At March 31, 2006 and 2005, intangible assets, net, consist of the following:



|                              |  |      |           |   |      |   |           |  
|----------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                              |  | 2006 |           |   | 2005 |  
|Loan costs                    |  | $    | 527,492   |   |      | $ | 527,492   |  
|Customer lists                |  |      | 610,306   |   |      |   | 603,000   |  
|Trademarks                    |  |      | 13,330    |   |      |   | 12,895    |  
|                              |  |      |           |   |      |   |           |  
|                              |  |      | 1,151,128 |   |      |   | 1,143,387 |  
|Less accumulated amortization |  |      | (401,911  | ) |      |   | (101,389  | )
|                              |  |      |           |   |      |   |           |  
|Total                         |  | $    | 749,217   |   |      | $ | 1,041,998 |  
|                              |  |      |           |   |      |   |           |  

Amortization expense charged to operations was $300,522 and $101,580 for the years ended
March 31, 2006 and 2005, respectively.

The Company incurred loan costs in the amount of $305,818 associated with the $6 million of
funding received on September 30, 2004, in connection with the acquisition of BOSS. The customer list and trademarks acquired with the acquisition of BOSS amounted to $285,000 and $8,062, respectively. In addition, the Company incurred loan
costs in the amount of $221,674 associated with the funding received on March 29, 2005, in connection with the acquisition of DM. The customer list acquired with the acquisition of DM amounted to $165,000. On February 14, 2005, the Company
purchased a customer list for $160,306 from Protech Distributing, Inc. As of March 31, 2006 and 2005, no factors existed that would suggest impairment of these assets.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



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 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, 2006 and 2005, zero and $301, respectively, were due from Tribeca and are included in due from to affiliates.

The results of operations of the Companys equity-basis affiliate, Tribeca, for the twelve months ended March 31, 2006 and 2005, are
summarized below:



|                                        |  |      |     |      |   |         |  
|--------------------------------------- |  | ---- | --- | ---- | - | ------- | -
|                                        |  | 2006 |     | 2005 |  
|Condensed Income Statement Information: |  |      |     |      |   |         |  
|Net sales                               |  | $    |    |      | $ |        |  
|                                        |  |      |     |      |   |         |  
|Gross profit                            |  | $    |    |      | $ |        |  
|                                        |  |      |     |      |   |         |  
|Net loss                                |  | $    | 743 |      | $ | (19,539 | )
|                                        |  |      |     |      |   |         |  

NOTE 11 - INCOME TAXES

Income tax expense (benefit) for the years ended March 31, 2006 and 2005 are as follows:



|                                      |  |      |          |   |      |   |       
|------------------------------------- |  | ---- | -------- | - | ---- | - | ------
|                                      |  | 2006 |          |   | 2005
|Current income tax expense (benefit)  |  | $    | 810      |   |      | $ |      
|Deferred income tax expense (benefit) |  |      | (318,552 | ) |      |   | 33,575
|                                      |  |      |          |   |      |   |       
|Income tax expense (benefit)          |  | $    | (317,742 | ) |      | $ | 33,575
|                                      |  |      |          |   |      |   |       



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



Income taxes for the years ended March 31, 2006 and 2005 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:



|                                                  |  |      |            |   |      |   |            |  
|------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                  |  | 2006 |            |   | 2005 |  
|Computed tax expense at the statutory rate        |  | $    | 2,066,900  |   |      | $ | (1,607,300 | )
|Increase (decrease) in taxes resulting from:      |  |      |            |   |      |   |            |  
|Non-deductible items                              |  |      | 27,400     |   |      |   | 14,700     |  
|Derivative (income) expense and other adjustments |  |      | (2,712,042 | ) |      |   | 1,625,975  |  
|Increase in valuation allowance                   |  |      | 300,000    |   |      |   |           |  
|                                                  |  |      |            |   |      |   |            |  
|Income tax expense (benefit)                      |  | $    | (317,742   | ) |      | $ | 33,575     |  
|                                                  |  |      |            |   |      |   |            |  

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



|                                                |  |      |          |   |      |   |        
|----------------------------------------------- |  | ---- | -------- | - | ---- | - | -------
|                                                |  | 2006 |          |   | 2005
|Deferred tax assets:                            |  |      |          |   |      |   |        
|Bad debts                                       |  | $    | 81,200   |   |      | $ | 10,600 
|Inventories                                     |  |      | 36,500   |   |      |   | 16,300 
|Net operating loss carryforward                 |  |      | 616,000  |   |      |   | 86,700 
|Accrued vacation                                |  |      | 21,600   |   |      |   | 27,400 
|Amortization                                    |  |      | 30,600   |   |      |   |       
|                                                |  |      |          |   |      |   |        
|Gross deferred tax assets                       |  |      | 785,900  |   |      |   | 141,000
|Less valuation allowance                        |  |      | (300,000 | ) |      |   |       
|                                                |  |      |          |   |      |   |        
|                                                |  | $    | 485,900  |   |      | $ | 141,000
|                                                |  |      |          |   |      |   |        
|Deferred tax liabilities:                       |  |      |          |   |      |   |        
|Deferred revenue                                |  | $    | 6,600    |   |      | $ | 19,000 
|Depreciation                                    |  |      | 68,500   |   |      |   | 41,000 
|Unrealized gain on marketable equity securities |  |      | 597,100  |   |      |   | 418,000
|                                                |  |      |          |   |      |   |        
|Gross deferred tax liability                    |  | $    | 672,200  |   |      | $ | 478,000
|                                                |  |      |          |   |      |   |        
|                                                |  |     
|Net increase (decrease) in valuation allowance  |  | $    | 300,000  |   |      | $ |       
|                                                |  |      |          |   |      |   |        

As of March 31, 2006 and 2005, the Company had an accrued income tax liability of $5,819 and
$5,009, respectively, and a net deferred income tax liability of approximately $186,300 and $336,999, respectively, which primarily represents the potential future tax expense associated with the unrealized gains on marketable equity securities, and
is partially offset due to potential utilization of net operating losses not previously recognized. The Company has net operating losses that expire through March 31, 2026.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



NOTE 12  REVOLVING NOTE PAYABLE

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



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



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



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

The proceeds of the funding were used for the March 31, 2005 acquisition of Dynamic Marketing, Inc., for costs
associated with the acquisition and for working capital (see Note 2). The borrowing is in excess of the advance rates provided for in the note. The lender has issued a waiver to this covenant whereby the Company is permitted to bring the ratios into
compliance within one year from the date of the note.

We incurred loan costs of $221,674 associated with the notes. As of March 31,
2006 and 2005, the outstanding principal balance on the notes was $2,751,564 and $3,000,000, respectively.

Because the common stock
underlying the conversion feature embedded in the $2,000,000 convertible minimum borrowing note and the warrant are subject to our Registration Rights Agreement with Laurus, they have been accounted for as derivative instrument liabilities (see Note
15). The embedded derivative instruments (primarily the conversion feature) related to the $2,000,000 convertible minimum borrowing note were bifurcated and recorded as a derivative instrument liability. The warrants were valued using the
Black-Scholes option pricing model at $937,500. Because the fair value of the warrants of $937,500 and the fair value of the bifurcated derivative instrument of $2,530,973 exceeded the proceeds received, the convertible minimum borrowing note was
initially recorded at zero and an initial expense of $3,468,473 was recognized to record the warrants and the bifurcated derivative instrument at their fair values (see Note 15).

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



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MARCH 31, 2006 AND 2005



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

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

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

The warrants are exercisable until seven years from the date of the notes at a purchase price equal to $1.37 per share. The warrants are exercisable on a cashless basis. In the event that the warrants are exercised on a cashless basis, then
the Company will not receive any proceeds. In addition, the exercise price of the warrants will be adjusted in the event the Company issues common stock at a price below market, with the exception of any securities issued as of the date of this
warrant or issued in connection with the convertible minimum borrowing note.

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

On July 19, 2005, the Company entered into a Postponement Agreement with Laurus, whereby Laurus agreed to postpone the Companys obligation to
make certain amortization payments on its September 30, 2004 secured convertible note (see Note 14). In connection with the agreement, Laurus agreed to amend the Registration Rights Agreement with the Company, to extend the dates for the filing
requirements of the Registration Statement.

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



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

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



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



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



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



| |  |  | In connection with the foregoing, the Company issued an aggregate of 425,000 restricted shares of our common stock to Laurus.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

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

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

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



Revolving note payable consists of the following at March 31, 2006 and 2005:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | 2006 |            |   | 2005 |  
|Principal balance of revolving note payable collateralized by all assets, interest payable at prime (7.75% at March 31, 2006 and 5.75% at
March 31, 2005) plus 2% through March 29, 2008.                                                                                                                                                                                                                                                                                                        |  | $    | 2,751,564  |   |      | $ | 3,000,000  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |     
|Less face value of convertible portion of revolving note payable, accounted for as a derivative financial instrument liability, convertible
into shares of the Companys common stock at a conversion price of $1.37 per share. Proceeds from the convertible debenture were allocated first to the embedded conversion feature and the residual to the debenture. The resulting discount is
being amortized through period charges to interest expense using the effective interest method. (a) |  |      | (2,000,000 | ) |      |   | (2,000,000 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |     
|Plus amortization of discount recorded as derivative instrument interest expense using an effective interest rate of 300%. (a)                                                                                                                                                                                                                                                                                                                                                                   |  |      | 857,676    |   |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |            |   |      |   |            |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $    | 1,609,240  |   |      | $ | 1,000,000  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |            |   |      |   |            |  

---

|(a) | See Note 15 for information on the derivative instrument liabilities related to the warrants issued to Laurus and the bifurcated embedded derivative instruments related to the
convertible minimum borrowing note.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



NOTE 13 - SHORT-TERM OBLIGATIONS

Short-term obligations consist of the following at March 31, 2006 and 2005:



|                                                                                                                                    |  |      |        |      |   |       
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                                                                                                    |  | 2006 |        | 2005
|Note payable, unsecured, due in monthly payments of $3,478, including interest at 8.25%, through June 2006.                         |  |      | 10,296 |      |   |      
|                                                                                                                                    |  |     
|Note payable, unsecured, due in monthly payments of $4,824, including interest at 11.25%, through June 2005.                        |  |      |       |      |   | 18,851
|                                                                                                                                    |  |     
|Capitalized lease obligation for certain equipment, due in monthly payments of $546, including interest at 10%, through April
2005. |  |      |       |      |   | 546   
|                                                                                                                                    |  |      |        |      |   |       
|Total                                                                                                                               |  | $    | 10,296 |      | $ | 19,397
|                                                                                                                                    |  |      |        |      |   |       

NOTE 14 - LONG-TERM OBLIGATIONS

On September 30, 2004, the Company entered into a Securities Purchase Agreement with Laurus Master Fund, Ltd., whereby the Company completed the sale
to Laurus of a secured convertible note in the principal amount of $6,000,000 and warrants to purchase 1,375,000 shares of Company common stock. Net proceeds from the offering were used to pay the purchase price for the acquisition of Bob
OLeary Health Food Distributor Co., Inc., effective on October 1, 2004 (see Note 2).

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



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



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

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



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



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

We incurred loan costs in the amount of $305,818 associated with the convertible note. As of March 31, 2006 and 2005, the outstanding
principal balance on the convertible note was $4,500,000 and $5,062,500, respectively. As of March 31, 2006 and 2005, 989,758 shares of Company common stock have been issued to Laurus in payment of $750,000 of principal and $140,782 of interest
on the note.

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

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

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

Because the common stock
underlying the conversion feature embedded in the $6,000,000 convertible note and the warrant are subject to our Registration Rights Agreement with Laurus, they have been accounted for as derivative instrument assets or liabilities (see Note 15).
The interest rate index derivative asset related to the interest rate index feature was recorded as a derivative instrument asset. The embedded derivative instruments (primarily the conversion feature) related to the $6,000,000 convertible



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



note were bifurcated and recorded as a derivative instrument liability. The warrants were valued using the
Black-Scholes option pricing model at $1,357,125. Because the fair value of the warrants of $1,357,125 and the fair value of the bifurcated derivative instrument of $6,579,999 exceeded the proceeds received, the convertible minimum borrowing note
was initially recorded at zero and a charge to income of $1,937,124 was recognized to record the warrants and the bifurcated derivative instrument at their fair values (see Note 15).

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

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

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

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

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



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



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



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



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



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



| |  |  | In connection with the foregoing, the Company issued an aggregate of 425,000 restricted shares of our common stock to Laurus.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

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



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



Long-term obligations consist of the following at March 31, 2006 and 2005:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | 2006 |            |   | 2005 |  
|Convertible note payable collateralized by all assets, due in monthly principal payments (see above), plus interest at prime (7.75% at
March 31, 2006 and 5.75% at March 31, 2005) plus 2%, through September 2007.                                                                                                                                                                                                                                                                             |  | $    | 4,500,000  |   |      | $ | 5,062,500  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Less face value of convertible note payable, accounted for as a derivative financial instrument liability, convertible into shares of the
Companys common stock at a conversion price of $0.90 per share. Proceeds from the convertible debenture were allocated first to the warrants and to the embedded conversion feature and the residual to the debenture. The resulting discount is
being amortized through period charges to interest expense using the effective interest method. (a) |  |      | (4,773,211 | ) |      |   | (6,000,000 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Plus amortization of discount recorded as derivative instrument interest expense using an effective interest rate of 300%. (a)                                                                                                                                                                                                                                                                                                                                                                  |  |      | 2,454,076  |   |      |   | 1,227,038  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Less discount recorded for July 19, 2005 postponement agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      | (189,500   | ) |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Plus amortization of discount as interest expense, related to postponement agreement.                                                                                                                                                                                                                                                                                                                                                                                                           |  |      | 60,493     |   |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Note payable collateralized by certain equipment, due in monthly payments of approximately $1,662, including interest at 10%, through December
2007.                                                                                                                                                                                                                                                                                                                                            |  |      | 31,902     |   |      |   | 47,785     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Note payable collateralized by a vehicle, due in monthly payments of $412, including interest at 4.02%, through January 2009.                                                                                                                                                                                                                                                                                                                                                                   |  |      | 12,855     |   |      |   | 17,894     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Note payable collateralized by a vehicle, due in monthly payments of $666, including interest at 1.9%, through February 2010.                                                                                                                                                                                                                                                                                                                                                                   |  |      | 30,090     |   |      |   | 37,431     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Capitalized lease obligation for certain equipment, due in monthly payments of $499, including interest at 11.33%, through July
2010.                                                                                                                                                                                                                                                                                                                                                           |  |      | 20,111     |   |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      | 8,623      |   |      |   | 8,623      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      | 2,155,439  |   |      |   | 401,271    |  
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |      | 2,093,540  |   |      |   | 326,056    |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |            |   |      |   |            |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $    | 61,899     |   |      | $ | 75,215     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |            |   |      |   |            |  

---

|(a) | See Note 15 for information on the derivative instrument assets or liabilities related to the warrants issued to Laurus and the bifurcated embedded derivative instruments related to
the convertible note.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



At March 31, 2006, principal repayments of long-term obligations are as follows:



|                      |  |   |          
|--------------------- |  | - | ---------
|Year Ending March 31, |  |   |          
|2007                  |  | $ | 1,566,683
|2008                  |  |   | 3,006,030
|2009                  |  |   | 16,709   
|2010                  |  |   | 12,690   
|2011                  |  |   | 1,469    
|Thereafter            |  |   |         
|                      |  |   |          
|Total                 |  | $ | 4,603,581
|                      |  |   |          

NOTE 15  DERIVATIVE FINANCIAL INSTRUMENTS

The captions derivative financial instruments consist of (a) the embedded conversion feature bifurcated from the September 2004 and the March 2005
convertible debentures, (b) the Warrants issued in connection with the September 2004 and March 2005 convertible debts and (c) interest rate index. These derivative financial instruments are indexed to an aggregate of 9,494,656 and
10,249,756 shares, respectively, at March 31, 2006 and 2005, and are carried at fair value.

We use the Black-Scholes option price
model to value embedded conversion feature components of any bifurcated embedded derivative instruments that are recorded as derivative assets or derivative liabilities. See Note 12 and Note 14 related to embedded derivative instruments that have
been bifurcated from our notes payable to Laurus. We use the discounted present value of future cash flows to value derivative financial assets.

In valuing the embedded conversion feature components of the bifurcated embedded derivative instruments and the detachable warrants, at the time they were issued and at March 31, 2006 and 2005, we used the market price of our common
stock on the date of valuation, an expected dividend yield of zero and the remaining period or maturity date of the convertible debt instruments. Even though the warrants issued in September 2004 expire in five years and the warrants issued March
2005 expire in seven years, we assumed they would be exercised in three years, the life of the convertible debt instruments, based on normal practices by the lender. All convertible instruments and warrants can be exercised by the holder at any
time.

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

The embedded conversion features in the convertible notes issued to Laurus are subject to the requirements of EITF 00-19 and SFAS 133. The Company is
required by EITF 00-19 and SFAS 133 to bifurcate the embedded conversion features and warrants, and account for them as derivative instrument liabilities. These derivative instrument liabilities were initially recorded at their fair values and are
then adjusted to fair value at the end of each subsequent reporting period, with any changes in the fair value



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



recognized as income or expense in the period of change. The most significant component of this compound derivative
instrument is the embedded conversion feature, which is revalued using the Black-Scholes option pricing model. The interest rate index derivative has been accounted for as a standalone financial derivative asset.

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

The effective interest rate used to amortize the debt discount on the September 2004 6.75%
convertible debenture and the March 2005 7.75% convertible debenture, amounted to 300% and 300%, respectively. Amortization of the discounts, which are included in derivative interest expense, amounted to $2,454,076 and $857,676, respectively, for
the year ended March 31, 2006, and zero and $1,227,038, respectively, for the year ended March 31, 2005.

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

Interest Rate Index Derivative

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

Since the IRI is directly affected by the price of the Companys common
stock and has a value dependent on the price of the stock, it was determined to be a derivative asset. The fair value of the asset was determined using the present value of the projected cash flow benefit of the potential reduction in the interest
rate over the term of the loan. The initial fair value of the present value of discounted future cash flows from the projected reduction in the interest on the September 2004 convertible debt was $335,126. Since the price of the Companys stock
has decreased, the fair value of the IRI decreased to zero and $245,584, respectively, as of March 31, 2006 and 2005. Upon the future filing of a registration statement



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



for both financings and when such registration statement is declared effective, the IRI for each instrument will be
calculated based upon the discounted present value of the projected reduction in stated interest on the convertible debts.

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



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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005



At March 31, 2006 and 2005, the following derivative asset and liabilities related to common
stock warrants and embedded derivative instruments were outstanding:

Derivative Financial Asset



|                                                                           |  |                |   |                             |   |                        |      |                    |   |                        |  |                        |   |  |   |        
|-------------------------------------------------------------------------- |  | -------------- | - | --------------------------- | - | ---------------------- | ---- | ------------------ | - | ---------------------- |  | ---------------------- | - |  | - | -------
|Issue Date                                                                 |  | ExpirationDate |   | Instrument                  |   | ExercisePrice PerShare |      | Value At IssueDate |   | Value AtMarch 31, 2006 |  | Value AtMarch 31, 2005
|9/30/2004                                                                  |  | 9/30/2007      |   | Laurus $6,000,000 term note |   | $                      | 0.90 |                    | $ | 335,126                |  | $                      |  |  | $ | 245,584
|                                                                           |  |                |   |                             |   |                        |      |                    |   |                        |  |                        |   |  |   |        
|Fair value of freestanding interest rate index derivative instrument asset |  | $              |  |                             | $ | 245,584               
|                                                                           |  |                |   |                             |   |                       

Derivative Financial Liabilities



|                                                                          |  |                |         |                                     |   |                        |      |                    |   |                        |  |                        |         |  |   |          
|------------------------------------------------------------------------- |  | -------------- | ------- | ----------------------------------- | - | ---------------------- | ---- | ------------------ | - | ---------------------- |  | ---------------------- | ------- |  | - | ---------
|Issue Date                                                                |  | ExpirationDate |         | Instrument                          |   | ExercisePrice PerShare |      | Value At IssueDate |   | Value AtMarch 31, 2006 |  | Value AtMarch 31, 2005
|9/30/2004                                                                 |  | 9/30/2007      |         | 1,375,000 warrants issued to Laurus |   | $                      | 1.04 |                    | $ | 1,357,125              |  | $                      | 192,500 |  | $ | 1,498,750
|3/29/2005                                                                 |  | 3/29/2008      |         | 750,000 warrants issued to Laurus   |   | $                      | 1.37 |                    | $ | 937,500                |  | $                      | 120,000 |  | $ | 937,500  
|                                                                          |  |                |         |                                     |   |                        |      |                    |   |                        |  |                        |         |  |   |          
|Fair value of freestanding derivative instrument liabilities for warrants |  | $              | 312,500 |                                     | $ | 2,436,250             
|                                                                          |  |                |         |                                     |   |                       



|                                                                                                                    |  |                |           |                                       |   |                        |      |                    |   |                        |  |                        |         |  |   |          
|------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ------------------------------------- | - | ---------------------- | ---- | ------------------ | - | ---------------------- |  | ---------------------- | ------- |  | - | ---------
|Issue Date                                                                                                          |  | ExpirationDate |           | Instrument                            |   | ExercisePrice PerShare |      | Value At IssueDate |   | Value AtMarch 31, 2006 |  | Value AtMarch 31, 2005
|9/30/2004                                                                                                           |  | 9/30/2007      |           | Laurus $6,000,000 term note           |   | $                      | 0.90 |                    | $ | 6,579,999              |  | $                      | 800,001 |  | $ | 6,300,000
|3/29/2005                                                                                                           |  | 3/29/2008      |           | Laurus $2,000,000 revolving term note |   | $                      | 1.13 |                    | $ | 2,530,973              |  | $                      | 318,585 |  | $ | 2,530,973
|                                                                                                                    |  |                |           |                                       |   |                        |      |                    |   |                        |  |                        |         |  |   |          
|Fair value of bifurcated embedded derivative instrument liabilities associated with the above mentioned
instruments |  | $              | 1,118,586 |                                       | $ | 8,830,973             
|                                                                                                                    |  |                |           |                                       |   |                       



|                                                                                                                                        |  |                |           |                                       |   |                        |      |                    |   |                        |  |                        |        |  |   |        
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ------------------------------------- | - | ---------------------- | ---- | ------------------ | - | ---------------------- |  | ---------------------- | ------ |  | - | -------
|Issue Date                                                                                                                              |  | ExpirationDate |           | Instrument                            |   | ExercisePrice PerShare |      | Value At IssueDate |   | Value AtMarch 31, 2006 |  | Value AtMarch 31, 2005
|9/30/2004                                                                                                                               |  | 9/30/2007      |           | Laurus $6,000,000 term note           |   | $                      | 0.90 |                    | $ | 748,187                |  | $                      | 62,658 |  | $ | 542,563
|3/29/2005                                                                                                                               |  | 3/29/2008      |           | Laurus $2,000,000 revolving term note |   | $                      | 1.13 |                    | $ | 273,968                |  | $                      | 29,632 |  | $ | 273,968
|                                                                                                                                        |  |                |           |                                       |   |                        |      |                    |   |                        |  |                        |        |  |   |        
|Fair value of interest portion of bifurcated embedded derivative instrument liabilities associated with the above mentioned
instruments |  | $              | 92,290    |                                       | $ | 816,531               
|                                                                                                                                        |  |                |           |                                       |   |                       
|                                                                                                                                        |  |               
|Total derivative financial instrument liabilities                                                                                       |  | $              | 1,523,376 |                                       | $ | 12,083,754            
|                                                                                                                                        |  |                |           |                                       |   |                       

NOTE 16  COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company has operating leases for
facilities and certain machinery and equipment that expire at various dates through 2014. Certain leases provide an option to extend the lease term. Certain leases provide for payment by the Company of any increases in property taxes, insurance, and
common area maintenance over a base amount and others provide for payment of all property taxes and insurance by the Company.



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Future minimum lease payments, by year and in aggregate under non-cancelable operating leases,
consist of the following at March 31, 2006:



|                      |  |   |          
|--------------------- |  | - | ---------
|Year Ending March 31, |  |   |          
|2007                  |  | $ | 426,474  
|2008                  |  |   | 411,870  
|2009                  |  |   | 396,023  
|2010                  |  |   | 378,758  
|2011                  |  |   | 137,048  
|Thereafter            |  |   | 336,865  
|                      |  |   |          
|                      |  | $ | 2,087,038
|                      |  |   |          

Total rent expense for the years ended March 31, 2006 and 2005 was $491,418 and $105,872,
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 contained termination provisions for disability, for cause,
and for good reason, and it also contains confidentiality and non-competition provisions that prohibit him from competing with the Company under certain circumstances. The period covered by the non-competition provisions will end three years after
the termination of the consultants consulting agreement with the Company. The agreement has continued under the same terms and amounts, however, there is no written agreement at this time.

Employment Agreements

On September 30, 2004,
the Company, through its wholly-owned subsidiary, BOSS, entered into an Employment Agreement with Joseph Mies to serve as BOSSs Chief Operating Officer, effective October 1, 2004. The Employment Agreement provides for an initial
three-year term ending September 30, 2007, with an annual base compensation of $100,000. The agreement contains a provision for bonus compensation. The agreement also contains termination provisions for disability, for cause, and for good
reason, and it also contains confidentiality and non-competition provisions that prohibit him from competing with the Company under certain circumstances.

On March 30, 2005, the Company, through its wholly-owned subsidiary, DMI, entered into an Employment Agreement with Gregg Madsen to serve as DMIs Chief Operating Officer, effective March 31, 2005. The
Employment Agreement provides for an initial three-year term ending March 30, 2008, with an annual base compensation of $125,000. The agreement contains a provision for bonus compensation. The agreement also contains termination provisions for
disability, for cause, and for good



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reason, and it also contains confidentiality and non-competition provisions that prohibit him from competing with the
Company under certain circumstances. In addition, On March 30,2005, Mr. Madsen was granted options to purchase 300,000 shares of the Companys common stock. The options vest over a three-year period beginning March 31, 2005. On
October 3, 2005, upon mutual agreement between the parties, the agreement was orally modified promoting Mr. Madsen to Vice President of Business Development for Dynamic Health Products, Inc. In connection with the promotion,
Mr. Madsen resigned as Chief Operating Officer of DMI. In addition, Mr. Madsens annual base compensation was increased to $150,000.

Litigation

The Company was involved in litigation with Hi-Tech Pharmaceuticals, Inc. (Hi-Tech), whereby Hi-Tech
filed a lawsuit against the Company on August 25, 2003 with the United States District Court for the Northern District of Georgia over claims regarding intellectual property matters, in connection with the use of the Companys product
named StaminaPro. Hi-Tech sought unspecified monetary damages as well as non-monetary relief. In addition, the Company instituted counterclaims against Hi-Tech and Jared Wheat, the President of Hi-Tech, seeking relief for libel, slander and tortious
interference in amounts in excess of $75,000, exclusive of interest and costs. On May 3, 2006, the parties elected to settle their differences in full as to all matters in dispute and upon receipt of full payment of $20,000 by the Company to
Hi-Tech, the lawsuit was dismissed.

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, 2006 and 2005 should have a material adverse impact on its financial condition or results of operations.

NOTE 17 - STOCK WARRANTS

In June
2004, pursuant to a Financial Consulting Agreement, the Company issued 300,000 warrants to purchase common stock, for consulting services. In September 2004, pursuant to a Securities Purchase Agreement, the Company issued 1,375,000 warrants to
purchase common stock, in connection with the Companys sale of a secured convertible note (see Note 14). On October 1, 2004, pursuant to a Financial Consulting Agreement, the Company issued 200,000 4-year life warrants to purchase common
stock, for consulting services. On March 29, 2005, pursuant to a Security Agreement, the Company issued 750,000 warrants to purchase common stock, in connection with the Companys sale of a secured convertible note (see Note 12).

At March 31, 2006 and 2005, the Company had outstanding warrants to purchase 2,625,000 and zero shares of the Companys common
stock, respectively. The exercise prices range from $1.50 to $2.50 per share on the 300,000 warrants and they become exercisable in June 2005 and expire at various dates through June 2008. For the 1,375,000 warrants, the exercise price is $1.04 per
share, subject to certain adjustments pursuant to the Securities Purchase Agreement, and they expire in September 2009 (see Note 14). For the 200,000 warrants, the exercise prices range from $1.25 to $1.50 per share, with 25% vesting on
October 1, 2004 and then subsequent vesting is at 25% per quarter, expiring on October 1, 2008.



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For the 750,000 warrants, the exercise price is $1.37 per share, subject to certain adjustments pursuant to the Security Agreement, and they expire in March
2012 (see Note 12).

On April 28, 2006, the Company entered into a Postponement and Amendment Agreement with Laurus, pursuant to which
the Company modified the September 30, 2004 and the March 29, 2005 earlier agreements among the parties. The Postponement and Amendment Agreement provides for cancellation in their entirety of the 1,375,000 common stock purchase warrants
issued to Laurus in connection with the September 30, 2004 agreement and the 750,000 common stock purchase warrants issued to Laurus in connection with the March 29, 2005 agreements.

For the warrants issued in connection with the financial consulting agreements, the balance of deferred consulting fees as of March 31, 2006 and
2005 was $48,750 and $191,250, respectively. The initial valuation of these warrants was $442,500. For the years ended March 31, 2006 and 2005, the Company included consulting expense in the amount of $142,500 and $273,750, respectively, in
selling, general and administrative expenses in the statements of operations, for these warrants.

NOTE 18 - 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.

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:



|                        |  |         |   |  |         |  
|----------------------- |  | ------- | - |  | ------- | -
|                        |  | 2006    |   |  | 2005    |  
|Risk-free interest rate |  | 4.77    | % |  | 4.50    | %
|Dividend yield          |  |        |   |  |        |  
|Volatility              |  | 110.35  | % |  | 144.08  | %
|Average expected term   |  | 5 years |   |  | 5 years |  



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The following summarizes information about the aggregate stock option activity for the years ended
March 31, 2006 and 2005:



|                                                                                              |  |                 |  |                               |     |                 |           |                              |   |     
|--------------------------------------------------------------------------------------------- |  | --------------- |  | ----------------------------- | --- | --------------- | --------- | ---------------------------- | - | ----
|                                                                                              |  | 2006            |  | 2005                         
|                                                                                              |  | Numberof Shares |  | WeightedAverage ExercisePrice |     | Numberof Shares |           | WeightedAverageExercisePrice
|Outstanding, beginning of year                                                                |  | 1,955,000       |  | $                             | .82 |                 | 905,000   |                              | $ | .37 
|Granted                                                                                       |  | 5,000           |  |                               | .41 |                 | 1,050,000 |                              |   | 1.22
|Exercised                                                                                     |  |                |  |                               |    |                 |          |                              |   |    
|Expired and forfeited                                                                         |  |                |  |                               |    |                 |          |                              |   |    
|                                                                                              |  |                 |  |                               |     |                 |           |                              |   |     
|Outstanding, end of year                                                                      |  | 1,960,000       |  | $                             | .82 |                 | 1,955,000 |                              | $ | .82 
|                                                                                              |  |                 |  |                               |     |                 |           |                              |   |     
|Options vested, end of year                                                                   |  | 1,186,663       |  | $                             | .58 |                 | 534,982   |                              | $ | .28 
|                                                                                              |  |                 |  |                               |     |                 |           |                              |   |     
|Weighted average fair value of options granted during the years ended March 31, 2006 and 2005 |  |                 |  | $                             | .27 |                 |           |                              | $ | 1.23
|                                                                                              |  |                 |  |                               |     |                 |           |                              |   |     

As of March 31, 2006, there were 1,960,000 options outstanding. As of March 31, 2005,
there were 1,955,000 options outstanding. Options outstanding and exercisable under the plan as of March 31, 2005 were:



|                         |  |                   |  |                              |       |                                              |      |                 |         |                              |   |      
|------------------------ |  | ----------------- |  | ---------------------------- | ----- | -------------------------------------------- | ---- | --------------- | ------- | ---------------------------- | - | -----
|                         |  | Outstanding       |  | Exercisable                 
|Range of Exercise Prices |  | Number of Options |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractedLife (yrs) |      | NumberofOptions |         | WeightedAverageExercisePrice
|$ 0.16250 - $0.17875     |  | 700,000           |  | $                            | 0.169 |                                              | 4.61 |                 | 700,000 |                              | $ | 0.169
|$ 1.00000 - $1.55000     |  | 1,255,000         |  | $                            | 1.19  |                                              | 6.34 |                 | 486,663 |                              | $ | 1.169
|$ 0.39 - $0.43           |  | 5,000             |  | $                            | 0.41  |                                              | 9.79 |                 |        |                              | $ | 0.00 

On October 17, 2004, a meeting of the Compensation Committee of the Board of Directors of the
Company was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of the Companys common stock, effective October 1, 2004, to Jugal Taneja, the Companys Chairman and a principal shareholder of
the Company, as compensation for Mr. Tanejas personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair value of the
Companys common



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stock on September 30, 2004). The options vest approximately equally over a three year period, commencing
October 1, 2005. For the options granted, the balance of deferred consulting fees as of March 31, 2006 and 2005 was $249,382 and $415,636, respectively. The initial valuation of these options was $498,763. For the years ended
March 31, 2006 and 2005, the Company included compensation expense in the amount of $166,254 in selling, general and administrative expenses in the statements of operations, for these options.

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

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

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:



|                                    |  |      |           |      |   |            |  
|----------------------------------- |  | ---- | --------- | ---- | - | ---------- | -
|                                    |  | 2006 |           | 2005 |  
|Net income (loss):                  |  |      |           |      |   |            |  
|As reported                         |  | $    | 5,903,910 |      | $ | (4,377,545 | )
|                                    |  |      |           |      |   |            |  
|Pro forma                           |  | $    | 5,416,677 |      | $ | (4,589,996 | )
|                                    |  |      |           |      |   |            |  
|Net income (loss) per common share: |  |      |           |      |   |            |  
|Basic income (loss) per share:      |  |      |           |      |   |            |  
|As reported                         |  | $    | 0.41      |      | $ | (0.34      | )
|                                    |  |      |           |      |   |            |  
|Pro forma                           |  | $    | 0.38      |      | $ | (0.35      | )
|                                    |  |      |           |      |   |            |  
|Diluted income (loss) per share:    |  |      |           |      |   |            |  
|As reported                         |  | $    | 0.40      |      | $ | (0.34      | )
|                                    |  |      |           |      |   |            |  
|Pro forma                           |  | $    | 0.37      |      | $ | (0.35      | )
|                                    |  |      |           |      |   |            |  



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NOTE 19 - SHAREHOLDERS EQUITY

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

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

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

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

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

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

On October 29, 2004, the Company filed a Registration Statement on Form S-2 for the registration of up to
8,701,585 shares of the Companys common stock, including up to 7,326,585 shares of common stock underlying the Secured Convertible Note in the principal amount of $6,000,000 and up to 1,375,000



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shares issuable upon the exercise of common stock purchase warrants. On November 15, 2004, the Securities and
Exchange Commission declared the Registration Statement to be effective. Such Registration Statement is no longer current.

On
April 22, 2005, the Company filed a Registration Statement on Form S-2 for the registration of up to 2,944,690 shares of the Companys common stock, including up to 2,194,690 shares of common stock underlying the Secured Convertible Notes
in the principal amount of $4,000,000 and up to 750,000 shares issuable upon the exercise of common stock purchase warrants. Such Registration Statement is not effective. The Company subsequently withdrew such Registration Statement on
August 19, 2005.

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

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

On
August 31, 2005, the Company issued 14,038 restricted shares of common stock to Dynamic Health Products, Inc. 401(k) Plan for the Companys contribution to the employees 401(k) benefit plan. On September 12, 2005, 150,000 shares of
restricted common stock of the Company were sold to a non-affiliated third party investor at $.50 per new share, for gross proceeds of $75,000. Proceeds were used to provide additional working capital for the Company.



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NOTE 20  EARNINGS (LOSS) PER SHARE

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



|                                                   |  |      |            |      |   |            |  
|-------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                   |  | 2006 |            | 2005 |  
|Numerator:                                         |  |      |            |      |   |            |  
|Net income (loss)                                  |  | $    | 5,903,910  |      | $ | (4,377,545 | )
|Less preferred stock dividends                     |  |      |           |      |   |           |  
|                                                   |  |      |            |      |   |            |  
|Net income (loss) available to common shareholders |  | $    | 5,903,910  |      | $ | (4,377,545 | )
|                                                   |  |      |            |      |   |            |  
|Denominator:                                       |  |      |            |      |   |            |  
|Weighted average shares outstanding                |  |      | 14,308,264 |      |   | 12,991,512 |  
|Effect of dilutive securities:                     |  |      |            |      |   |            |  
|Stock options                                      |  |      | 403,459    |      |   |           |  
|                                                   |  |      |            |      |   |            |  
|Weighted average fully diluted shares outstanding  |  |      | 14,711,723 |      |   | 12,991,512 |  
|                                                   |  |      |            |      |   |            |  
|Net earnings (loss) per common share              |  |      |            |      |   |            |  
|Basic                                              |  | $    | 0.41       |      | $ | (0.34      | )
|                                                   |  |      |            |      |   |            |  
|Diluted                                            |  | $    | 0.40       |      | $ | (0.34      | )
|                                                   |  |      |            |      |   |            |  

For the year ended March 31, 2006, debt convertible on 6,769,912 shares of common stock,
options on 1,552,582 shares of common stock and warrants on 2,625,000 shares of common stock were not included in the computation of diluted earnings per share because their effects were anti-dilutive. For the year ended March 31, 2005, debt
convertible on 2,834,752 shares of common stock, options on 1,155,822 shares of common stock and warrants on 1,042,671 shares of common stock were not included in the computation of diluted earnings (loss) per share because their effects were
anti-dilutive.

NOTE 21 - 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 years ended March 31, 2006 and 2005, DPS Nutrition Inc.
accounted 11% and 13%, respectively, in relation to total consolidated revenues. The Company has no concentration of customers within specific geographic areas outside of the United States that would give rise to significant geographic credit risk.

Financial instruments that potentially subject the Company to concentrations of credit risk include cash deposits with commercial banks
and brokerage firms. At March 31, 2006 and 2005, the Company maintained cash balances in excess of the Federal Deposit Insurance Companys $100,000 insurance limit.



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NOTE 22  SUBSEQUENT EVENTS

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



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



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



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



| |  |  | In connection with the foregoing, the Company issued an aggregate of 425,000 restricted shares of its common stock to Laurus.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

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

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

On May 15, 2006, the
Company received a promissory note in conversion of accounts receivable from Better Nutrition, LLC in the principal amount of $170,403. The note shall be paid the Company in 23 semi-monthly installments of $7,366.47, including principal and interest
at 7.75% per annum, commencing May 15, 2006.



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