Filed Pursuant to Rule 424(b)(3)
Registration No. 333-138108

Dynamic Health Products, Inc.

2,761,335 Shares of

Common Stock

This prospectus relates to the resale by the selling stockholders of up to 2,761,335 shares of our common stock, including up to 2,061,335 shares of common stock underlying a secured convertible note in a principal amount of $2,000,000, and interest thereon, and 700,000 additional shares of common stock which are presently outstanding. The $2,000,000 secured convertible note is convertible into our common stock at $1.13 per share. The selling stockholders may sell common stock from time to time at the prevailing market price or in negotiated transactions. The selling stockholder may be deemed an underwriter of the shares of common stock which they are offering. We will pay the expenses of registering these shares.

Our common stock is traded on the Over-The-Counter Bulletin Board under the symbol “DYHP.” The last reported sales price for our common stock on March 6, 2007, was $.40 per share.

The Securities offered hereby involve a high degree of risk.

See “Risk Factors” beginning on page 3.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus is April 9, 2007

PROSPECTUS SUMMARY

The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the “risk factors” section, the financial statements and the notes to the financial statements.

Dynamic Health Products, Inc.

Dynamic Health, through its wholly-owned subsidiaries, develops, markets and distributes a wide variety of sports nutrition products, performance drinks, non-prescription dietary supplements, vitamins, over-the-counter drugs, health and beauty care products, health food and nutritional products, soft goods, and other related products.

Our principal executive offices are located at 12399 Belcher Road South, Suite 140, Largo, Florida 33773 and our telephone number is (727) 683-0670.

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The Offering

Common stock outstanding before the offering	15,055,035 shares.
Common stock offered by selling stockholder	Up to 2,761,335 shares, including the following:
	up to 2,061,335 shares of common stock underlying secured convertible notes in the principal amount of $2,000,000, including interest thereon, 700,000 additional shares of common stock which are presently outstanding. This number would represent 16.1% of our current outstanding stock.
Common stock to be outstanding after the offering	Up to 17,116,370 shares.
Risk Factors	See “Risk Factors,” beginning on page 3 for a description of certain factors you should consider before making an investment in our common stock.
Use of proceeds	We will not receive any proceeds from the sale of common stock in this offering.
OTC BB Symbol	DYHP

We are currently obligated to issue shares upon conversion of our secured convertible notes at a fixed conversion price of $1.13. However, in the event we issue additional shares of common stock at a price below $1.13 while the debentures remain outstanding, the conversion price of the debentures will be reduced to the new issuance price, unless we obtain a waiver from Laurus Master Fund, Ltd. The following is an example of the amount of shares of our common stock that would be issuable, upon conversion of our secured convertible debentures, based on market prices 25%, 50% and 75% below the market price, as of March 6, 2007 of $0.40.

% Below Market	Price Per Share		Number of Shares Issuable
25%	$	.30	6,677,900
50%	$	.20	10,016,850
75%	$	.10	20,033,699

As illustrated, the number of shares of common stock issuable upon conversion of our secured convertible notes will increase if the market price of our stock declines and we issue additional shares of common stock to third parties at such lower prices, which will cause dilution to our existing stockholders.

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RISK FACTORS

This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment as a result of these risks.

Risks Related to our 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 our products are all subject to extensive regulation by numerous federal, state and other government agencies. Because of the broad language of the laws applicable to our business, it is difficult for us to remain in strict compliance. If we fail to or are unable to comply with applicable laws and governmental regulations, our 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.

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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 our 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 our 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.

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 Dynamic Health has adequate insurance, but if it does not, product liabilities relating to our products could adversely affect us. Although many of the ingredients in our products are vitamins, minerals, herbs and other substances for which there is a long history of human consumption, some of our products contain ingredients for which no such history exists. In addition, although management believes all of our 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, we cannot assure that our 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 us.

We Must Develop New Products to Remain Competitive.

Products currently experiencing strong popularity and rapid growth may not maintain their sales over time. As a result, it will be important for us to be able to develop or acquire new products. We cannot assure that our efforts to develop or acquire new products will be successful.

Competition is Intense and Could Force us to Lower Pricing and Margins.

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 Dynamic Health, compete with us in the development, marketing and distribution of our products. Competition from such companies could have a material adverse effect on us. We also face 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 we seek to ensure that we do not infringe on the intellectual property rights of others, we cannot assure that third parties will not assert intellectual property claims against us. Infringement claims by third parties against us may have a material adverse affect on our business.

The Loss of a Significant Customer Could Result in a Substantial Decrease in Revenues.

For the three and six months ended September 30, 2006 and for the year ended March 31, 2006, 9.9%,10.1% and 11%, respectively, of consolidated revenues were received from one customer, DPS Nutrition Inc., representing a concentration of credit risk. If our major customers substantially reduced their volume of purchases from us, our business, financial condition, results of operations and cash flows could be materially adversely affected.

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

We believe that continued growth may strain our management, operations, sales and administrative personnel and other resources. In order to serve the needs of existing and future customers we intend to increase our workforce. Our ability to

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manage further growth depends in part upon our ability to expand our operating, management, information and financial systems, which may significantly increase our future operating expenses. We cannot assure that our business will grow in the future or that we will be able to effectively manage our growth.

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

We expect to pursue additional acquisitions in the future as a part of our business strategy. We cannot assure that attractive acquisition opportunities will be available to us or that we will be able to obtain financing for future acquisitions. If we are unable to consummate future acquisitions, our 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 our business, the diversion of management’s attention from other aspects of our business, the risks associated with entering geographic and product markets in which we have 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 our indebtedness or the issuance of additional capital stock, which may be dilutive to our 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 54.1% of the outstanding shares of Dynamic Health common stock. Therefore, these stockholders will have significant control over the election of our directors and most of our corporate actions.

Exposure to Natural Disaster Could Result in Unforeseen Expenses or Disruptions to Our Business.

One of our facilities is located in the greater Tampa Bay, Florida area, which is prone to hurricanes. Our business could be adversely affected should our ability to distribute products be impacted by such event.

Risks Related to this Offering

The Issuance of Our Shares Upon Conversion of Our Convertible Debentures May Cause Immediate and Substantial Dilution to Our Existing Stockholders, Downward Pressure on our Stock and a Decrease in our Stock Price.

As of March 6, 2007, an aggregate of 6,403,633 shares of common stock are issuable to Laurus Master Fund, Ltd., which includes up to 2,061,335 shares issuable upon conversion of our accounts receivable and inventory convertible notes, and up to 4,342,298 shares issuable upon conversion of a term note, together with accrued interest. Accrued interest on the debentures as of February 28, 2007, was $48,828. Interest accrues at a rate equal to the prime rate plus 2% (but not less than 6%), which currently aggregates 10.25%. If all of such shares were issued, they would represent 29.8% of the then outstanding shares of our common stock. The number of shares into which the principal and interest of the debentures will convert will be proportionately adjusted for any stock splits, combinations, reclassifications or dividends. In addition, in the event we issue additional shares of common stock at a price below $1.13 while the revolving loan debentures remain outstanding or $.90 while the term debenture remains outstanding, the conversion price of the debentures will be reduced to the new issuance price, unless we obtain a waiver from Laurus Master Fund, Ltd. On March 6, 2007, the last reported sale price for our common stock was $.40. The issuance of shares upon conversion of our convertible securities may result in substantial dilution to the interests of other stockholders since the selling stockholder may ultimately convert and sell the full amount issuable on conversion. Although the selling stockholder may not convert its convertible debentures, if such conversion would cause them to own more than 9.99% of our outstanding common stock, this restriction does not prevent the selling stockholder from converting some of its holdings and then converting the rest of its holdings. In addition, this restriction would not apply in the event there was an event of default or we sought to redeem the outstanding balance of the convertible debentures. In this way, the selling stockholder could sell more than this limit while never holding more than this limit, which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock including investors in this offering. Furthermore, the sale of large amounts of common stock upon conversion of the debentures would likely have the effect of significantly lowering the market price of our common stock. The significant downward pressure placed on the market for our common stock could cause others to sell our stock “short” in anticipation of a lower market price. This would place further downward pressure on the market for our common stock which could cause the stock price to drop further. A short sale is one in which a person borrows shares which he does not own in order to sell the shares into the market. Such person would then by shares in the market at a lower price in order to close out the short position.

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If We Are Required for Any Reason to Repay Our Outstanding Secured Convertible Note, We Would Be Required to Deplete Our Working Capital, If Available, or Be Required to Raise Additional Funds. Our Failure to Repay the Secured Convertible Note, If Required, Could Result in Legal Action Against Us, Which Could Require the Sale of Substantial Assets.

In September 2004, we entered into a Securities Purchase Agreement for the sale of an aggregate of $6,000,000 principal amount of secured convertible notes. In March 2005, we entered into a Securities Purchase Agreement for the sale of an aggregate of $4,000,000 principal amount of secured convertible notes. The secured convertible notes are due and payable, with interest, three years from the date of issuance, unless sooner converted into shares of our common stock. In addition, any event of default such as our failure to repay the principal or interest when due, our failure to issue shares of common stock upon conversion by the holder, our failure to timely file a registration statement or have such registration statement declared effective, breach of any covenant, representation or warranty in the Securities Purchase Agreement or related convertible note, the assignment or appointment of a receiver to control a substantial part of our property or business, the filing of a money judgment, writ or similar process against our company in excess of $50,000, the commencement of a bankruptcy, insolvency, reorganization or liquidation proceeding against our company and the delisting of our common stock could require the early repayment of the secured convertible notes, including a default interest on the outstanding principal balance of the notes if the default is not cured with the specified grace period. We are currently in breach of our obligation to have this registration statement declared effective by November 30, 2006, although Laurus has given no indication that it intends to declare our obligations in default or seek repayment. We anticipate that substantially all of the secured convertible notes will be converted into shares of our common stock, in accordance with the terms of the callable secured convertible notes. If we are required to repay the secured convertible note, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the notes when required, the note holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.

If We Fail to Remain Current on Our Reporting Requirements, We Could be Removed From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to Sell Our Securities and the Ability of Stockholders to Sell Their Securities in the Secondary Market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Derivative Accounting for our Outstanding Convertible Debentures Could Negatively Impact our Reported Income Upon Increases in our Share Price.

We sold debentures which are convertible into shares of our common stock. The debentures 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. 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.

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 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.

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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.

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USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by a selling stockholder. We will not receive any proceeds from the sale of shares of common stock in this offering. We received gross proceeds of approximately $3,000,000 from the sale of the secured convertible notes which relate to the shares offered in this prospectus. The proceeds received from the sale of the secured convertible notes were used for the recent acquisition of Dynamic Marketing, Inc., costs related thereto and working capital.

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Securities

In July 2002, our common stock began trading on the OTC Bulletin Board under the symbol “DYHP”. There is a limited trading market for our 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
June 30, 2006	$	0.41	$	0.22
September 30, 2006	$	0.47	$	0.25
December 31, 2006	$	0.40	$	0.23

As of March 6, 2007, there were approximately 550 stockholders of record of our common stock, according to ADP and our stock transfer agent, Registrar and Transfer Company, located in Cranford, New Jersey.

Dividend Policy

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The statements contained in herein that are not historical are forward-looking statements, including statements regarding our expectations, intentions, beliefs or strategies regarding the future. Forward-looking statements include our statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking statements included herein are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our 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 prospectus. 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

We derive our 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 us 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 us. 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 our 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.

Effective October 1, 2004, we acquired Bob O’Leary Health Food Distributor Co., Inc. The results of operations of Bob O’Leary Health Food Distributor Co., Inc. 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 Dynamic Marketing have been included in our results of operations since the date of acquisition, March 31, 2005.

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Results of Operations

Three And Nine Months Ended December 31, 2006 Compared To Three And Nine Months Ended December 31, 2005

Revenues

We generated revenues of $13,400,640 and $40,120,308, respectively, for the three and nine months ended December 31, 2006, an increase of $2,033,607 or 17.9% and $4,258,775 or 11.9%, respectively, compared to $11,367,033 and $35,861,533, respectively, for the three and nine months ended December 31, 2005. The increase was primarily attributable to organic growth resulting from expansion of our distribution channels with the opening of distribution centers in Henderson, Nevada and Largo, Florida in May 2005 and the expansion of our in-house sales force. 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 $2,411,261 and $7,585,285, respectively, for the three and nine months ended December 31, 2006, an increase of $256,940 or 11.9% and $882,724 or 13.2%, respectively, compared to $2,154,321 and $6,702,561, respectively, for the three and nine months ended December 31, 2005. Gross margin, as a percentage of revenues, was 18.0% and 18.9%, respectively, for the three and nine months ended December 31, 2006 and 19.0% and 18.7%, respectively, for the three and nine months ended December 31, 2005. We expect gross margins of 18% to 20% in the future.

Operating Expenses

We incurred operating expenses of $2,710,068 and $7,965,494, respectively, for the three and nine months ended December 31, 2006, compared to $2,370,994 and $7,110,833, respectively, for the three and nine months ended December 31, 2005.

For the three months ended December 31, 2006, these expenses include various selling, general and administrative expenses of $2,583,527, and amortization and depreciation expenses of $126,541, compared to $2,256,282 in various selling, general and administrative expenses, and amortization and depreciation expenses of $114,712 for the three months ended December 31, 2005. For the nine months ended December 31, 2006, these expenses include various selling, general and administrative expenses of $7,593,010, and amortization and depreciation expenses of $372,484, compared to $6,770,278 in various selling, general and administrative expenses, and amortization and depreciation expenses of $340,555 for the nine months ended December 31, 2005.

For the three months ended December 31, 2006 and 2005, selling, general and administrative expenses included non-cash amortization of deferred consulting fees of $41,564 and $65,939, respectively. For the nine months ended December 31, 2006 and 2005, selling, general and administrative expenses included non-cash amortization of deferred consulting fees of $173,441 and $242,816, respectively.

Outbound transportation expenses, which are included in selling, general and administrative expenses, were $512,853 and $444,640, respectively, for the three months ended December 31, 2006 and 2005, and were $1,508,264 and $1,379,475, respectively, for the nine months ended December 31, 2006 and 2005.

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Operating expenses, excluding amortization and depreciation expenses decreased from 19.8% of revenues for the three months ended December 31, 2005, to 19.3% of revenues for the three months ended December 31, 2006. The decrease in operating expenses as a percentage of revenues was attributable to tradeshow expenses incurred in the first and second quarters this year versus the first through third quarters in the prior year, a decrease in contract labor, a decrease in equipment maintenance costs, a decrease in legal fees, a decrease in office expenses, a decrease in public relations fees, a decrease in rent expense, a decrease in telephone expense and a decrease in travel expenses, and was partially offset by an increase in our allowance for bad debts related to accounts and notes receivable, an increase in credit card fees, the amortization of stock-based compensation costs, an increase in outbound transportation costs, an increase in profit sharing plan expenses, an increase in compensation related expenses and an increase in insurance expenses.

Operating expenses, excluding amortization and depreciation expenses were 18.9% of revenues for the nine months ended December 31, 2006 and 2005. The dollar increase in operating expenses was attributable to an increase in our allowance for bad debts related to accounts and notes receivable, an increase in commissions paid to brokers and outside sales representatives, the amortization of stock-based compensation costs, an increase in compensation related expenses, an increase in credit card fees, an increase in outbound transportation costs, an increase in insurance expenses, an increase in profit sharing plan expenses and an increase in tradeshow expenses, and was partially offset by a decrease in advertising expenses, a decrease in audit related accounting fees, a decrease in amortization of deferred consulting fees, a decrease in rent expense, a decrease in telephone expense and a decrease in travel expenses.

Operating Income (Loss)

Operating loss increased by 37.9% or $82,134, to $298,807 for the three months ended December 31, 2006 from $216,673 for the three months ended December 31, 2005. As a percentage of revenues, operating loss was 2.2% and 1.9%, respectively, for the three months ended December 31, 2006 and 2005. For the nine months ended December 31, 2006, operating loss decreased by 6.9% or $28,063, to $380,209, from $408,272 for the nine months ended December 31, 2005. As a percentage of revenues, operating loss was 0.9% and 1.1%, respectively, for the nine months ended December 31, 2006 and 2005.

Other Income (Expense)

Other income (expense) was $(671,057) and $(1,097,524), respectively, for the three and nine months ended December 31, 2006, compared to $(755,753) and $6,447,464, respectively, for the three and nine months ended December 31, 2005. Below is a discussion of each of the various line items of other income (expense).

Derivative instrument income (expense), net, was $360,905 and $1,093,938, respectively, for the three and nine months ended December 31, 2006, compared to $518,106 and $9,611,164, respectively, for the three and nine months ended December 31, 2005. Derivative instrument interest expense was $827,938 and $2,401,681, respectively, for the three and nine months ended December 31, 2006, compared to $827,938 and $2,483,814, respectively, for the three and nine months ended December 31, 2005. The accounting for derivative financial

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instruments is very complex and has had a material non-cash effect on our net income (loss) for the three and nine months ended December 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 $5,473 and $18,275, respectively, for the three and nine months ended December 31, 2006, compared to $6,204 and $18,534, respectively, for the three and nine months ended December 31, 2005. The decrease in interest income was a result of the reduction in interest received on notes receivable due to smaller principal balances and was partially offset by higher cash amounts held in interest bearing accounts in banks.

For the three months ended December 31, 2006, other income and expenses, net, of $(1,479), consisted primarily of insurance audit premiums assessed on prior years. For the three months ended December 31, 2005, other income and expenses, net, of $(212,174) consisted primarily of expenses incurred in pursuing a potential acquisition that was not consummated. For the nine months ended December 31, 2006, other income and expenses, net, of $93,740, consisted primarily of proceeds from an insurance claim, proceeds from a disputed escrow balance, and income from negotiated allowances on prior years. For the nine months ended December 31, 2005, other income and expenses, net, of $(144,036) consisted primarily of expenses incurred in pursuing a potential acquisition that was not consummated and was partially offset by income from negotiated allowances on prior years.

For the three and nine months ended December 31, 2006, we realized a gain from the sale of marketable equity securities of zero and $572,096, respectively. Proceeds were used for payment of a portion of the principal balance on our revolving note payable.

For the three and nine months ended December 31, 2006, we realized a gain from debt extinguishment of zero and $153,750, respectively, resulting from the cancellation of all common stock warrants issued to Laurus, associated with our September 2004 and March 2005 financings, in exchange for 150,000 shares of our common stock.

Interest expense was $207,647 and $628,046, respectively, for the three and nine months ended December 31, 2006, compared to $237,618 and $549,556, respectively, for the three and nine months ended December 31, 2005. Interest expense increased for the three and nine months ended December 31, 2006, primarily as a result of interest rate increases and an increase in short-term obligations issued for insurance policy premiums. In addition, $36,335 and $104,328, respectively, of the interest expense for the three and nine months ended December 31, 2006, and $21,740 and $39,226, respectively, of the interest expense for the three and nine months ended December 31, 2005, relates to the non-cash amortization of debt discounts based on the Black-Scholes option pricing model, applied to the Postponement Agreement entered into in July 2005 and the Postponement and Amendment Agreement entered into in April 2006, in connection with the September 30, 2004 convertible term note.

Income Taxes

As of December 31, 2006 and 2005, we had an accrued income tax liability of zero and $5,009, respectively, income taxes payable of zero, and an estimated deferred income tax liability of $39,554 and $200,475, respectively, which primarily represents the potential future tax

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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 Per Share

We had a net loss of $938,881 or $0.06 per basic share and $0.06 per diluted share for the three months ended December 31, 2006, compared to a net loss of $918,973 or $0.06 per basic share and $0.06 per diluted share for the three months ended December 31, 2005. For the nine months ended December 31, 2006, our net loss was $1,632,626 or $0.11 per basic share and $0.11 per diluted share, compared to net income of $6,260,183 or $0.44 per basic share and $0.07 per diluted share for the nine months ended December 31, 2005.

Derivative Instruments

Derivative instrument income (expense), net, represents the net unrealized (non-cash) change, during the three and nine months ended December 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 three and nine months ended December 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 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 Bob O’Leary Health Food Distributor Co., Inc. 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.

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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, December 31, 2006 and December 31, 2005, and this resulted in derivative instrument expense of zero and $245,584, respectively, being recorded during the three and nine months ended December 31, 2005. For a full discussion on Derivative Instruments, see Note 8 to our unaudited condensed consolidated financial statements for the three and nine months ended December 31, 2006 and 2005.

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 three and nine months ended December 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 three and nine months ended December 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 $2,168,068 at December 31, 2006, compared to a working capital deficit of $688,507 at March 31, 2006.

Net cash provided by operating activities was $586,848 for the nine months ended December 31, 2006, as compared to net cash used in operating activities of $898,645 for the nine months ended December 31, 2005. The cash provided was primarily attributable to a decrease in accounts receivable of $83,232 based on decreases in credit sales, a decrease in prepaid expenses

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of $21,999 primarily due to the timing of insurance policy renewals, a decrease in other current assets of $21,205 primarily based on a decrease in refunds due from vendors, a decrease in other assets of $55,685, an increase in accounts payable of $337,053 based on increased purchases made on accounts, an increase in other payables of $233,634 primarily based on an increase in prepayments received from customers, an increase in deferred income taxes of $132,403 as a result of the sale of marketable equity securities and a decrease in available net operating loss carry forwards, partially offset by an increase in inventories of $83,432 due to increased restocking levels, a decrease in amounts due to/from affiliates, net, of $630, a decrease in accrued expenses of $104,904 and a decrease in accrued income taxes of $5,819 based on payments made.

Net cash provided by investing activities was $298,925, representing proceeds from the sale of property of $18,500, proceeds from the sale of marketable equity securities of $572,096 and proceeds from repayments on notes receivable of $60,806, partially offset by purchases of property and equipment of $175,972, the purchase of a distributor agreement of $25,000 and the purchase of certificates of deposit of $151,505.

Net cash used in financing activities was $1,288,879, representing payments of long-term obligations of $621,833, the excess of payments versus advances received of $574,439 on our short-term revolving note and payments of short-term obligations of $92,607.

At December 31, 2006, we had $605,906 in cash and cash equivalents, as compared to $309,474 at December 31, 2005.

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. 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.

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 (see Note 7 to our unaudited condensed consolidated financial statements).

The convertible note has a three year term and 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 is subject to possible downward adjustments. 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).

Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the note will be reduced accordingly. In connection with the September 12, 2005 stock issuance, the lender waived this provision. The conversion price of the note may be adjusted proportionately 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.

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In accordance with the convertible note, commencing December 1, 2004, and each month thereafter, we were to pay $187,500 of the outstanding principal, together with accrued interest on the convertible note, in cash or registered stock. In July 2005, we entered into a Postponement Agreement with Laurus, whereby the required principal payments under the convertible note were modified. In April 2006, we entered into a Postponement and Amendment Agreement with Laurus, whereby the required principal payments under the convertible note were again modified and the note was amended and restated.

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.

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.

As of December 31, 2006 and 2005, the outstanding principal balance on the convertible note was $3,912,500 and $4,500,000, respectively. As of December 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.

Initially, Laurus was not entitled to be issued shares of common stock in repayment of any portion of the convertible note 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. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, this provision was modified from 4.99% to 9.99%. In addition, this restriction would not apply in the event of default or we sought to redeem the outstanding balance of the convertible debentures.

The warrants were 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 were exercisable on a cashless basis. In the event that the warrants were exercised on a cashless basis, then we would not receive any proceeds. In addition, the exercise price of the warrants would have been adjusted in the event we issued 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. In September 2005, we sold 150,000 restricted shares of our common stock at a price below market. In connection therewith, Laurus waived their anti-dilution provisions related to all convertible notes and

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warrants issued to Laurus. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, we issued 97,059 restricted shares of our common stock to Laurus, in exchange for cancellation of the 1,375,000 warrants.

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, 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 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 $3,000,000 proceeds of the funding were used for the acquisition of Dynamic Marketing, Inc. on March 31, 2006, costs associated with the acquisition and for working capital (see Note 6 to our unaudited condensed consolidated financial statements).

The securities sold to Laurus included a secured convertible minimum borrowing note with a principal amount of $2,000,000, a secured revolving note with a principal amount note 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 shares, exercisable for a period of seven years. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, we issued 52,941 restricted shares of our common stock to Laurus, in exchange for cancellation of the 750,000 warrants.

The combined principal amount that may be outstanding under the $2,000,000 minimum borrowing note and the $4,000,000 revolving note at any point in time cannot exceed $4,000,000.

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 proportionately 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. In

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September 2005, we sold 150,000 restricted shares of our common stock at a price below market. In connection therewith, Laurus waived their anti-dilution provisions related to all convertible notes and warrants issued to Laurus.

115% of the full principal amount of the convertible notes is due upon default under the terms of convertible notes. Laurus had 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. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, this provision was modified from 4.99% to 9.99%.

In addition, this restriction would not apply in the event there was an event of default or we sought to redeem the outstanding balance of the convertible deventures.

On August 19, 2005, we filed a 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 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;

• 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 150,000 restricted shares of our common stock to Laurus, for cancellation of the warrants issued to Laurus;

• In connection with the foregoing, the Company issued 275,000 restricted share of our common stock to Laurus, for postponement of the portion of principal payments in connection with the September 30, 2004 note.

The fair value of the 275,000 shares issued in connection with the April 28, 2006 Postponement and Amendment Agreement was $45,000, 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”.

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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 were obligated to have such registration statement declared effective by September 30, 2006, but there were no stated penalties for failure to meet such deadline.

On July 3, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 10,221,275 shares of the Company’s common stock, including up to 2,194,690 shares of common stock underlying the March 2005 secured convertible notes, up to 7,326,585 shares of common stock underlying the September 2004 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. Such Registration Statement was subsequently withdrawn by the Company on October 4, 2006.

On October 4, 2006, the Company entered into an agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties (the “Amendment Agreement”). The Amendment Agreement (i) eliminated the obligation of the Company to register for resale the shares of common stock underlying the securities sold in September 2004, and (ii) removed Laurus’ right to waive 9.99% ownership limitations contained in their convertible debentures.

In connection with the Amendment Agreement, the Company also executed second amended and restated promissory notes in favor of Laurus. Pursuant to the Amendment Agreement, the Company agreed to file a registration statement by October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. The Company is obligated to have such registration statement declared effective by November 30, 2006, but there are no stated penalties for failure to meet such deadline. Laurus could declare the obligations in default and seek immediate repayment, but it has given no indication of doing so. If immediate repayment was required, we would not have sufficient funds and Laurus could take legal action to recover amounts due from our assets.

On October 20, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 2,761,335 shares of the Company’s common stock, including up to 2,061,335 shares of common stock underlying the March 2005 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. On December 14, 2006, the Company filed Amendment #1 to this Registration Statement on Form SB-2. Such Registration Statement is not effective.

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

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Laurus to be held pursuant to the original pledge agreement. In June 2006, we sold 143,024 shares of GeoPharma at $4.00 per share. Proceeds from the sale were paid to Laurus in satisfaction of the overadvances. This resulted in our recognizing a gain on the sale of marketable equity securities of zero and $572,096, respectively, for the three and nine months ended December 31, 2006.

On October 17, 2004 the Compensation Committee of the Company’s Board of Directors granted options to purchase 500,000 shares of the Company’s common stock, effective October 1, 2004, to Jugal Taneja, the Company’s Chairman and a principal shareholder of the Company, as compensation for Mr. Taneja’s personal guarantee to Laurus Master Fund, Ltd. of financing in the amount of $6 million, to fund the BOSS acquisition. The exercise price of the options is $1.14 (110% of the fair value of the Company’s common stock on September 30, 2004). The options vest approximately equally over a three year period, commencing October 1, 2005. For the options granted, the balance of deferred consulting fees as of December 31, 2006 was $124,691, of which the current portion was $124,691 and the long-term portion was zero. The initial valuation of these options was $498,763, with $41,564 and $124,691, respectively, being expensed during the three and nine months ended December 31, 2006 and 2005. 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 223% and a risk free interest rate of 3.44%.

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 December 31, 2006, the remaining principal balance on the note was $155,935.

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 December 31, 2006, the principal balance on the lease was $17,225.

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. In June 2006, the note was subsequently paid in full.

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On May 15, 2006, we 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 to us in twenty-four (24) semi-monthly installments of $7,366, including principal and interest at 7.75% per annum, commencing May 15, 2006. As of December 31, 2006, the remaining principal balance on the note was $149,311.

On June 7, 2006, we issued 166,405 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 1, 2006, we issued a note payable to AFCO Credit Corporation, for insurance expenses associated with a new policy, in the principal amount of $132,052. The principal together with interest at the rate of 7.732% per annum is payable in nine monthly installments commencing October 1, 2006 in the amount of $15,149. As of December 31, 2006, the principal balance on the note was $74,304.

On September 1, 2006, we issued a note payable to AFCO Credit Corporation, for insurance expenses associated with a new policy, in the principal amount of $25,347. The principal together with interest at the rate of 9.861% per annum is payable in nine monthly installments commencing October 1, 2006 in the amount of $2,933. As of December 31, 2006, the principal balance on the note was $14,313.

On September 21, 2006, we issued a note payable to AFCO Credit Corporation, for insurance expenses associated with a new policy, in the principal amount of $13,831. The principal together with interest at the rate of 10% per annum is payable in nine monthly installments commencing October 21, 2006 in the amount of $1,601. As of December 31, 2006, the principal balance on the note was $9,336.

On November 1, 2006, we issued a note payable to AFCO Credit Corporation, for insurance expenses associated with a new policy, in the principal amount of $32,136. The principal together with interest at the rate of 7.73% per annum is payable in seven monthly installments commencing December 1, 2006 in the amount of $4,710. As of December 31, 2006, the principal balance on the note was $23,101.

Item 3. 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 Quarterly 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.

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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.

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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 Bob O’Leary Health of approximately $39.9 million and revenues associated with Dynamic Marketing of approximately $9.7 million. The increase in revenues associated with Bob O’Leary Health was due to organic growth of 34.1%, resulting from Bob O’Leary Health’s expansion of its distribution channels with the opening of distribution centers in Henderson, Nevada and Largo, Florida in May 2005, the expansion of Bob O’Leary Health’s in-house sales force and its purchase of a customer list in February 2005. Our revenues associated with Herbal Health decreased by approximately $510,300, primarily due to a decrease in Herbal Health’s sales of its branded products, while Herbal Health 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

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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.

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.

Outbound transportation expenses, which are included in selling, general and administrative expenses, were $1,933,674 and $516,469, respectively, for the years ended March 31, 2006 and 2005.

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 Bob O’Leary Health and Dynamic Marketing, as well as a decrease in legal fees, and was partially offset by expenses associated with Bob O’Leary Health and Dynamic Marketing, 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 Dynamic Marketing.

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.

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.

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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.

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 Bob O’Leary Health and the $4 million convertible minimum borrowing note and revolving note in connection with the acquisition of Dynamic Marketing. 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 $0.42 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 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 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 Bob O’Leary Health 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.

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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 14 to our consolidated financial statements for the years ended March 31, 2006 and 2005.

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 Dynamic Marketing of $17,517 based upon net adjustments to goodwill upon finalization of Dynamic Marketing’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

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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.

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.

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.

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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. Bob O’Leary Health 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 Bob O’Leary Health 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 Bob O’Leary Health (the “Shares”). The consideration paid by us 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 Bob O’Leary Health 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 Bob O’Leary Health 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 Bob O’Leary Health in consideration of outstanding debt. The transaction was accounted for as a purchase. The results of operations of Bob O’Leary Health 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 Bob O’Leary Health, 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, effective on October 1, 2004.

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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

• 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). Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the note will be reduced accordingly. In connection with the September 12, 2005 stock issuance, the lender waived this provision. The conversion price of the note 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 action as would otherwise result in dilution.

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. This agreement was subsequently amended.

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.

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, 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 Bob O’Leary Health.

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 Bob O’Leary Health 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

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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.

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. Dynamic Marketing 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 Dynamic Marketing 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 Dynamic Marketing, Inc. (the “Shares”). Effective March 31, 2005, Dynamic Marketing, Inc. merged into Dynamic Marketing I, Inc., with Dynamic Marketing I, Inc. 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 Dynamic Marketing 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 Dynamic Marketing, through the year ending March 31, 2008, in relation to the EBITDA for Dynamic Marketing for the year ended December 31, 2004, based on Dynamic Marketing’s audited financial statements for the year then ended.

The transaction was accounted for as a purchase. The results of operations of Dynamic Marketing 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 Dynamic Marketing, 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;

The combined principal amount that may be outstanding under the $2,000,000 minimum borrowing note and the $4,000,000 revolving note at any point in time cannot exceed $4,000,000.

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.

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. This agreement was subsequently amended.

The proceeds of the funding were used for the acquisition of Dynamic Marketing, 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

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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 Dynamic Marketing.

We were 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 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 were obligated to have such registration statement declared effective by September 30, 2006, but there are no stated penalties for failure to meet such deadline. This agreement was subsequently amended to provide that the registration statement is required to be filed by October 20, 2006.

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

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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.

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.

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BUSINESS

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.

Our predecessor, Direct Rx, Inc., an Ohio corporation, was formed in 1992. In September 1995, Direct Rx acquired an 80% interest in Nu-Wave Health Products, Inc., a Florida corporation, 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, we changed our name to Direct Rx Healthcare, Inc., and later to Dynamic Health Products, Inc., our current name. After the domicile change, Nu-Wave was merged into Dynamic Health.

Through our wholly-owned subsidiaries, we develop, market and distribute 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. We distribute approximately 3,000 individual inventory items, which are designated as individual stock keeping units purchased from manufacturers. Additionally, we carry our own lines of branded products. These are comprised of approximately 60 products packaged into approximately 100 individual stock keeping units. Until September 2004, we also provided prescription services. Through data base administration, we 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, we 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 we are not directly engaged in the sale or distribution of regulated substances.

We have grown primarily through acquisitions. In June 1998, we acquired, through a merger with a wholly-owned subsidiary, Energy Factors, Inc., a Florida corporation, which had a 33,222 square foot office, laboratory, manufacturing and warehouse facility located in Largo, Florida. Energy Factors, now known as GeoPharma, Inc., creates, manufacturers, and packages a wide variety of proprietary and non-proprietary dietary supplements, and health and beauty care products, and manufactures generic and over-the-counter drugs. On November 7, 2000, the United States Securities and Exchange Commission declared GeoPharma’s registration of 1,000,000 shares of its common stock to be effective. Prior to the offering, we owned all of the issued and outstanding common stock of GeoPharma. In March 2001, we distributed 2,324,984 shares of GeoPharma common stock to our shareholders. As of March 31, 2006 and 2005, we held 347,938 shares of common stock of GeoPharma.

In June 1998, we acquired Becan Distributors, Inc., 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, through Becan, we formed Discount Rx, Inc., 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 our branded products. We subsequently sold Becan and its subsidiary, Discount, to DrugMax, Inc., formerly DrugMax.com, Inc. and formerly Nutriceuticals.com, Inc., on November 26, 1999. As of March 31, 2002, we held 1,933,000 shares of common stock of DrugMax. In November 2002, we distributed all of our shares of DrugMax common stock to our shareholders.

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

In September 1998, we formed Incredible Products of Florida, Inc., a Florida corporation, to market dietary supplements through distributors and radio infomercials. In May 1999, we formed Online Meds Rx, Inc., formerly Dynamic Life, Inc., as a Florida corporation. In March 2000, Incredible was merged into Online Meds Rx. Online Meds Rx 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 Online Meds Rx, as previously conducted, are now carried out through the Herbal Health Products, Inc. In March 2003, Online Meds Rx began providing prescription services through direct mail and through its web sites. In September 2004, Online Meds Rx discontinued its prescription services operations. At this time, Online Meds Rx is not actively conducting operations.

In December 1998, we formed Herbal Health Products, Inc., as a Florida corporation. Herbal Health 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

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inventory and its customer base to Vertical Health Solutions, Inc., formerly Labelclick.com, Inc., an affiliate of Dynamic Health. Herbal Health 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 Online Meds Rx, we formed Dynamic Financial Consultants, LLC, formerly Dynamic Life Asia, LLC, a Florida limited liability company. Also in February 2000, through Dynamic Financial Consultants, we formed Dynamic Life Korea Ltd., a Korean corporation, to market dietary supplements primarily through distributors and through direct marketing to consumers. We subsequently sold Dynamic Life Korea in November 2001.

In December 2003, we formed Pharma Labs Rx, Inc., 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, Pharma Labs discontinued its prescription services operations. At this time, Pharma Labs is not actively conducting operations.

In October 2004, we acquired Bob O’Leary Health Distributor Co., Inc., incorporated in July 1984, in Pennsylvania. Bob O’Leary Health Food 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, we formed Dynamic Marketing I, Inc., as a Florida corporation. In March 2005, Dynamic Marketing I, Inc. Dynamic Marketing, Inc., a Rhode Island corporation. 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. Dynamic Marketing 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, we formed DYHP Acquisitions, Inc., as a Florida corporation. At this time, DYHP Acquisitions is not actively conducting operations.

Products

We market and distribute 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. We distribute approximately 3,000 individual inventory items purchased from over 150 manufacturers. Additionally, we carry our own lines of branded products. These are comprised of approximately 60 products packaged into approximately 100 individual stock keeping units.

Product Development

Generally, the more novel and unique our products are, the greater the profit margins. Dynamic Health, 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. Our response time in developing its own proprietary products is critical and enables us to take advantage of consumer trends and preferences.

Marketing and Sales

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

Our 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 we operate are highly competitive. Numerous companies, many of which have greater size and greater financial, personnel, distribution and other resources than Dynamic Health, compete with us in our distribution, wholesaling, and retailing businesses.

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We face 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. Our 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 Dynamic Health because such companies have greater financial and other resources available to them and possess marketing and distribution capabilities far greater than those of Dynamic Health.

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

Backlog

Our revenues are processed through the system from sales orders generated and issued by our customers. We primarily fulfill the sales orders on a turn-around time of between one to three days. As such, at any given point in time, we do not experience a backlog of unfilled sales orders. At March 31, 2006, we had no backlog sales orders.

Research and Development

We contract research and development primarily through our affiliate, GeoPharma, where Dr. Kotha S. Sekharam, the President of GeoPharma and a director of Dynamic Health, 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 our operations, and are charged directly to expense as incurred.

Trademarks

We have 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, we believe that protecting some of our trademarks are crucial to our business strategy of building strong brand name recognition and that such trademarks will have significant value.

Our policy is to pursue registrations of all the trademarks associated with our key products. We rely on common law trademark rights to protect our 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 us in the United States.

Although we seek to ensure that we do 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 us. Any infringement claims by third parties against us may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Principal Suppliers and Sources of Supply

We obtain all of our products from third party suppliers. Many of the raw materials used in our products are harvested internationally. We do not have contracts with any suppliers committing such suppliers to provide materials required for the production of our products. There can be no assurance that suppliers will provide products needed by us in the quantities requested or at a price we are willing to pay. Because we do not control the actual production of these products, we are also subject to delays caused by interruption in production of materials based on conditions not within our control. Such conditions include job actions or strikes by employees of suppliers, weather, crop conditions, transportation interruptions and

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natural disasters or other catastrophic events. Our inability to obtain adequate supplies of our products at favorable prices, or at all, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Quality Control

Although we do not directly manufacture our products, we endeavor to purchase products manufactured in accordance with the Good Manufacturing Practices 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 we purchase. We utilized licensed pharmacies for our 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 our products are subject to regulation by numerous government agencies, such regulations apply to the manufacturers of the products, but we are not directly regulated.

We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our 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 our business, financial condition, results of operations and cash flows. If we were to experience product recalls or discontinuances, we could incur substantial expenses and wastage of time, as well as damage to our reputation.

Advertising of our 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 we are required to have adequate substantiation for all material advertising claims made for its products. If the FTC were to impose limitations on our advertising of products, any such limitations could materially adversely affect our 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 our business, financial condition, results of operations and cash flows.

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

Governmental regulations in foreign countries where we 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 our products. Compliance with such foreign governmental regulations is generally the responsibility of our distributors for those countries. These distributors are independent contractors over whom we have limited control.

Employees

As of March 31, 2006, we 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 our employees are covered by a collective bargaining agreement. We consider relations with our employees to be good.

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Properties

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 its 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 February 8, 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 its executive offices and its 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.

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.

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.

Legal Proceedings

From time to time we are subject to litigation incidental to its business including possible product liability claims. Such claims, if successful, could exceed applicable insurance coverage. We are not currently a party to any legal proceedings that we believe will have a material adverse affect on our results of operations.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

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

Name	Age	Position	Director Since
Jugal K. Taneja	63	Chairman of the Board and Director	1992
Mandeep K. Taneja	33	Chief Executive Officer, President and Director	2000
Cani I. Shuman	50	Chief Financial Officer, Secretary, Treasurer and Director	2001
Kotha S. Sekharam, Ph.D.	56	Director	1995
Rakesh K. Sharma, M.D.	49	Director	1999
Morton L. Stone	76	Director	2002

Pursuant to our 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 our 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 also serve in various capacities with our subsidiaries. Mandeep K. Taneja is the adult son of Jugal K. Taneja. There are no other family relationships among any of our other directors and executive officer.

Background of Executive Officers and Directors

Jugal K. Taneja has served as our Chairman of the Board since inception. Until June 1998 and from November 1999 until February 2002, he also served as our Chief Executive Officer. In addition to his service to us, 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 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 and as our President since November 2000. He has also served as our Chief Executive Officer since December 2002. Prior to that he served as President of our 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 2001. Prior to that he was employed as an associate of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. 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 since August 2001 and has served as our Chief Financial Officer since November 2000. Ms. Shuman has served as our Secretary and Treasurer since April 2000, and was Corporate Controller from February 1999 through November 2000. Prior to that she served as our Chief Financial Officer since January 1998. Prior to her employment with Dynamic Health, 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.

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Dr. Kotha S. Sekharam has served as a director since June 1996 and served as our 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. We 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 us 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 Dynamic Health 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 Dynamic Health 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.

Audit Committee

We have 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 and we do not have an audit committee financial expert serving.

Compensation Committee

We have a compensation committee, which consists of Dr. Kotha S. Sekharam, Dr. Rakesh K. Sharma and Morton L. Stone.

Executive Committee

We have an executive committee, which consists of Mandeep K. Taneja, Cani I. Shuman and Jugal K. Taneja.

Code of Ethics

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

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EXECUTIVE COMPENSATION

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

SUMMARY COMPENSATION TABLE

	Annual Compensation (1)				Restricted Stock Award (shares)	Awards	Long-Term Compensation
							LTIP Payouts ($)	Payouts
Name and Principal Position	Year	Salary ($)	Bonus ($)	Other Annual Compensation ($)		Securities Underlying Options/ SARs (#) (2)		All Other Compensation ($)
Mandeep K. Taneja, Chief Executive Officer And President (3)	2006 2005 2004	156,000 156,000 153,000	—   —   9,360	—   —   —	—   40,000 —	—   —   25,000	—   —   —	—   —   —
Cani I. Shuman, Chief Financial Officer, Secretary and Treasurer	2006 2005 2004	78,000 78,000 75,000	—   4,680 4,680	—   —   —	—   30,000 —	—   —   25,000	—   —   —	—   —   —
Jugal K. Taneja,	2006	150,000	—	—	—	—	—	—
Chairman (4)(5)	2005	150,000	—	—	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 Dynamic Health 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, our officers and directors were granted common stock options by action of our 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 our 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 Dynamic Health, the exercise price of the of the options is $1.10, based on the closing price of our stock on the OTC Bulletin Board the business date prior to the date of the grant.

(3) Mr. Mandeep Taneja served as our Chief Executive Officer since December 2002.

(4) Mr. Jugal Taneja served as our 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, we granted options to purchase 500,000 shares of our 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 Bob O’Leary Health acquisition. The exercise price of the options was $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 compensation described in the table does not include these options.

During the year ended March 31, 2006, we paid each director a fee of $500 for each meeting attended by such director, but not less than $2,000 per year if they attended at least three meetings during the year. Outside directors who serve on board committees will be paid a fee of $100 for each committee meeting attended by such director. In addition, directors receive reimbursement for reasonable expenses incurred in attending meetings.

Consulting Agreement

Jugal K. Taneja has been a valuable employee of Dynamic Health and our management realized that Mr. Taneja has demonstrated a keen understanding of our operations, such that it is desirable to retain Mr. Taneja’s services under a consulting agreement. On February 14, 2002, we entered into a Consulting Agreement with Jugal K. Taneja, to reflect his current position as a consultant. 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

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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, through our wholly-owned subsidiary, Bob O’Leary Health, we entered into an Employment Agreement with Joseph Mies to serve as Bob O’Leary Health’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 us under certain circumstances.

On March 30, 2005, through our wholly-owned subsidiary, Dynamic Marketing, we entered into an Employment Agreement with Gregg Madsen to serve as Dynamic Marketing’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 Dynamic Health under certain circumstances. In addition, On March 30, 2005, Mr. Madsen was granted options to purchase 300,000 shares of our 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 Dynamic Marketing. In addition, Mr. Madsen’s annual base compensation was increased to $150,000.

Employee And Non-Employee Stock Option Plans

1999 Stock Option Plan

In March 1999, our Board of Directors adopted the 1999 Stock Option Plan, which has been approved by our shareholders. The 1999 Plan will enable us 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 Dynamic Health, of options to purchase up to a maximum aggregate of 6,000,000 shares of our common stock.

The Board of Directors 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 our 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 our capital stock). 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 us.

Nonqualified options may be granted under the 1999 Plan at an exercise price of not less than 100% of the fair market value of our 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.

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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 our capital stock). 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.

On January 23, 2004, the Board of Directors approved the granting of 205,000 options, to be allocated to each of our officers and directors. The exercise price of the options is $1.00, based on the closing price of our 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 our stock, the exercise price of the of the options is $1.10, based on the closing price of our 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 was held. At the meeting, the Compensation Committee granted options to purchase 500,000 shares of 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 Bob O’Leary Health 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. 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, we 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, we granted an option to purchase up to an aggregate of 250,000 shares of 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 entering into an Employment Agreement with Gregg Madsen, effective March 31, 2005, Mr. Madsen was granted options to purchase 300,000 shares of our 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 our 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, we granted options to purchase 2,500 shares of 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 our 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, we granted options to purchase 2,500 shares of our 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 our 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 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

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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.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

Title Of Class	Name And Address Of Beneficial Owner(1)	Amount And Nature Of Beneficial Ownership(2)	Approximate Percent Of Class
Common	Jugal K. Taneja(3)	5,115,041	32.7	%
Common	Manju Taneja(4)	1,781,404	11.8	%
Common	William L. LaGamba(5)	1,642,100	10.9	%
Common	Michele LaGamba(6)	1,642,100	10.9	%
Common	Mandeep K. Taneja(7)	1,652,096	10.9	%
Common	Laurus Master Fund, Ltd.(8)	1,654,215	9.9	%
Common	Mihir K. Taneja	1,479,996	9.8	%
Common	Kotha S. Sekharam, Ph.D.(9)	597,464	3.9	%
Common	Morton L. Stone(10)	242,700	1.6	%
Common	Cani I. Shuman(11)	155,000	1.0	%
Common	Rakesh K. Sharma, M.D.(12)	135,000	.9	%
Common	All officers and directors as a group(6 persons)	7,897,301	48.5	%

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

(2) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to the shares shown. Except where indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them. 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 583,333 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 125,000 shares issuable upon exercise of currently exercisable options.

(8) Includes 849,215 shares issuable upon conversion of convertible debentures. Laurus is also entitled to receive an additional 5,162,920 shares of common stock upon conversion of presently convertible debentures, however, Laurus has contractually agreed to restrict their ability to convert their secured convertible notes such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 9.9% of the then issued and outstanding shares of common stock as determined in accordance with Section 13(d) of the

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Securities Exchange Act of 1934. This restriction would not apply in the event there was an event of default or we sought to redeem the outstanding balance of the convertible debentures. Laurus Capital Management, LLC may be deemed a control person of the shares owned by Laurus Master Fund, Ltd. David Grin and Eugene Grin are the sole managing members of Laurus Capital Management, LLC. Laurus is not a registered broker dealer or an affiliate of a broker dealer.

(9) 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 135,000 shares issuable upon exercise of currently exercisable options.

(10) Includes 135,000 shares issuable upon exercise of currently exercisable options.

(11) Includes 125,000 shares issuable upon exercise of currently exercisable options.

(12) Includes 135,000 shares issuable upon exercise of currently exercisable options.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On October 1, 1999, we entered into a triple-net lease agreement with GeoPharma, Inc., a publicly traded company and an affiliate of Dynamic Health, whereby GeoPharma agreed to lease our 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 provided 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, we sold the building to GeoPharma for $1,925,000 in cash. This resulted in a gain of $654,241 to us 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 Dynamic Health is also a principal shareholder and Chairman of the Board of GeoPharma. As of December 31, 2006 our investment in GeoPharma consisting of 204,914 shares of its common stock, and as of March 31, 2006 and 2005 and as of December 31, 2005, our 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 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., which we owned. On July 7, 2004, the 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 Health 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 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 Health common stock to our shareholders. This resulted in a gain of $1,349,966 to us for the year ended March 31, 2005.

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

We owned 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 Dynamic Health, and Mandeep K. Taneja, a Director, Chief Executive Officer and President of Dynamic Health. 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 we recognized an impairment loss of $166,939 in the investment. Tribeca discontinued its operations as of December 31, 2006. As of December 31, 2006 and March 31, 2006, zero was due from Tribeca. As of December 31, 2005 and March 31, 2005, $401 and $301, respectively, was due from Tribeca and is included in due from affiliates.

On January 1, 2004, we entered into a verbal agreement with Innovative Health Products, Inc. (“Innovative”), a wholly-owned subsidiary of GeoPharma, whereby we 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 our 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 us 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 Dynamic Health and its officers, directors or affiliates will be subject to approval by a majority of disinterested directors or shareholders in accordance with Florida law.

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For the three and nine months ended December 31, 2006, purchases of products from subsidiaries of GeoPharma were $20,867 and $81,788, respectively, and sales to subsidiaries of GeoPharma were $5 and $65, respectively. For the three and nine months ended December 31, 2005, purchase of products from subsidiaries of GeoPharma were $50,170 and $158,436, respectively, and sales of products to subsidiaries of GeoPharma were $60 and $31,025, respectively. 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 were $31,157 and $18,774, respectively. As of December 31, 2006 and 2005, and March 31, 2006 and 2005, $26,688 and $52,311, respectively, and $26,554 and $66,151, respectively, were due to subsidiaries of GeoPharma and are included in obligations to affiliates. As of December 31, 2006 and 2005, and March 31, 2006 and 2005, $835 and $1,566, respectively, and $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 Dynamic Health, and are charged to expense as incurred.

On July 28, 2004, we issued a promissory note payable to an affiliate of our Chairman, 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, 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, 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, effective October 1, 2004. The note was subsequently repaid on October 5, 2004.

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 Bob O’Leary Health 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, 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, 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 the office, warehousing and shipping operations of Dynamic Marketing. 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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SELLING STOCKHOLDER

The following table sets forth the common stock ownership of the selling stockholder as of March 6, 2007, including the number of shares of common stock issuable upon the conversion of the Secured Convertible Notes held by the selling stockholder. Other than as set forth in the following table, the selling stockholder has not held any position or office or had any other material relationship with us or any of our predecessors or affiliates within the past three years.

Name	Total Shares of Common Stock Owned or Issuable Upon Conversion of Notes *	Total Percentage of Common Stock, Assuming Full Conversion		Shares of Common Stock Included in Prospectus (1)	Beneficial Ownership Before the Offering**		Percentage of Common Stock Owned Before Offering**		Beneficial Ownership After the Offering (3)	Percentage of Common Stock Owned After Offering (3)
Laurus Master Fund, Ltd. (4)	7,103,633	29.8	%	Up to 2,761,335 shares of common stock	1,654,215	(2)	9.99	%	1,654,215	9.99	%

* This column includes up to 2,061,335 shares issuable upon conversion of accounts receivable and inventory convertible note, up to 4,342,298 shares issuable upon conversion of a term note and 805,000 shares of outstanding common stock. On September 30, 2004, we entered into a Securities Purchase Agreement with Laurus Master Fund, Ltd., whereby we completed the sale to Laurus of the secured convertible term note in the principal amount of $6,000,000. On March 29, 2005, we entered into agreements with Laurus for the accounts receivable and inventory financing whereby we completed the sale to Laurus of the secured convertible minimum borrowing note with a principal amount of $2,000,000 and the secured revolving note with a principal amount note to exceed $4,000,000. The combined principal amount that may be outstanding under the $2,000,000 minimum borrowing note and the $4,000,000 revolving note at any point in time cannot exceed $4,000,000. On April 28, 2006, we entered into an agreement with Laurus to modify certain terms of the foregoing financings. In connection therewith, we issued 425,000 shares of common stock to Laurus. On July 19, 2005, we entered into an agreement with Laurus to modify certain terms of the foregoing financings. In connection therewith, we issued 275,000 shares of common stock to Laurus.

** These columns represent the aggregate maximum number and percentage of shares that the selling stockholder can own at one time (and therefore, offer for resale at any one time) due to their 9.99% limitation.

The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment power and also any shares, which the selling stockholders has the right to acquire within 60 days. The actual number of shares of common stock issuable upon the conversion of the secured convertible notes is subject to adjustment depending on, among other factors, the future issuance of common stock at a price below $1.13 per share which would reduce the conversion price of the convertible debenture. The market price of our common stock on March 6, 2007 was $.40 per share. In addition, stock dividends or recapitalizations of the common stock would also adjust the conversion price of the convertible debenture proportionately, and the number of shares issuable upon conversion of the convertible debenture could be materially less or more than the number estimated in the table.

(1) Includes a good faith estimate of the shares issuable upon conversion of the secured convertible note, based on current market prices.

(2) The actual number of shares of common stock offered in this prospectus, and included in the registration statement of which this prospectus is a part, includes such additional number of shares of common stock as may be issued or issuable upon conversion of the secured convertible notes by reason of any stock split, stock dividend or similar transaction involving the common stock, in accordance with Rule 416 under the Securities Act of 1933. However the selling stockholder has contractually agreed to restrict their ability to convert their secured convertible note and receive shares of our common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of common stock as determined in accordance with Section 13(d) of the Exchange Act. This restriction would not apply in the event there was an event of default or we sought to redeem the outstanding balance of the convertible debentures. Accordingly, the number of shares of common stock set forth in the table for the selling stockholders exceeds the number of shares of common stock that the selling stockholders could own beneficially at any given time through their ownership of the secured convertible notes and the warrants. In that regard, the beneficial ownership of the common

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stock by the selling stockholder set forth in the table is not determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended.

(3) Assumes that all securities registered will be sold.

(4) Laurus Capital Management, LLC may be deemed a control person of the shares owned by Laurus Master Fund, Ltd. David Grin and Eugene Grin are the sole managing members of Laurus Capital Management, LLC. Laurus is not a registered broker dealer or an affiliate of a broker dealer.

PLAN OF DISTRIBUTION

We are registering the shares of common stock on behalf of the selling stockholder. We are paying all costs, expenses and fees in connection with the registration of shares offered by this prospectus. Brokerage commissions, if any, attributable to the sale of shares will be borne by the selling stockholder.

The selling stockholder of our common stock and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the Over-The-Counter Bulletin Board or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholder may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• settlement of short sales;

• broker-dealers may agree with the selling stockholder to sell a specified number of such shares at a stipulated price per share;

• a combination of any such methods of sale;

• through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or

• any other method permitted pursuant to applicable law.

The selling stockholder may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus. In general, under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year, including an affiliate of the Dynamic Health, would be entitled to sell, within any three-month period, that number of shares that does not exceed 1% of the then-outstanding shares of our common stock immediately preceding the date on which the notice of sale is filed with the Commission, provided certain manner of sale and notice requirements and requirements as to the availability of current public information about Dynamic Health are satisfied. Under Rule 144(k), a holder of “restricted securities” who is not deemed an affiliate of the issuer and who has beneficially owned shares for at least two years would be entitled to sell shares under Rule 144(k) without regard to the limitations described above.

Broker-dealers engaged by the selling stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. Each selling stockholder does not expect these commissions and discounts relating to its sales of shares to exceed what is customary in the types of transactions involved.

In connection with the sale of our common stock or interests therein, the selling stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholder may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The short sale of our common stock could cause a decline in the price of our common stock as additional shares are sold into the market. The selling stockholder may also enter into options or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

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The selling stockholder and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed us that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

We are required to pay certain fees and expenses incurred incident to the registration of the shares. We have agreed to indemnify the selling stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because the selling stockholder may be deemed to be an “underwriter” within the meaning of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The selling stockholder has advised us that it has not entered into any agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholder.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholder without registration and without regard to any volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the selling stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholder and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

DESCRIPTION OF SECURITIES

Our authorized capital stock consists of 47,000,000 shares of capital stock, par value $.01, of which 45,000,000 shares are common stock and 2,000,000 shares are preferred stock that may be issued in one or more series at the discretion of the Board of Directors. 400,000 shares of our preferred stock have been designated as Series A Convertible Preferred Stock, 800,000 shares of our preferred stock have been designated as Series B 6% Cumulative Convertible Preferred Stock, and the remaining 800,000 shares of preferred stock have not been designated. As of December 31, 2006, there were 15,055,035 shares of common stock issued and outstanding and there are no shares of our preferred stock issued or outstanding.

Common Stock

The holders of common stock are entitled to one vote for each share held of record on all matters to be voted on by the stockholders. The holders of common stock are entitled to receive dividends ratably, when, as and if declared by the Board of Directors, out of funds legally available therefor. In the event of a liquidation, dissolution or winding-up of Dynamic Health Products, the holders of common stock are entitled to share equally and ratably in all assets remaining available for distribution after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock.

The holders of shares of common stock, as such, have no conversion, preemptive, or other subscription rights and there are no redemption provisions applicable to the common stock. All of the outstanding shares of common stock are, and the shares of common stock offered by Dynamic Health Products hereby, when issued against the consideration set forth in this prospectus, will be, validly issued, fully paid and non-assessable.

Preferred Stock

Shares of preferred stock may be issued from time to time in one or more series as may from time to time be determined by our Board of Directors. Our Board of Directors has authority, without action by the stockholders, to determine the voting rights, preferences as to dividends and liquidation, conversion rights and any other rights of such series. Any

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preferred shares, if and when issued in the discretion of the Board of Directors, may carry voting, conversion or other rights superior to those of the shares of common stock and may adversely affect the voting power and rights of the common stockholders. There are no shares of preferred stock currently outstanding.

The Laurus Master Fund, Ltd. Financing

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

• 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). Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the note will be reduced accordingly. In connection with the September 12, 2005 stock issuance, the lender waived this provision. The conversion price of the note 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 action as would otherwise result in dilution.

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 9.99% of our issued and outstanding common stock upon such issuance. In addition, this restriction would not apply in the event there was an event of default or we sought to redeem the outstanding balance of the convertible debentures.

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.

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, 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 March 29, 2005, we entered into agreements with Laurus Master Funds, Ltd, a Cayman Islands corporation, pursuant to which we sold convertible debt and a warrant to purchase common stock to Laurus 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

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

The combined principal amount that may be outstanding under the $2,000,000 minimum borrowing note and the $4,000,000 revolving note at any point in time cannot exceed $4,000,000.

We are permitted to borrow an amount based upon its eligible accounts receivable, as defined in the agreements with Laurus, not to exceed an aggregate of $4,000,000. 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 the assets of Dynamic Health Products, including but not limited to inventory and accounts receivable. We are currently in compliance with the covenants contained in the credit facility agreement. 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. On July 19, 2005, we entered into a Postponement Agreement with Laurus pursuant to which we agreed that the principal amount of the convertible note due from August 2005 through March 2006 will be paid on a monthly basis commencing in February 2007, in addition to the principal amount otherwise due during those months. In connection with such agreement, we issued Laurus 275,000 shares of our common stock. We also agreed to extend the required filing and effective dates of our registration statement to August 19, 2005 and September 19, 2005, respectively.

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 common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution.

115% of the full principal amount of the convertible notes are due upon default under the terms of convertible notes. Laurus has contractually agreed to restrict its ability to convert 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 9.99% of the outstanding shares of our common stock. In addition, this restriction would not apply in the event there was an event of default or we sought to redeem the outstanding balance of the convertible debentures.

We were obligated to file a registration statement registering the resale of shares of the common stock issuable upon conversion of the convertible notes and exercise of the warrant. If the registration statement was not filed by August 19, 2005, or declared effective by September 19, 2005, 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.

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 the our agreements with Laurus.

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 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.

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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 amended and restated notes, Laurus cannot beneficially own more than 9.99% of our common stock. 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 October 4, 2006, we entered into an agreement with Laurus pursuant to which we modified the earlier agreements among the parties (the “Amendment Agreement”). The Amendment Agreement (i) eliminated our obligation to register for resale the shares of common stock underlying the securities sold in September 2004, and (ii) removed Laurus’ right to waive 9.99% ownership limitations contained in their convertible debentures.

In connection with the Amendment Agreement, we also executed second amended and restated promissory notes in favor of Laurus. Pursuant to the Amendment Agreement, we agreed to file a registration statement by October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. We were obligated to have such registration statement declared effective by November 30, 2006, but there were no stated penalties for failure to meet such deadline. Laurus could declare the obligations in default and seek immediate repayment, but it has given no indication of doing so. If immediate repayment was required, we would not have sufficient funds and Laurus could take legal action to recover amounts due from our assets.

Certain Provisions of Florida Law

We are subject to several anti-takeover provisions under Florida law that apply to a public corporation organized under Florida law, unless the corporation has elected to opt out of those provisions in its articles of incorporation or bylaws. We have not elected to opt out of those provisions. The Florida Business Corporation Act prohibits the voting of shares in a publicly-held Florida corporation that are acquired in a “control share acquisition” unless the holders of a majority of the corporation’s voting shares (exclusive of shares held by officers of the corporation, inside directors, or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition. A “control share acquisition” is defined as an acquisition that immediately thereafter entitles the acquiring party to vote in the election of directors within each of the following ranges of voting power: (i) one-fifth or more but less than one-third of such voting power; (ii) one-third or more but less than a majority of such voting power; and (iii) more than a majority of such voting power.

The Florida Business Corporation Act also contains an “affiliated transaction” provision that prohibits a publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an “interested stockholder” unless (i) the transaction is approved by a majority of disinterested directors before the person becomes an interested stockholder; (ii) the interested stockholder has owned at least 80% of the corporation’s outstanding voting shares for at least five years; or (iii) the transaction is approved by the holders of two-thirds of the corporation’s voting shares other than those owned by the interested stockholder. An interested stockholder is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation’s outstanding voting shares.

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Transfer Agent and Registrar

Registrar and Transfer Company, in Cranford, New Jersey, serves as transfer agent and registrar for our common stock.

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our Articles of Incorporation, as amended, provide to the fullest extent permitted by Florida law, our directors or officers shall not be personally liable to us or our shareholders for damages for breach of such director’s or officer’s fiduciary duty. The effect of this provision of our Articles of Incorporation, as amended, is to eliminate our rights and our shareholders (through shareholders’ derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the indemnification provisions in our Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act” or “Securities Act”) may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for Dynamic Health Products by Sichenzia Ross Friedman Ference LLP, New York, New York.

EXPERTS

Dynamic Health Products’ financial statements as of and for the years ended March 31, 2006 and 2005, included in this prospectus, have been audited by Brimmer, Burek & Keelan LLP, independent public accountants, as stated in their report appearing incorporated herein and are so included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Bob O’Leary Health’s financial statements as of an for the years ended December 31, 2003 and 2002, have been audited by Kronick Kalada Berdy & Co., P.C. independent public accountants, as stated in their report incorporated herein and are so included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Dynamic Marketing, Inc. financial statements as of and for the years ended December 31, 2004, 2003 and 2002, included in this prospectus, have been audited by Brimmer, Burek & Keelan LLP, independent public accountants, as stated in their report appearing incorporated herein and are so included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed a registration statement on Form SB-2 under the Securities Act of 1933, as amended, relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of our company, filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.

We are subject to the informational requirements of the Securities Exchange Act of 1934 which requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at 100 F Street N.E., Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at 100 F Street N.E., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC’s Internet website at http://www.sec.gov or by phone at 1-800-SEC-0330.

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INDEX TO FINANCIAL STATEMENTS

Unaudited Financial Statements:
Unaudited Condensed Consolidated Financial Statements of Dynamic Health Products, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheet as of December 31, 2006	F-2
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2006 and 2005	F-3
Unaudited Condensed Consolidated Statements of changes in Shareholders’ Equity for the nine months ended December 31, 2006	F-4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2006 and 2005	F-5 – F-6
Unaudited Notes to Condensed Consolidated Financial Statements	F-7 – F-30
Audited Financial Statements:
Consolidated Financial Statements of Dynamic Health Products, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm, Brimmer, Burek & Keelan LLP	F-31
Consolidated Balance Sheets as of March 31, 2006 and 2005	F-32
Consolidated Statements of Operations for the years ended March 31, 2006 and 2005	F-33
Consolidated Statements of Changes in Shareholders’ Equity for the years ended March 31, 2006 and 2005	F-34
Consolidated Statements of Cash Flows for the years ended March 31, 2006 and 2005	F-35 – F-36
Notes to Consolidated Financial Statements	F-37 – F-63
Financial Statements of Dynamic Marketing, Inc.
Report of Independent Registered Public Accounting Firm, Brimmer, Burek & Keelan LLP	F-64
Balance Sheets as of December 31, 2004, 2003 and 2002	F-65
Statements of Operations for the years ended December 31, 2004, 2003 and 2002	F-66
Statements of Changes in Shareholder’s Equity for the years ended December 31, 2004, 2003 and 2002	F-67
Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	F-68 – F-69
Notes to Financial Statements	F-70 – F-76
Financial Statements of Bob O’Leary Health Food Distributor Co., Inc.
Independent Auditors’ Report, Kronick Kalada Berdy & Co	F-77
Balance Sheets as of December 31, 2003 and 2002	F-78
Statements of Operations for the years ended December 31, 2003 and 2002	F-79
Statements of Changes in Shareholders’ Equity for the years ended December 31, 2003 and 2002	F-80
Statements of Cash Flows for the years ended December 31, 2003 and 2002	F-81
Notes to Financial Statements	F-82 – F-84

F-1

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2006			March 31, 2006
	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	605,906		$	1,009,012
Certificates of deposit		151,505			—
Marketable equity securities, net		862,351			1,637,763
Accounts receivable, net		2,232,319			2,485,954
Inventories, net		4,562,402			4,478,970
Prepaid expenses		449,811			223,515
Deferred consulting fees		124,691			215,004
Other current assets		201,641			163,766
Due from affiliates		1,160			2,500
Notes receivable, net		246,165			165,708
Note receivable from affiliate		46,189			44,082
Total current assets		9,484,140			10,426,274
Property, plant and equipment, net		760,905			743,846
Note receivable		—			29,940
Goodwill		4,145,130			4,145,130
Intangible assets, net		542,550			749,217
Deferred consulting fees		—			83,127
Other assets		21,832			77,517
Total assets	$	14,954,557		$	16,255,051
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving note payable, net	$	1,678,059		$	1,609,240
Current portion of long-term obligations		3,283,977			2,093,540
Accounts payable		5,427,738			5,090,685
Other payables		645,164			411,530
Accrued expenses		238,840			343,744
Accrued income taxes		—			5,819
Obligations to affiliates		26,688			26,551
Note payable		121,054			10,296
Derivative financial instruments		230,688			1,523,376
Total current liabilities		11,652,208			11,114,781
Long-term obligations, less current portion		29,881			61,899
Deferred income taxes		39,554			186,300
Total liabilities		11,721,643			11,362,980
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; 15,055,035 and 14,463,630 shares issued and outstanding		150,550			144,636
Additional paid-in capital		4,467,866			4,004,048
Retained earnings (deficit)		(1,904,980	)		(272,354	)
Accumulated other comprehensive income:
Unrealized gains (losses) on marketable equity securities, net of tax		519,478			1,015,741
Total shareholders' equity		3,232,914			4,892,071
Total liabilities and shareholders' equity	$	14,954,557		$	16,255,051

See accompanying notes to condensed consolidated financial statements.

F-2

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2006			2005			2006			2005
				(Restated)						(Restated)
Revenues	$	13,400,640		$	11,367,033		$	40,120,308		$	35,861,533
Cost of goods sold		10,989,379			9,212,712			32,535,023			29,158,972
Gross profit		2,411,261			2,154,321			7,585,285			6,702,561
Operating expenses:
Selling, general and administrative expenses		2,583,527			2,256,282			7,593,010			6,770,278
Amortization expense		77,222			75,140			231,667			225,382
Depreciation expense		49,319			39,572			140,817			115,173
Total operating expenses		2,710,068			2,370,994			7,965,494			7,110,833
Operating income (loss) before other income and expense		(298,807	)		(216,673	)		(380,209	)		(408,272	)
Other income (expense):
Interest income		5,473			6,204			18,275			18,534
Other income and expenses, net		(1,479	)		(212,174	)		93,740			(144,036	)
Gain (loss) on sale of property		(371	)		(2,333	)		404			(4,828	)
Gain on sale of marketable equity securities		—			—			572,096			—
Gain from debt extinguishment		—			—			153,750			—
Derivative instrument income (expense), net		360,905			518,106			1,093,938			9,611,164
Derivative instrument interest expense		(827,938	)		(827,938	)		(2,401,681	)		(2,483,814	)
Interest expense		(207,647	)		(237,618	)		(628,046	)		(549,556	)
Total other income (expense)		(671,057	)		(755,753	)		(1,097,524	)		6,447,464
Income (loss) before income taxes		(969,864	)		(972,426	)		(1,477,733	)		6,039,192
Income tax expense (benefit)		(30,983	)		(53,453	)		154,893			(220,991	)
Net income (loss)		(938,881	)		(918,973	)		(1,632,626	)		6,260,183
Preferred stock dividends		—			—			—			—
Net income (loss) available to common shareholders	$	(938,881	)	$	(918,973	)	$	(1,632,626	)	$	6,260,183
Basic income (loss) per share	$	(0.06	)	$	(0.06	)	$	(0.11	)	$	0.44
Basic weighted average number of common shares outstanding		15,055,035			14,463,630			14,972,765			14,257,416
Diluted income (loss) per share	$	(0.06	)	$	(0.06	)	$	(0.11	)	$	0.07
Diluted weighted average number of common shares outstanding		15,055,035			14,463,630			14,972,765			21,727,328

See accompanying notes to condensed consolidated financial statements.

F-3

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

															Accumulated Other Comprehensive Income
	Series A Preferred Stock			Series B Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Deficit)			Unrealized Gains (Losses) on Securities			Total Shareholders' Equity
	Shares	Dollars		Shares	Dollars		Shares	Dollars
Balances at March 31, 2006 (Audited)	—	$	—	—	$	—	14,463,630	$	144,636	$	4,004,048	$	(272,354	)	$	1,015,741		$	4,892,071
COMPREHENSIVE INCOME (LOSS)
Net income (loss)	—		—	—		—	—		—		—		(1,632,626	)					(1,632,626	)
Unrealized gains (losses) on marketable equity securities (net of tax of $279,148)	—		—	—		—	—		—		—		—			(496,263	)		(496,263	)
Comprehensive income (loss)																			(2,128,889	)
Share-based compensation	—		—	—		—	—		—		297,303		—						297,303
Issuance of 150,000 shares of common stock in exchange for cancellation of common stock warrants	—		—	—		—	150,000		1,500		43,500		—						45,000
Issuance of 275,000 shares of common stock in connection with Postponement Agreement	—		—	—		—	275,000		2,750		79,750		—						82,500
Issuance of 166,405 shares of common stock as employer contribution to profit sharing plan	—		—	—		—	166,405		1,664		43,265		—						44,929
Balances at December 31, 2006 (Unaudited)	—	$	—	—	$	—	15,055,035	$	150,550	$	4,467,866	$	(1,904,980	)	$	519,478		$	3,232,914

See accompanying notes to condensed consolidated financial statements.

F-4

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended December 31,
	2006			2005
				(Restated)
Cash flows from operating activities:
Net income (loss)	$	(1,632,626	)	$	6,260,183
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		372,484			340,555
Amortization of deferred consulting fees		173,440			242,816
Amortization of debt discount to interest expense		104,328			39,226
Share-based compensation expense		297,303			—
Derivative instrument (income) expense, net		(1,093,938	)		(9,611,164	)
Derivative instrument interest expense		2,401,681			2,483,814
(Gain) loss on sale property		(404	)		4,828
Gain on sale of marketable equity securities		(572,096	)		—
Gain from debt extinguishment		(153,750	)		—
Changes in operating assets and liabilities:
Accounts receivable		83,232			371,016
Inventories		(83,432	)		294,210
Due to/from affiliates, net		(630	)		(27,352	)
Prepaid expenses		21,999			152,921
Other current assets		21,205			95,965
Other assets		55,685			(5,224	)
Accounts payable		337,053			(1,213,052	)
Other payables		233,634			109,471
Accrued expenses		(104,904	)		(212,643	)
Accrued income taxes		(5,819	)		—
Deferred income taxes		132,403			(224,215	)
Net cash provided by (used in) operating activities		586,848			(898,645	)
Cash flows from investing activities:
Purchases of property and equipment		(175,972	)		(100,510	)
Proceeds from sale of property		18,500			2,000
Proceeds from sale of marketable equity securities		572,096			—
Repayments of note receivable		60,806			92,453
Purchase of distributor agreement		(25,000	)		—
Purchase of certificates of deposit		(151,505	)		—
Adjustment to purchase price of Dynamic Marketing, Inc.		—			(17,369	)
Adjustment to purchase price of customer list		—			(7,306	)
Purchase of trademark		—			(435	)
Net cash provided by (used in) investing activities		298,925			(31,167	)
Cash flows from financing activities:
Payments of long-term obligations		(621,833	)		(585,655	)
Proceeds from issuance of short-term obligations		6,666,000			8,053,419
Payments of short-term obligations		(7,333,046	)		(8,174,039	)
Proceeds from issuance of common stock		—			75,000
Net cash used in financing activities		(1,288,879	)		(631,275	)
Net increase (decrease) in cash		(403,106	)		(1,561,087	)
Cash at beginning of period		1,009,012			1,870,561
Cash at end of period	$	605,906		$	309,474

See accompanying notes to condensed consolidated financial statements.

F-5

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)—Continued

	Nine Months Ended December 31,
	2006		2005
			(Restated)
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	528,797	$	437,518
Cash paid during the period for income taxes	$	75,115	$	—
Supplemental schedule of non-cash investing activities:
Conversion of accounts receivable to note receivable	$	170,403	$	330,993
Supplemental schedule of non-cash financing activities:
Issuance of common stock in exchange for cancellation of common stock warrants	$	45,000	$	—
Issuance of common stock for postponement agreement	$	82,500	$	189,750
Issuance of common stock for employer contribution to profit sharing plan	$	44,929	$	—
Issuance of long-term obligations for purchase of equipment	$	—	$	22,979
Issuance of short-term obligations for prepaid expenses	$	203,366	$	41,917

See accompanying notes to condensed consolidated financial statements.

F-6

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED

DECEMBER 31, 2006 AND 2005 (UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles for interim financial information and with the instruction to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended December 31, 2006 and 2005 are not necessarily indicative of the results that may be expected for the year ending March 31, 2007. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Form 10-KSB for the year ended March 31, 2006.

Reclassifications

Certain reclassifications have been made to the financial statements as of and for the three and nine months ended December 31, 2005 to conform to the presentation as of and for the three and nine months ended December 31, 2006.

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 $(467,033) and $(1,307,743), respectively, for the three and nine months ended December 31, 2006. The effect of the restatement on the earnings (loss) reported on the Company’s comparative statement of operations for the three and nine months ended December 31, 2005 was $17,707 and $66,419, respectively. Earnings (loss) per share was impacted by zero for the three and nine months ended December 31, 2005.

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

F-7

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 three and nine months ended December 31, 2005 was $30,515 and $91,546, respectively, and earnings per share was impacted by zero.

Diluted Earnings Per Share

The Company corrected its calculations of diluted earnings per share and the diluted weighted average number of common shares outstanding for the nine months ended December 31, 2005, to take into effect the as if converted method and the treasury stock method. The effect of the restatement of diluted earnings per share on the Company’s comparative statement of operations for the nine months ended December 31, 2005 was $(0.17).

NOTE 2 – PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements as of and for the three and nine months ended December 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., 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., Bob O’Leary Health Food Distributor Co., Inc. (“BOSS”), Dynamic Marketing I, Inc. (“DMI”) and DYHP Acquisitions, Inc. Significant intercompany balances and transactions have been eliminated in consolidation.

NOTE 3 – RELATED PARTY TRANSACTIONS

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.

As of December 31, 2006 and 2005, the Company’s investment in GeoPharma, Inc. (“GeoPharma”), consisting of 204,914 and 347,938 shares of its common stock, respectively, is included in marketable equity securities, net. 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. For the three and nine months ended December 31, 2006, purchases of products from subsidiaries of GeoPharma were $20,867 and $81,788, respectively, and sales to subsidiaries of GeoPharma were $5 and $65, respectively. For the three and nine months ended December 31, 2005, purchases of

F-8

products from subsidiaries of GeoPharma were $50,170 and $158,436, respectively, and sales to subsidiaries of GeoPharma were $60 and $31,025, respectively. As of December 31, 2006 and 2005, $26,688 and $52,311, respectively, was due to subsidiaries of GeoPharma and are included in obligations to affiliates. As of December 31, 2006 and 2005, $835 and $1,566, respectively, was due from GeoPharma and are included in due from affiliates.

Research and development is primarily contracted through Innovative Health Products, Inc. (“Innovative”), a wholly-owned subsidiary of GeoPharma, 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 March 29, 2005, the Company entered into a lease with GAM Realty, LLC, an affiliate of Gregg Madsen, the Company’s Vice President of Business Development, 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 – COMPREHENSIVE INCOME

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

The Company has elected to present the comprehensive income items within the shareholders’ equity section of the balance sheet in addition to presenting a condensed consolidated statement of changes in shareholders’ equity statement.

At December 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		831,951			1,355,467
Less gross unrealized loss		(20,267	)		—
Fair value	$	862,351		$	1,406,134

F-9

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 three and nine months ended December 31, 2006 and 2005, the Company had no realized losses. The change in marketable equity securities included in earnings for the three and nine months ended December 31, 2006 was zero and $572,096, respectively, of which zero and $572,096, respectively, of unrealized holding gains were reclassified from accumulated other comprehensive income into earnings. For the three and nine months ended December 31, 2005, the Company had no realized gains.

NOTE 5 – 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.

The Company owns 30%, or 300,000 shares of common stock of Tribeca Beverage Company (“Tribeca”), an affiliate of Jugal K. Taneja, Chairman of the Board of the Company and Mandeep K. Taneja, Chief Executive Officer and President of the Company. The investment was accounted for under the equity method until March 31, 2003, at which time, as a result of management’s analysis, it was determined that the investment was worthless and the Company recognized an impairment loss on the investment. Tribeca discontinued its operations as of December 31, 2006.

NOTE 6 – 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 combined principal amount that may be outstanding under the $2,000,000 minimum borrowing note and the $4,000,000 revolving note at any point in time cannot exceed $4,000,000.

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. 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 was permitted to bring the ratios into compliance within one year from the date of the note.

As of December 31, 2006 and 2005, the outstanding principal balance on the notes was $2,177,126 and $2,920,314, respectively.

F-10

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 8). 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 $1,468,473 was recognized to record the warrants and the bifurcated derivative instrument at their fair values (see Note 8).

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

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

Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the notes will be reduced accordingly. In connection with the September 12, 2005 stock issuance, the lender waived this provision. The conversion price of the secured convertible notes may be adjusted proportionately 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. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, this provision was modified from 4.99% to 9.99%. In addition, this restriction would not apply in the event there was an event of default or we sought to redeem the outstanding balance of the convertible debentures.

The warrants were exercisable until seven years from the date of the notes at a purchase price equal to $1.37 per share. The warrants were exercisable on a cashless basis. In the event that the warrants were exercised on a cashless basis, then the Company would not receive any

F-11

proceeds. In addition, the exercise price of the warrants would 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. In September 2005, we sold 150,000 restricted shares of our common stock at a price below market. In connection therewith, Laurus waived their anti-dilution provisions related to all convertible notes and warrants issued to Laurus. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, we issued 52,941 restricted shares of our common stock to Laurus, in exchange for cancellation of the 750,000 warrants.

The Company was 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 was 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 was 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 7). 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.

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;

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• In connection with the foregoing, the Company issued 150,000 restricted shares of our common stock to Laurus, for cancellation of the warrants issued to Laurus;

• In connection with the foregoing, the Company issued 275,000 restricted share of our common stock to Laurus, for postponement of the portion of principal payments in connection with the September 30, 2004 note.

The fair value of the 275,000 shares issued in connection with the April 28, 2006 Postponement and Amendment Agreement was $45,000, 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”.

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 was obligated to have such registration statement declared effective by September 30, 2006, but there were no stated penalties for failure to meet such deadline.

On July 3, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 10,221,275 shares of the Company’s common stock, including up to 2,194,690 shares of common stock underlying the March 2005 secured convertible notes, up to 7,326,585 shares of common stock underlying the September 2004 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. Such Registration Statement was subsequently withdrawn by the Company on October 4, 2006.

On October 4, 2006, the Company entered into an agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties (the “Amendment Agreement”). The Amendment Agreement (i) eliminated the obligation of the Company to register for resale the shares of common stock underlying the securities sold in September 2004, and (ii) removed Laurus’ right to waive 9.99% ownership limitations contained in their convertible debentures.

In connection with the Amendment Agreement, the Company also executed second amended and restated promissory notes in favor of Laurus. Pursuant to the Amendment Agreement, the Company agreed to file a registration statement by October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. The Company was obligated to have such registration statement declared effective by November 30, 2006, but there were no stated penalties for failure to meet such deadline. Laurus could declare the obligations in default and seek immediate repayment, but it has given no indication of doing so. If immediate repayment was required, we would not have sufficient funds and Laurus could take legal action to recover amounts due from our assets.

On October 20, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 2,761,335 shares of the Company’s common stock, including up to 2,061,335 shares of common stock underlying the March 2005 secured convertible notes,

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275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. On December 14, 2006, the Company filed Amendment #1 to this Registration Statement on Form SB-2. Such Registration Statement is not effective.

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.

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

	2006			2005
Principal balance of revolving note payable collateralized by all assets, interest payable at prime (8.25% at December 31, 2006 and 7.25% at December 31, 2005) plus 2% through March 29, 2008.	$	2,177,126		$	2,920,314
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 $1.13 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)		1,500,933			643,257
Total	$	1,678,059		$	1,563,571

(a) See Note 8 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.

NOTE 7 – 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

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convertible note in the principal amount of $6,000,000 and warrants to purchase 1,375,000 shares of Company common stock. Net proceeds from the offering were used to pay the purchase price for the acquisition of Bob O’Leary Health Food Distributor Co., Inc., effective on October 1, 2004.

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

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

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

The convertible note has a term of three years. The fixed conversion rate is equal to $.90 (103% of the average closing price for the ten days prior to the execution of the securities purchase agreement). Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the note will be reduced accordingly. In connection with the September 12, 2005 stock issuance, the lender waived this provision. The conversion price of the note may be adjusted proportionately 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.

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

As of December 31, 2006 and 2005, the outstanding principal balance on the convertible note was $3,912,500 and $4,500,000, respectively. As of December 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

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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. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, this provision was modified from 4.99% to 9.99%. In addition, this restriction would not apply in the event there was an event of default or we sought to redeem the outstanding balance of the convertible debentures.

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 were 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 were exercisable on a cashless basis. In the event that the warrants were exercised on a cashless basis, then the Company would not receive any proceeds. In addition, the exercise price of the warrants was to 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. In connection therewith, Laurus waived their anti-dilution provisions related to all convertible notes and warrants issued to Laurus. In September 2005, we sold 150,000 restricted shares of our common stock at a price below market. In connection therewith, Laurus waived their anti-dilution provisions related to all convertible notes and warrants issued to Laurus. In connection with the April 2006 Postponement and Amendment Agreement with Laurus, we issued 97,059 restricted shares of our common stock to Laurus, in exchange for cancellation of the 1,375,000 warrants.

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 8). 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 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 8).

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 is 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

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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.

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 150,000 restricted shares of our common stock to Laurus, for cancellation of the warrants issued to Laurus;

• In connection with the foregoing, the Company issued 275,000 restricted share of our common stock to Laurus, for postponement of the portion of principal payments in connection with the September 30, 2004 note.

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The fair value of the 275,000 shares issued in connection with the April 28, 2006 Postponement and Amendment Agreement was $45,000, 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”.

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 was obligated to have such registration statement declared effective by September 30, 2006, but there were no stated penalties for failure to meet such deadline.

On July 3, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 10,221,275 shares of the Company’s common stock, including up to 2,194,690 shares of common stock underlying the March 2005 secured convertible notes, up to 7,326,585 shares of common stock underlying the September 2004 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. Such Registration Statement was subsequently withdrawn by the Company on October 4, 2006.

On October 4, 2006, the Company entered into an agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties (the “Amendment Agreement”). The Amendment Agreement (i) eliminated the obligation of the Company to register for resale the shares of common stock underlying the securities sold in September 2004, and (ii) removed Laurus’ right to waive 9.99% ownership limitations contained in their convertible debentures.

In connection with the Amendment Agreement, the Company also executed second amended and restated promissory notes in favor of Laurus. Pursuant to the Amendment Agreement, the Company agreed to file a registration statement by October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. The Company was obligated to have such registration statement declared effective by November 30, 2006, but there were no stated penalties for failure to meet such deadline. Laurus could declare the obligations in default and seek immediate repayment, but it has given no indication of doing so. If immediate repayment was required, we would not have sufficient funds and Laurus could take legal action to recover amounts due from our assets.

On October 20, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 2,761,335 shares of the Company’s common stock, including up to 2,061,335 shares of common stock underlying the March 2005 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. On December 14, 2006, the Company filed Amendment #1 to this Registration Statement on Form SB-2. Such Registration Statement is not effective.

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

	2006			2005
Convertible note payable collateralized by all assets, due in monthly principal payments (see above), plus interest at prime (8.25% at December 31, 2006 and 7.25% at December 31, 2005) plus 2%, through September 2007.	$	3,912,500		$	4,500,000
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)		(6,000,000	)		(6,000,000	)
Plus amortization of discount recorded as derivative instrument interest expense using an effective interest rate of 300%. (a)		5,439,538			3,067,595
Less discount recorded for July 19, 2005 postponement agreement.		(189,750	)		(189,750	)
Less discount recorded for April 28, 2006 postponement agreement.		(82,500	)		—
Plus amortization of discount as interest expense, related to postponement agreements.		164,821			39,226
Note payable collateralized by certain equipment, due in monthly payments of approximately $1,662, including interest at 10%, through December 2007.		18,908			36,022
Note payable collateralized by a vehicle, due in monthly payments of $412, including interest at 4.02%, through January 2009.		—			13,954
Note payable collateralized by a vehicle, due in monthly payments of $666, including interest at 1.9%, through February 2010.		24,493			31,939
Capitalized lease obligation for certain equipment, due in monthly payments of $499, including interest at 11.33%, through July 2010.		17,225			21,020
Other		8,623			8,623
		3,313,858			1,528,629
Less current maturities		3,283,977			1,458,137
Total	$	29,881		$	70,492

(a) See Note 8 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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NOTE 8 – 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 6,455,928 and 7,219,422 shares, respectively, at December 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 6 and Note 7 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 December 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 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

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300% and 300%, respectively. Amortization of the discounts, which are included in derivative interest expense, amounted to $613,519 and $214,419, respectively, for the three months ended December 31, 2006 and $1,758,424 and $643,257, respectively, for the nine months ended December 31, 2006. Amortization of the discounts amounted to $613,519 and $214,419, respectively, for the three months ended December 31, 2005 and $1,840,557 and $643,257, respectively, for the nine months ended December 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, as of December 31, 2006 and 2005. Upon the future filing of a registration statement 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.

At December 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	Expiration Date	Instrument		Exercise Price Per Share		Value At Issue Date		Value At December 31, 2006		Value At December 31, 2005
9/30/2004	9/30/2007	Laurus $	6,000,000 term note	$	0.90	$	335,126	$	—	$	—
Fair value of freestanding interest rate index derivative instrument asset								$	—	$	—

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Derivative Financial Liabilities

Issue Date	Expiration Date	Instrument	Exercise Price Per Share		Value At Issue Date		Value At December 31, 2006		Value At December 31, 2005
9/30/2004	9/30/2007	1,375,000 warrants issued to Laurus	$	1.04	$	1,357,125	$	—	$	302,500
3/29/2005	3/29/2008	750,000 warrants issued to Laurus	$	1.37	$	937,500	$	—	$	180,000
Fair value of freestanding derivative instrument liabilities for warrants							$	—	$	482,500
Issue Date	Expiration Date	Instrument	Exercise Price Per Share		Value At Issue Date		Value At December 31, 2006		Value At December 31, 2005
9/30/2004	9/30/2007	Laurus $6,000,000 term note	$	0.90	$	6,579,999	$	130,418	$	1,200,001
3/29/2005	3/29/2008	Laurus $2,000,000 revolving term note	$	1.13	$	2,530,973	$	88,497	$	442,479
Fair value of bifurcated embedded derivative instrument liabilities associated with the above mentioned instruments							$	218,915	$	1,642,480
Issue Date	Expiration Date	Instrument	Exercise Price Per Share		Value At Issue Date		Value At December 31, 2006		Value At December 31, 2005
9/30/2004	9/30/2007	Laurus $6,000,000 term note	$	0.90	$	748,187	$	6,067	$	65,766
3/29/2005	3/29/2008	Laurus $2,000,000 revolving term note	$	1.13	$	273,968	$	5,706	$	36,260
Fair value of interest portion of bifurcated embedded derivative instrument liabilities associated with the above mentioned instruments							$	11,773	$	102,026
Total derivative financial instrument liabilities							$	230,688	$	2,227,006

On April 28, 2006, in connection with the Amendment and Postponement Agreement entered into with Laurus, the 2,125,000 common stock warrants issued to Laurus were cancelled (see Notes 6 and 7). On the date of cancellation, April 28, 2006, the fair value of freestanding derivative instrument liabilities for the warrants was as follows:

Issue Date	Expiration Date	Instrument	Exercise Price Per Share		Value At Issue Date		Value At April 28, 2006
9/30/2004	9/30/2007	1,375,000 warrants issued to Laurus	$	1.04	$	1,357,125	$	123,750
3/29/2005	3/29/2008	750,000 warrants issued to Laurus	$	1.37	$	937,500	$	75,000
Fair value of freestanding derivative instrument liabilities for warrants							$	198,750

F-22

NOTE 9 – LETTER OF CREDIT

On June 9, 2006, the Company issued a Standby Letter Of Credit and Security Agreement to First Community Bank Of America, in the amount of $500,000 in favor of Iovate Health Sciences USA, Inc. The letter of credit is personally guaranteed by Mandeep K. Taneja, the Company’s Chief Executive Officer. In addition, Jugal K. Taneja, Chairman of the Board of the Company, pledged additional collateral in the form of a $300,000 certificate of deposit.

NOTE 10 – STOCK WARRANTS

At December 31, 2006 and 2005, the Company had outstanding warrants to purchase 500,000 and 2,625,000 shares of the Company’s common stock, respectively.

In June 2004, pursuant to a Financial Consulting Agreement, the Company issued 300,000 3-year life warrants to purchase common stock, for consulting services. 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 in June 2007.

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. For the 200,000 warrants, the exercise prices range from $1.25 to $1.50 per share, with 25% vesting on October 1, 2004 and then subsequent vesting is at 25% per quarter, expiring on October 1, 2008.

For the warrants issued in connection with the financial consulting agreements, the balance of deferred consulting fees as of December 31, 2006 and 2005 was zero and $73,125, respectively. The initial valuation of these warrants was $465,000. For the three and nine months ended December 31, 2006, the Company included consulting expense in the amount of zero and $48,750, respectively, in selling, general and administrative expenses in the statements of operations, for these warrants. For the three and nine months ended December 31, 2005, the Company included consulting expense in the amount of $24,375 and $118,125, respectively, in selling, general and administrative expenses in the statements of operations, for these warrants.

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. For the 1,375,000 warrants, the exercise price was $1.04 per share, subject to certain adjustments pursuant to the September 30, 2004 Securities Purchase Agreement with Laurus, and they were to expire in September 2009. 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. For the 750,000 warrants, the exercise price was $1.37 per share, subject to certain adjustments pursuant to the March 29, 2005 Security Agreement with Laurus, and they were to expire in March 2012. On April 28, 2006, pursuant to an Amendment and Postponement Agreement with Laurus, the 2,125,000 warrants to purchase common stock were cancelled in exchange for 150,000 restricted shares of the Company’s common stock. For the three and nine months ended December 31, 2006, the Company included a gain from debt extinguishment of zero and $153,750, respectively, for the cancellation of these warrants. The Company had been accounting for these warrants as derivative financial instruments from their dates of issuance until April 28, 2006, their date of cancellation (See Note 8).

F-23

NOTE 11 – STOCK OPTIONS

On April 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (FAS 123(R)), that address the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The statement eliminated the ability to account for share-based compensation transactions, as we formerly did, using the intrinsic value method as prescribed by APB Opinion No. 25, and generally requires that such transactions be accounted for using a fair-value-based method and recognized as expenses in our consolidated statement of operations.

We adopted FAS 123(R) using the modified prospective method which requires the application of the accounting standard as of April 1, 2006. Our unaudited condensed consolidated financial statements as of and for the three and nine months ended December 31, 2006 reflect the impact of adopting FAS 123(R). In accordance with the modified prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of FAS 123(R).

Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the unaudited condensed consolidated statement of operations during the three and nine months ended December 31, 2006 included compensation expense for the share-based payment awards granted prior to March 31, 2006 and thereafter, based on the grant date fair value estimated in accordance with FAS 123(R). As share-based compensation expense recognized in the statement of operations is based on awards ultimately expected to vest, it will be reduced for estimated forfeitures. FAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

As a result of adopting FAS 123(R), $106,471 and $297,303, respectively, of share-based compensation was charged against income for the three and nine months ended December 31, 2006. For the three and nine months ended December 31, 2005, the following table illustrates the effect on net income and earnings per share had we applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Share-Based Compensation,” to share-based employee compensation.

	Three Months Ended December 31, 2005			Nine Months Ended December 31, 2005
Net income (loss):
As reported	$	(918,973	)	$	6,260,183
Pro forma adjustment for compensation, net of tax		(121,798	)		(365,252	)
Pro forma	$	(1,040,771	)	$	5,894,931
Basic income (loss) per share:
As reported	$	(0.06	)	$	0.44
Pro forma	$	(0.07	)	$	0.41

F-24

	Nine Months Ended December 31, 2005			Three Months Ended December 31, 2005
Diluted income (loss) per share:
As reported	$	(0.06	)	$	0.07
Pro forma	$	(0.07	)	$	0.06

On July 17, 2006, the Company granted options to purchase 650,000 shares of the Company’s common stock to employees, in accordance with the Company’s 1999 Stock Option Plan. The exercise price of the options is $0.37 (100% of the fair value of the Company’s common stock on July 16, 2006). The options vest approximately equally over a three year period, commencing July 17, 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 114.74% and a risk free interest rate of 5.07%.

On July 17, 2006, the Company granted options to purchase 250,000 shares of the Company’s common stock to Jugal Taneja, the Company’s Chairman and a principal shareholder of the Company, and options to purchase 250,000 shares of the Company’s common stock to Mandeep Taneja, the Company’s Chief Executive Officer and a principal shareholder of the Company, in accordance with the Company’s 1999 Stock Option Plan. The exercise price of the options is $0.407 (110% of the fair value of the Company’s common stock on July 16, 2006). The options vest approximately equally over a three year period, commencing July 17, 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 114.74% and a risk free interest rate of 3.56%.

On July 24, 2006, the Compensation Committee of the Company’s Board of Directors granted options to purchase 500,000 shares of the Company’s common stock to Mandeep Taneja, as compensation for Mr. Taneja’s personal guarantee to First Community Bank, on July 24, 2006, of the Standby Letter Of Credit and Security Agreement issued by the Company to First Community Bank. The exercise price of the options is $0.44 (110% of the fair value of the Company’s common stock on July 23, 2006). The options vest approximately equally over a three year period, commencing July 24, 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 114.74% and a risk free interest rate of 3.69%.

The fair value of each option granted during the nine months ended December 31, 2006 was estimated on the grant date using the Black-Scholes option pricing model, as indicated above, with the following weighted average assumptions:

Risk-free interest rate	3.56% - 5.07	%
Dividend yield	—
Volatility	114.74	%
Average expected term	7 years

F-25

The following summarizes information about the aggregate stock option activity for the nine months ended December 31, 2006:

	Weighted Average Number of Shares		Exercise Price
Outstanding, April 1, 2006	1,960,000		$	.82
Granted	1,650,000			.40
Exercised	—			—
Expired and forfeited	(105,000	)		—
Outstanding, December 31, 2006	3,505,000		$	.64
Options vested, December 31, 2006	1,353,330		$	.65
Weighted average fair value of options granted during the nine months ended December 31, 2006			$	.33

As of December 31, 2006, there were 3,505,000 options outstanding. Options outstanding and exercisable under the plan as of December 31, 2006 were:

	Outstanding				Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contracted Life (yrs)	Number of Options	Weighted Average Exercise Price
$ 0.16250 - $0.17875	700,000	$	0.169	3.83	700,000	$	0.169
$ 1.00000 - $1.55000	1,255,000	$	1.19	5.63	653,330	$	1.16
$ 0.37 - $0.44	1,550,000	$	0.40	6.60	—	$	0.00

On December 1, 2005 the Company granted options to purchase 2,500 shares 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%.

The weighted average fair value of the 2,500 options granted during the nine months ended December 31, 2005 was $0.40. The fair value of the options granted during the nine months ended December 31, 2005 was estimated on the grant date using the Black-Scholes option pricing model, as indicated above, with the following weighted average assumptions:

Risk-free interest rate	4.47	%
Dividend yield	—
Volatility	110.35	%
Average expected term	7 years

F-26

NOTE 12 – SHAREHOLDERS’ EQUITY

On April 22, 2005, the Company filed a Registration Statement on Form S-2 for the registration of up to 2,944,690 shares of the Company’s common stock, including up to 2,194,690 shares of common stock underlying the March 2005 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. 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 its 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.

On April 28, 2006, the Company entered into a Postponement and Amendment Agreement with Laurus Master Fund, Ltd., pursuant to which the Company modified the September 30, 2004 and the March 29, 2005 earlier agreements among the parties. Pursuant to the agreement, the principal portion of the monthly amount that is due under the September 30, 2004 convertible note on the first business day of each of the months from May 2006 through December 2006, in the amount of $187,500 per month, shall be reduced by $137,500 per month. and, in consideration therefore, the Company issued to Laurus 275,000 shares of restricted common stock of the Company. In addition, Laurus agreed to the cancellation of all of the common stock purchase warrants issued to Laurus in connection with the September 30, 2004 and March 29, 2005 agreements and, in consideration therefore, the Company issued to Laurus 150,000 shares of restricted common stock of the Company. 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.

F-27

On June 7, 2006, the Company issued 166,405 restricted shares of its common stock to Dynamic Health Products, Inc. 401(k) Plan for the Company’s contribution to the employees 401(k) benefit plan.

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 was obligated to have such registration statement declared effective by September 30, 2006, but there were no stated penalties for failure to meet such deadline.

On July 3, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 10,221,275 shares of the Company’s common stock, including up to 2,194,690 shares of common stock underlying the March 2005 secured convertible notes, up to 7,326,585 shares of common stock underlying the September 2004 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. Such Registration Statement was subsequently withdrawn by the Company on October 4, 2006.

On October 4, 2006, the Company entered into an agreement with Laurus pursuant to which the Company modified the earlier agreements among the parties (the “Amendment Agreement”). The Amendment Agreement (i) eliminated the obligation of the Company to register for resale the shares of common stock underlying the securities sold in September 2004, and (ii) removed Laurus’ right to waive 9.99% ownership limitations contained in their convertible debentures.

In connection with the Amendment Agreement, the Company also executed second amended and restated promissory notes in favor of Laurus. Pursuant to the Amendment Agreement, the Company agreed to file a registration statement by October 20, 2006, covering the resale of certain securities issued or issuable to Laurus. The Company was obligated to have such registration statement declared effective by November 30, 2006, but there were no stated penalties for failure to meet such deadline. Laurus could declare the obligations in default and seek immediate repayment, but it has given no indication of doing so. If immediate repayment was required, we would not have sufficient funds and Laurus could take legal action to recover amounts due from our assets.

On October 20, 2006, the Company filed a Registration Statement on Form SB-2 for the registration of up to 2,761,335 shares of the Company’s common stock, including up to 2,061,335 shares of common stock underlying the March 2005 secured convertible notes, 275,000 shares of common stock underlying the July 2005 postponement agreement, and 425,000 shares of common stock underlying the April 2006 amendment and postponement agreement. On December 14, 2006, the Company filed Amendment #1 to this Registration Statement on Form SB-2. Such Registration Statement is not effective.

NOTE 13 – INCOME TAXES

The Company utilizes the guidance provided by Statement of Financial Accounting Standards No. 109 (“SFAS 109”), Accounting for Income Taxes. Under SFAS 109, the Company uses the asset and liability method which recognizes the amount of current and

F-28

deferred taxes payable or refundable based on transactions recorded as of and for the periods presented in the consolidated financial statements as determined by the enacted tax laws and tax rates.

As of December 31, 2006 and 2005, the Company had a current income tax liability of zero, an accrued income tax liability of zero and $5,009, respectively, and a net deferred income tax liability $39,554 and $200,475, 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.

NOTE 14 – EARNINGS PER SHARE

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

	Three Months Ended December 31, 2006			Three Months Ended December 31, 2005			Nine Months Ended December 31, 2006			NineMonths Ended December 31, 2005
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Numerator:
Net income (loss)	$	(938,881	)	$	(918,973	)	$	(1,632,626	)	$	6,260,183
Less preferred stock Dividends		—			—			—			—
Net income (loss) available to common shareholders		(938,881	)		(918,973	)		(1,632,626	)		6,260,183
Less derivative instrument income and interest expense, net, from convertible notes		—			—			—			4,694,415
Net income (loss) available to common shareholders after assumed conversion of dilutive securities	$	(938,881	)	$	(918,973	)	$	(1,632,626	)	$	1,565,768
Denominator:
Weighted average basic shares outstanding		15,055,035			14,463,630			14,972,765			14,257,416
Stock options		—			—			—			700,000
Warrants		—			—			—			—
Convertible note		—			—			—			6,769,912
Weighted average fully diluted shares outstanding		15,055,035			14,463,630			14,972,765			21,727,328
Net earnings (loss) per common share –
Basic	$	(0.06	)	$	(0.06	)	$	(0.11	)	$	0.44
Diluted	$	(0.06	)	$	(0.06	)	$	(0.11	)	$	0.07

F-29

For the three months ended December 31, 2006, options on 3,505,000 shares of common stock, warrants on 500,000 shares of common stock and 6,117,135 shares issuable upon conversion of convertible notes were not included in the computation of diluted earnings (loss) per share because their effects were anti-dilutive. For the nine months ended December 31, 2006, options on 2,889,182 shares of common stock, warrants on 500,000 shares of common stock and 6,117,135 shares issuable upon conversion of convertible notes were not included in the computation of diluted earnings (loss) per share because their effects were anti-dilutive. For the three months ended December 31, 2005, options on 1,955,842 shares of common stock, warrants on 2,625,000 shares of common stock and 6,769,912 shares issuable upon conversion of convertible notes were not included in the computation of diluted earnings (loss) per share because their effects were anti-dilutive. For the nine months ended December 31, 2005, options on 1,255,282 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.

NOTE 15 – 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 three and nine months ended December 31, 2006, DPS Nutrition Inc. accounted for 9.9% and 10.0%, respectively, in relation to total consolidated revenues. For the three and nine months ended December 31, 2005 DPS Nutrition Inc. accounted for 12.2% and 11.0%, 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 December 31, 2006 and 2005, the Company maintained cash balances in excess of the Federal Deposit Insurance Company’s $100,000 insurance limit.

F-30

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, 2006 and 2005 and for the years then ended.

/s/ BRIMMER, BUREK & KEELAN LLP

Brimmer, Burek & Keelan LLP

Tampa, Florida

June 9, 2006, except Note 20 which is as of December 14, 2006

F-31

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-32

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED MARCH 31,

	2006			2005
	(Restated)			(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	$	0.08		$	(0.34	)
Diluted weighted average number of common shares outstanding		21,481,634			12,991,512

See accompanying notes to consolidated financial statements.

F-33

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-34

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

F-35

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.

F-36

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).

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.

F-37

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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.

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, and were $1,933,674 and $516,469, for the years ended March 31, 2006 and 2005, respectively.

F-38

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.

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.

F-39

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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 as of the beginning of the first interim or annual reporting period that begins after December 15, 2005, and, therefore, became effective for the Company beginning April 1, 2006. 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.

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.

F-40

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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.

Diluted Earnings Per Share

The Company corrected its calculations of diluted earnings per share and the diluted weighted average number of common shares outstanding for the year ended March 31, 2006, to take into effect the as if converted method and the treasury stock method. The effect of the restatement of diluted earnings per share on the Company’s comparative statement of operations for the year ended March 31, 2006 was $(0.32).

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

F-41

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

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.

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

F-42

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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	)

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.

F-43

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 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 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 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.

F-44

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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.

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

F-45

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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).

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.

F-46

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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.

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

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

F-47

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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.

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 combined principal amount that may be outstanding under the $2,000,000 minimum borrowing note and the $4,000,000 revolving note at any point in time cannot exceed $4,000.000.

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.

F-48

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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 $1,468,473 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.

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. In connection with the September 12, 2005 stock issuance, the lender waived this provision. 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.

F-49

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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.

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.

F-50

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

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.

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%.

F-51

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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). Upon an issuance of shares of common stock below the fixed conversion price, the fixed conversion price of the note will be reduced accordingly. In connection with the September 12, 2005 stock issuance, the lender waived this provision. The conversion price of the note 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.

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 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).

F-52

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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.

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.

F-53

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.

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

F-54

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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 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.

F-55

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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 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.

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	Expiration Date	Instrument	Exercise Price Per Share		Value At Issue Date		Value At March 31, 2006		Value At March 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

F-56

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

Derivative Financial Liabilities

Issue Date	Expiration Date	Instrument	Exercise Price Per Share		Value At Issue Date		Value At March 31, 2006		Value At March 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	Expiration Date	Instrument	Exercise Price Per Share		Value At Issue Date		Value At March 31, 2006		Value At March 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	Expiration Date	Instrument	Exercise Price Per Share		Value At Issue Date		Value At March 31, 2006		Value At March 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.

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

F-57

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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 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.

F-58

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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. 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

F-59

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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

	2006			2005
	Number of Shares	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
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	Weighted Average Exercise Price		Weighted Average Remaining Contracted Life (yrs)	Number of Options	Weighted Average Exercise Price
$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 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%.

F-60

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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	$	0.08	$	(0.34	)
Pro forma	$	0.05	$	(0.35	)

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.

F-61

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

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

NOTE 20 - EARNINGS (LOSS) PER SHARE

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

	2006		2005
	(Restated)
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	)
Less derivative instrument income and interest expense, net, from convertible notes		4,246,950		—
Net income (loss) available to common shareholders after assumed conversion of dilutive securities	$	1,656,960	$	(4,377,545	)
Denominator:
Weighted average shares outstanding		14,308,264		12,991,512
Effect of dilutive securities:
Convertible notes		6,769,912		—
Stock options		403,458		—
Weighted average fully diluted shares outstanding		21,481,634		12,991,512
Net earnings (loss) per common share –
Basic	$	0.41	$	(0.34	)
Diluted	$	0.08	$	(0.34	)

F-62

DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

For the year ended March 31, 2006, 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. See Note 1 for further information regarding the restatement.

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.

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.

F-63

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholder

Dynamic Marketing, Inc.

We have audited the accompanying balance sheets of Dynamic Marketing, Inc. as of December 31, 2004, 2003 and 2002 and the related statements of operations, changes in shareholder’s equity, and cash flows for the years ended December 31, 2004, 2003 and 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

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 over financial reporting. Accordingly, we express no such opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dynamic Marketing, Inc. and as of December 31, 2004, 2003 and 2002 and the results of operations and cash flows for the years ended December 31, 2004, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ BRIMMER, BUREK & KEELAN LLP

Brimmer, Burek & Keelan LLP

Tampa, Florida

March 18, 2005

F-64

DYNAMIC MARKETING, INC.

BALANCE SHEETS

AS OF

	DECEMBER 31, 2004			DECEMBER 31, 2003		DECEMBER 31, 2002
ASSETS
CURRENT ASSETS
Cash	$	28,044		$	53,385	$	32,858
Accounts Receivable, Net of an Allowance for Doubtful Accounts of $128,113 in 2004 and $100,000 in 2003 & 2002		972,368			970,368		921,897
Inventory		1,299,616			1,416,120		996,190
Loan receivable - related parties		—			53,624		41,185
Prepaid Expenses and Other Current Assets		93,964			51,370		58,203
Total Current Assets		2,393,992			2,544,867		2,050,333
PROPERTY AND EQUIPMENT – NET		447,414			491,878		615,931
OTHER ASSETS
Financing Costs, Net of Accumulated Amortization of $28,376 in 2004; $5,675 in 2003; and $26,295 in 2002		44,939			67,640		18,071
Intangibles (net)		158,372			158,372		158,372
Total Other Assets		203,311			226,012		176,443
Total Assets		3,044,717			3,262,757		2,842,707
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES
Cash Overdraft		363,140			128,984		27,890
Accounts Payable		1,093,337			1,033,724		1,020,110
Accrued Expenses		160,383			93,650		99,278
Lines of Credit		1,229,648			1,251,255		919,614
Obligations Under Capital Leases – Current		2,139			6,011		—
Notes Payable – Current		148,905			182,148		568,981
Total Current Liabilities		2,997,553			2,695,773		2,635,873
LONG-TERM LIABILITIES
Obligations Under Capital Leases		—			2,132		—
Notes Payable		185,630			390,739		238,640
Total Long-Term Liabilities		185,630			392,871		238,640
Total Liabilities		3,183,183			3,088,643		2,874,513
Contingency		—			—		—
STOCKHOLDER’S EQUITY (DEFICIT)
Capital Stock - Common, No Par Value; 1,000 Shares Authorized; 100 Shares Issued and Outstanding		1,000			1,000		1,000
Retained Earnings		(139,466	)		173,114		(32,806	)
Total Stockholder’s Equity (Deficit)		(138,466	)		174,114		(31,806	)
Total Liabilities and Stockholder’s Equity		3,044,717		$	3,262,757		2,842,707

Please read accompanying notes

F-65

DYNAMIC MARKETING, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED

	DECEMBER 31, 2004			DECEMBER 31, 2003			DECEMBER 31, 2002
SALES	$	13,566,666		$	16,057,461		$	15,050,116
COST OF SALES		10,679,325			12,651,748			11,774,655
GROSS PROFIT		2,887,341			3,405,713			3,275,461
OPERATING EXPENSES
Payroll and fringe benefits		1,323,635			1,292,253			1,266,337
Rent expense related party		114,000			114,000			114,000
Rent expense		96,486			93,130			99,105
Depreciation expense		144,133			162,483			173,360
Bad debt expense		51,541			87,260			20,188
Other financing costs		93,021			94,203			38,845
Selling and Marketing Expenses		202,904			157,981			177,972
Delivery and Warehouse Expenses		709,545			706,183			642,776
Administrative and General Expenses		514,100			507,697			449,614
Total Operating Expenses		3,249,365			3,215,190			2,982,197
Net Income (Loss) From Operations		(362,024	)		190,523			293,264
OTHER (INCOME) EXPENSES
Loss on Disposal of Property and Equipment		4,687			4,622			16,300
Interest Expense		111,758			135,212			178,466
Other income - marketing		(222,640	)		(155,231	)		—
Total Other Expense		(106,195	)		(15,397	)		194,766
NET INCOME (LOSS)		(255,829	)		205,920			98,498
Basic and diluted income (loss) per share	$	(2,558	)	$	2,059		$	985
Basic and diluted weighted average number of common shares outstanding		100			100			100

Please read accompanying notes

F-66

DYNAMIC MARKETING, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

	Common stock			Paid-in Capital		Accumulated earnings (deficit)			Total shareholders’ equity (deficit)
	Shares	Amount
Balance at December 31, 2001	100	$	1,000	$	—	$	(131,304	)	$	(130,304	)
Net income (loss)							98,498			98,498
Balance at December 31, 2002	100	$	1,000	$	—	$	(32,806	)	$	(31,806	)
Net income (loss)							205,920			205,920
Balance at December 31, 2003	100	$	1,000	$	—	$	173,114		$	174,114
Shareholder distributions							(56,751	)		(56,751	)
Net income (loss)							(255,829	)		(255,829	)
Balance at December 31, 2004	100	$	1,000	$	—	$	(139,466	)	$	(138,466	)

Please read accompanying notes

F-67

DYNAMIC MARKETING, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, 2002

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

During 2004, amounts due from a related party, with common ownership, and from the stockholder were distributed to the shareholder totaling $56,751.

During 2003, the Company refinanced debt as follows:

New debt	$	1,850,936
Payoff of existing debt		(1,814,816	)
Payment of accrued expenses		(22,744	)
Payments of financing costs		(73,315	)
Payments of related party financing costs		(10,897	)
Net cash provided by Dynamic Marketing, Inc. at closing		(70,836	)

During 2003, the Company financed a vehicle and office equipment through a long term note and a capital lease totaling $34,342.

Please read accompanying notes

F-68

DYNAMIC MARKETING, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED

	DECEMBER 31, 2004			DECEMBER 31, 2003			DECEMBER 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	(255,829	)	$	205,920		$	98,498
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation		144,133			162,483			173,360
Bad Debts		51,541			87,261			20,188
Amortization		22,701			33,746			21,276
Loss on Disposal of Property and Equipment		4,687			4,623			1,076
(Increase) Decrease in Operating Assets:
Accounts Receivable		(53,542	)		(135,728	)		(242,681	)
Inventory		97,841			(355,155	)		199,249
Other Current Assets		3,738			(67,948	)		(4,743	)
Increase (Decrease) in Operating Liabilities:
Accounts Payable		26,347			(21,670	)		222,954
Increase (Decrease) in Cash Overdraft		234,156			101,094			(73,555	)
Accrued Expenses and Other Current Liabilities		10,781			52,407			(23,447	)
Net Cash Provided (Used) by Operating Activities		286,554			67,033			392,175
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment		(51,631	)		(16,214	)		(39,985	)
Proceeds From Sale of Equipment		8,800			7,500			18,000
(Increase) Decrease in Due From Affiliate		0			0			16,838
(Increase) Decrease in Due From Officer		(3,103	)		(1,542	)		20,100
Net Cash Provided (Used) by Investing Activities		(45,934	)		(10,256	)		14,953
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Lines of Credit		(21,607	)		147,707			(194,316	)
Payments of Notes Payable		(238,350	)		(109,241	)		(168,415	)
Funds Disbursed Upon Refinancing		0			(70,836	)		0
Payments of Obligation Under Capital Lease		(6,003	)		(3,881	)		(18,502	)
Net Cash Provided (Used) by Financing Activities		(265,960	)		(36,251	)		(381,233	)
INCREASE (DECREASE) IN CASH		(25,340	)		20,526			25,895
CASH - BEGINNING OF YEAR		53,384			32,858			6,963
CASH - END OF YEAR	$	28,044		$	53,384		$	32,858

Please read accompanying notes

F-69

DYNAMIC MARKETING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Dynamic Marketing, Inc. a Rhode Island Corporation, is primarily engaged in the marketing and distribution of food supplements, drinks, clothing and accessories to fitness and health centers, and retail outlets throughout the United States. The Company has a distribution center in Rhode Island and one in Nevada.

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 disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE

The Company carries its accounts receivable at cost less an allowance for doubtful accounts of $128,113 and $100,000 in 2004, 2003 and 2002, respectively. On a periodic basis, the Company evaluates its accounts receivable and adjusts the allowance for doubtful accounts based on current credit conditions. Accounts are written off based on management’s evaluation of the collectibility of each account resulting from collection efforts.

INVENTORIES

Inventories consist of food and drink supplements and are stated at the lower of cost or market. Cost is determined on the first-in, first-out method.

PROPERTY AND EQUIPMENT AND DEPRECIATION

Property and equipment are stated at cost, except that property held under capital leases is recorded at the lower of the present value of future minimum lease payments or the fair value of the property at the beginning of the lease term. Depreciation is calculated on straight-line and accelerated methods over the estimated useful lives of the assets ranging from five to forty years.

GOODWILL

Purchased goodwill in the amount of $170,500 was being amortized over 15 years until December 31, 2001. Accumulated amortization at December 31, 2001 was $26,708. Effective January 1, 2002, the Company ceased amortization of goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. The Company assesses goodwill for impairment annually. No impairment of intangible assets was determined to exist as of December 31, 2004, 2003 and 2002.

REVENUE RECOGNITION

The Company recognizes revenue when the merchandise is shipped to the customer, which is when title and loss has passed to the customer and payment is reasonably assured.

ADVERTISING COSTS

The Company expenses advertising costs as they are incurred.

F-70

DYNAMIC MARKETING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SHIPPING COSTS

The Company expenses shipping costs as they are incurred.

DEFERRED FINANCING COSTS

Deferred financing costs relate to capitalized financing costs that are being amortized using the straight line method over the lives of the related loans. Amortization expense totaled $22,701, $23,750 and $21,276 for the years ended December 31, 2004, 2003 and 2002, respectively.

INCOME TAXES

Dynamic Marketing, Inc. has elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code effective January 1, 1999. Under these provisions, Dynamic Marketing, Inc. is not required to pay federal and state corporate income taxes on its taxable income. Instead, the stockholder is liable for individual federal and state income taxes on the Corporation’s taxable income.

GOING CONCERN

The accompanying financial statements have been prepared assuming the Company will continue as a going concern for a reasonable period, not to exceed one year. As reflected in the financial statements, the Company has negative working capital for the years ended December 31, 2004, 2003 and 2002 and a loss from operations for 2004. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company has adequate financing in place and subsequent to December 31, 2004, the Company entered into an initial agreement for the sale of the Company. The resulting sale, if completed, together with existing financing arrangements, are expected to provide funding for the continued operations of the Company.

NOTE 2 - PROPERTY AND EQUIPMENT

The following is a summary of property and equipment—at cost, less accumulated depreciation at December 31:

	2004		2003		2002
Equipment	$	662,926	$	656,285	$	709,317
Office Furniture and Fixtures		69,031		69,031		69,031
Motor Vehicles		137,427		237,945		275,857
Merchandisers		363,444		266,469		286,470
Leasehold improvements		14,038		14,038		14,038
Property Held Under Capital Leases		12,023		12,023		—
		1,258,889		1,255,791		1,334,713
Less: Accumulated Depreciation		811,475		763,913		718,782
	$	447,414	$	491,878	$	615,931

Depreciation expense charged to operations was $144,133, $162,483 and $173,360 for the years ended December 31, 2004, 2003 and 2002 respectively.

F-71

DYNAMIC MARKETING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003 AND 2002

NOTE 3 - LINE OF CREDIT

During 2003, the Company secured a revolving $3,000,000 line of credit bearing interest at the bank’s prime rate plus 1%. Interest is payable monthly. In addition to monthly interest payments, the Company is also subject to other fees which include an unused line fee equal to .5% of the average unused balance of the prior month paid monthly, monthly collateral fees of $1,000, monthly cash management fees and an annual facility fee which effectively assures that minimum yearly interest and fees paid on the line of credit will equal $130,000. The outstanding balance on the line cannot exceed 80% of eligible receivables plus the lesser of 85% of net orderly liquidating value of inventory or $1,400,000, minus $50,000. The remaining amount available to be drawn under this limitation was $116,810 at December 31, 2004. The note is secured by a first security interest in all assets except machinery, equipment and real estate, a second security interest in machinery and equipment, and is guaranteed by the stockholder and a related party. The note also contains various covenants and ratio requirements including a minimum net worth ratio and a fixed charge coverage ratio. The line of credit expires in September, 2006.

During the year ended December 31, 2004, the Company was in default of two of the covenants. The bank issued the Company a reservations of rights letter, forbearing their right to remedy as of December 31, 2004. As a result, the bank did not execute on their rights under the terms of the default, but reserved the option to so at their discretion.

During the year ended December 31, 2002, the Company had a $1,500,000 line of credit, due on demand, which bore interest at the bank’s prime rate plus 1.25%. Interest was payable monthly. Additional interest at .5% of the average unused credit line during the prior month was also payable monthly. The outstanding balance of the line cannot exceed 80% of eligible accounts receivable plus the lessor of (1) 50% of eligible inventory or (2) $900,000 minus $100,000. The remaining amount available to be drawn under this limitation was approximately $140,000 at December 31, 2002. The note was secured by a first security interest in substantially all corporate assets and guaranteed by the shareholder and a related party. The note also contains various covenants and ratio requirements including a minimum liquidity ratio, a minimum tangible net worth ratio, a minimum debt service ratio and a minimum earnings before interest and taxes, plus depreciation and amortization (EBITDA) ratio. Final payment of principle and interest was due on June 30, 2003.

NOTE 4 - NOTES PAYABLE

The following is a summary of the notes payable at December 31:

	2004		2003		2002
Note payable to the Business Development Company of Rhode Island; secured by a third security interest in certain business assets; fourth position mortgage on real estate owned by the stockholder and personally guaranteed by the stockholder, payable in monthly installments of $5,500, including interest at 11.25%; final payment due October, 2007	$	48,859	$	152,981	$	—
Note payable to finance company; secured by a vehicle; payable in monthly installments of $730, including interest at 7.49%; final payment made December, 2004		—		8,401		16,210

F-72

DYNAMIC MARKETING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003 AND 2002

NOTE 4 - NOTES PAYABLE (CONTINUED)

Note payable to finance company; secured by a certain vehicle; payable in monthly installments of $412, including interest at 4.3%; final payment due December 2008	$	18,245	$	22,319	$	—
Note payable to finance company; 75% of balance guaranteed by Small Business Administration (SBA), first security interest in certain business assets; second security interest in inventory and accounts receivable; third position mortgage on real estate owned by a related party and guaranteed by the stockholder, payable in monthly installments of $5,000 plus interest at the prime lending rate plus 1.75%; final payment due September, 2008		231,310		290,284		—
Note payable to Rhode Island Economic Development Corporation; secured by a fourth security interest in all corporate assets and guaranteed by the stockholder, payable in monthly installments of $5,373, including interest at 5.25%; final payment due August, 2005		36,121		98,900		149,932
Note payable to finance company; secured by vehicle; payable in monthly installments of $781 including interest at 9%; final payment due June, 2003		—		—		5,241
Note payable to the City of Cranston; secured by a third position mortgage on real estate owned by a related party and guaranteed by the stockholder, payable in monthly payments of $821, including interest at 7.75%; final payment due March, 2019		—		—		90,889
Note payable to the Business Development Company of Rhode Island; secured by a third security interest in business assets; fourth position mortgage on real estate owned by a related party and guaranteed by the stockholder, payable in monthly installments of $4,386 plus interest at 15%; final payment due March, 2004		—		—		70,174
Note payable to bank; 75% of balance guaranteed by Small Business Administration (SBA), second security interest in equipment, inventory and accounts receivable; and guaranteed by the stockholder and a related party; payable in monthly installments of $7,523; including interest at 10.25%; refinanced in 2003		—		—		475,175
		334,535		572,885		807,621
Less: Current Portion		122,877		182,147		568,981
Long-Term Portion	$	211,658	$	390,738	$	238,640

F-73

DYNAMIC MARKETING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003 AND 2002

NOTE 4 - NOTES PAYABLE (CONTINUED)

During 2004, 2003 and 2002 the Company incurred interest costs totaling $111,758, $135,215 and $178,466 respectively. Interest paid totaled $106,989, $136,892 and $190,354 during the years ended December 31, 2004, 2003 and 2002 respectively.

The following are maturities of notes payable for each of the next five years:

December 31,
2005	$	85,533
2006		65,194
2007		69,605
2008		53,629
2009		411
	$	74,372

The SBA loan and the Business Development Company loan contain various covenants and ratio requirements including a fixed charge ratio, a minimum net worth requirement and maximum capital expenditure requirements.

NOTE 5 - OPERATING LEASES

The Company leases warehouse and office space from a related party under a non-cancelable operating lease expiring in 2009, with automatic five year renewals through 2018 (see Note 7). Rental expense under this non-cancelable operating lease totaled $114,000 for each year ended December 31, 2004, 2003 and 2002.

In addition, the Company has a non-cancelable operating lease for warehouse space in Nevada which expires in 2006. In accordance with the terms of the lease, the Company is required to pay monthly payments of $5,670 plus utilities and its share of common area maintenance charges on the property. The monthly rental charge will increase 3% each year. Rental expense under this non-cancelable operating lease totaled $96,485, $93,130 and $99,105 during the years ended December 31, 2004, 2003 and 2002 respectively.

During the year ended December 31, 2002, the Company also had an operating lease for warehouse space in California. The three year lease expired in September 2003. The monthly rental payments increased annually from $3,844 for October 1, 2000 – September 30, 2001, to $3,940 for the same period ended 2002 and to $4,039 until the expiration of the lease. In March, 2002, the Company and lessor signed a termination of lease agreement. The Company was relieved of any unexpired lease liability.

The Company also leases certain delivery vehicles under non-cancelable leases that expire in various years through 2008. Rental expense under these non-cancelable operating leases totaled $75,195, $80,139 and $80,746 for the years ended December 31, 2004, 2003 and 2002 respectively.

F-74

DYNAMIC MARKETING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003 AND 2002

NOTE 5 - OPERATING LEASES (CONTINUED)

The following is a schedule by years of future minimum lease payments under these operating leases:

December 31,
2005	$	233,877
2006		172,562
2007		143,430
2008		105,111
2009		6,126
Total Minimum Lease Payments	$	661,106

NOTE 6 - RETIREMENT PLAN

The Company has established a simple IRA retirement plan. The Company’s contributions to the plan were $10,580, $9,960 and $9,730 for the years ended December 31, 2004, 2003 and 2002, respectively.

NOTE 7 - RELATED PARTY TRANSACTIONS

The Company is related by common ownership to G.A.M. Realty, LLC from whom it leases its operating facility in Cranston, Rhode Island. The building lease expires in 2009 and under its terms, the Company is required to pay insurance, taxes and maintenance on the facility. The building lease is classified as an operating lease. Rental expense for the building totaled $114,000 for each of the years ended December 31, 2004, 2003 and 2002.

The Company is also a guarantor of first and second mortgaged debt of G.A.M. Realty, LLC. The principal balance of the mortgages was $780,533 at December 31, 2004 and the remaining payments total $1,392,639 through 2023. The guarantee arose under the original terms of the mortgages and payments under the guarantee by the Company would occur upon the affiliate company’s failure to make principal and interest payments as they become due. The mortgages are collateralized by a first and second security interest on real estate. The proceeds from liquidating the collateral would be expected to exceed the mortgage debt.

The Company also has an amount due from the stockholder. The unsecured loan with imputed interest receivable of $0, $3,148 and $7,138 for the years ended December 2004, 2003 and 2002, respectively. The loan is due on demand and is classified as current. No amount was due from the stockholder at December 31, 2004. At December 31, 2004, 2003 and 2002, the amount due from the stockholder was $0, $42,727 and $41,185, respectively.

NOTE 8 - CONCENTRATION OF CREDIT RISK

At December 31, 2004 and 2002, the Company had one customer that represented approximately 23% of accounts receivable. At December 31, 2003 the Company had two customers that represented approximately 30% of accounts receivable. During the year ended December 31, 2004, the Company carried insurance on their accounts receivable balances. The insurance has a $25,000 deductible clause. A qualified account is covered, after the deductible, for 90% of the uncollectible balance.

F-75

DYNAMIC MARKETING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003 AND 2002

NOTE 9 - VENDING MACHINES

The Company owns and maintains vending machines and coolers that are located at the premises of various customers depending upon volume of business with that customer. Generally, the use of the machines is provided without charge. The approximate cost of the machines was $363,444, $266,469 and $266,470, respectively.

NOTE 10 - CONTINGENCIES

The Company is the guarantor of a first and second mortgage debt of G.A.M. Realty, LLC. The mortgage is on the property that the Company leases from G.A.M. Realty, LLC. The realty company is owned by the Company’s sole shareholder. The principal balance of the mortgages was $780,533 at December 31, 2004 and the remaining payments total $1,392,639 through 2023. The guarantee arose under the original terms of the mortgages and payments under the guarantee by the Company would occur upon the affiliate company’s failure to make principal and interest payments as they become due. The mortgages are collateralized by a first and second security interest on real estate. The proceeds from liquidating the collateral would be expected to exceed the mortgage debt.

NOTE 11 - SUBSEQUENT EVENTS

The Company has entered into a letter of intent to sell the Company to a public company. The projected consummation of the transactions is March 31, 2005.

F-76

Independent Auditors’ Report

Shareholders

Bob O’Leary Health Food Distributor Co., Inc.

Scranton, Pennsylvania

We have audited the accompanying balance sheets of Bob O’Leary Health Food Distributor Co., Inc. (the “Company”) as of December 31, 2003 and 2002 and the related statements of operations, changes in shareholders’ equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bob O’Leary Health Food Distributor Co., Inc. as of December 31, 2003 and 2002 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/S/ KRONICK KALADA BERDY & CO.

Kingston, Pennsylvania

September 17, 2004

F-77

BOB O’LEARY HEALTH FOOD DISTRIBUTOR CO., INC.

BALANCE SHEETS

DECEMBER 31, 2003 AND 2002

	2003		2002
ASSETS
Current assets:
Cash	$	279,930	$	268,200
Trade receivables, net of allowance for doubtful accounts ($38,000, 2003; $15,000, 2002)		748,267		562,320
Inventory		1,800,403		1,886,893
Prepaid expenses		156,766		109,972
Total current assets		2,985,366		2,827,385
Property and equipment, net		161,092		77,750
Other assets		10,482		4,383
Total assets	$	3,156,940	$	2,909,518
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	767,104	$	422,324
Accrued expenses:
Payroll and related expenses		52,735		41,911
Defined contribution plan		140,803		127,469
Notes payable, shareholders		—		300,000
Total current liabilities		960,642		891,704
Shareholders’ equity:
Common stock, $1 par value; 25,000 shares authorized, 5,000 shares issued and outstanding		5,000		5,000
Additional paid in capital		20,000		20,000
Retained earnings		2,171,298		1,992,814
Total shareholders’ equity		2,196,298		2,017,814
Total liabilities and shareholders’ equity	$	3,156,940	$	2,909,518

See Notes to Financial Statements

F-78

BOB O’LEARY HEALTH FOOD DISTRIBUTOR CO., INC.

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2003

AND 2002

	2003		2002
Sales, net	$	29,725,194	$	25,445,631
Cost of sales:
Inventory, beginning		1,886,893		1,660,270
Purchases		24,545,285		21,365,527
Freight-in		35,360		32,674
		26,467,538		23,058,471
Less inventory, ending		1,800,403		1,886,893
		24,667,135		21,171,578
Gross profit		5,058,059		4,274,053
Operating expenses:
Officer wages		400,000		400,000
Warehouse and office wages		1,604,702		1,249,792
Freight out		820,482		715,090
Advertising		295,123		232,164
Credit card charges		235,321		155,183
Profit sharing		140,803		127,469
Insurance		119,870		75,040
Rent		90,000		90,000
Shipping supplies		66,364		39,738
Telephone		64,486		69,925
Provision for doubtful accounts		63,753		17,429
Employee benefits		62,429		63,737
Postage		60,976		58,379
Taxes, other		57,303		48,076
Depreciation		52,796		33,580
Legal and professional fees		48,688		24,292
Commissions		41,239		50,319
Maintenance and repairs		35,784		29,694
Office expense		33,386		41,266
Utilities		24,672		22,079
Travel and entertainment		12,180		11,337
Auto expense		12,058		14,178
Broker expense		6,688		3,119
		4,349,103		3,571,886
Income from operations		708,956		702,167
Other income:
Other income		9,396		5,915
Interest		132		1,491
		9,528		7,406
Net income	$	718,484	$	709,573

See Notes to Financial Statements

F-79

BOB O’LEARY HEALTH FOOD DISTRIBUTOR CO., INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2003 AND 2002

	Common Stock		Additional Paid in Capital		Retained Earnings			Total Shareholders’ Equity
Balance at December 31, 2001	$	5,000	$	20,000	$	2,183,241		$	2,208,241
Net income for the year ended December 31, 2002						709,573			709,573
Dividends						(900,000	)		(900,000	)
Balance at December 31, 2002		5,000		20,000		1,992,814			2,017,814
Net income for the year ended December 31, 2003						718,484			718,484
Dividends						(540,000	)		(540,000	)
Balance at December 31, 2003	$	5,000	$	20,000	$	2,171,298		$	2,196,298

See Notes to Financial Statements

F-80

BOB O’LEARY HEALTH FOOD DISTRIBUTOR CO., INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2003 AND 2002

	2003			2002
Cash flows from operating activities:
Net income	$	718,484		$	709,573
Adjustments:
Depreciation		52,796			33,580
Provision for doubtful accounts		63,753			17,429
Change in:
Receivables		(249,700	)		7,435
Inventory		86,490			(286,624	)
Prepaid expenses		(46,794	)		(31,783	)
Accounts payable		344,780			26,782
Accrued expenses		24,158			12,239
Cash flows provided by operating activities		993,967			488,631
Cash flows from investing activities:
Other assets		(6,099	)		(4,383	)
Acquisition of property and equipment		(136,138	)		(17,961	)
Cash flows used in investing activities		(142,237	)		(22,344	)
Cash flows from financing activities:
Net proceeds (repayments) on loans from shareholders		(300,000	)		300,000
Dividends paid		(540,000	)		(900,000	)
Cash flows used in financing activities		(840,000	)		(600,000	)
Net increase (decrease) in cash		11,730			(133,713	)
Cash, beginning		268,200			401,913
Cash, ending	$	279,930		$	268,200

See Notes to Financial Statements

F-81

BOB O’LEARY

HEALTH FOOD DISTRIBUTOR CO., INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2003 AND 2002

1. Business and summary of significant accounting policies:

Description of business:

The Company is engaged in the sales of vitamins and sports nutrition products. The Company’s customer base is principally concentrated in the Eastern United States.

Use of estimates:

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual amounts could differ from these estimates.

Revenue recognition:

Revenue is recognized at the time of shipment of merchandise. When returned goods are received, sales are reduced and the related merchandise is restocked to inventory.

Receivables:

Receivables are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to receivables. The Company perform ongoing credit evaluations of customers’ financial condition. It generally requires no collateral for its domestic credit sales. For its foreign sales, the Company when deemed necessary and when possible, requires deposits and a letter of credit or sight drafts.

Inventory:

Inventory consists of purchased finished products held for resale which are stated at the lower of cost (on an average cost basis) or market.

Property and equipment and depreciation:

These assets are stated at cost. Depreciation is being provided by accelerated and straight line methods over the estimated useful lives of the assets.

Income taxes:

The Company has elected to be treated as an S Corporation for federal and state income tax reporting. Any tax reporting income or loss will be included in the individual shareholder’s income tax returns. Distributions from the Company are used primarily to fund federal and state income tax payments of the shareholders.

Shipping and handling costs and revenues:

Shipping and handling costs of $820,000 and $715,000 in 2003 and 2002, respectively, are included in operating expenses in the income statement. Related revenues are included in sales.

Advertising:

The Company follows the policy of charging advertising production and communication costs to expense when the advertising first occurs. Advertising expense was $295,000 and $232,000 for the years ended December 31, 2003 and 2002, respectively.

F-82

BOB O’LEARY

HEALTH FOOD DISTRIBUTOR CO., INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2003 AND 2002

2. Concentration of credit risk and sales:

The Company maintains its cash accounts in a commercial bank located in Pennsylvania. Accounts at this bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At December 31, 2003, the Company’s cash balance in a commercial bank exceeded the FDIC insurance coverage by $423,000.

Major customers are those that individually account for more than 10% of the Company’s sales. For the years ended December 31, 2003 and 2002, one customer with sales of $4,423,000 and $3,771,000, respectively, qualified as a major customer. At December 31, 2003 and 2002, the major customer accounted for less than 1% of the Company’s accounts receivable.

The Company purchases one of its sports nutrition products from one vendor. Management believes that other suppliers could provide similar products on comparable terms. A change in suppliers, however, could cause a possible temporary disruption of sales.

Foreign sales amounted to the following:

	2003		2002
Europe	$	386,000	$	264,000
North America		288,000		442,000
Eurasia		262,000
Middle East		129,000
Asia		52,000		29,000
	$	1,117,000	$	735,000

3. Property and equipment, net:

Property and equipment at December 31 is comprised of the following:

	2003			2002			Depreciable Lives
Furniture and equipment	$	578,000		$	523,000		5-10 Years
Vehicles		137,000			137,000		5 Years
Leasehold improvements		28,000			28,000		31 Years
		743,000			688,000
Accumulated depreciation		(582,000	)		(610,000	)
	$	161,000		$	78,000

Depreciation amounted to $53,000 and $33,000 in 2003 and 2002, respectively.

4. Line of Credit:

An unused line of credit agreement allowed borrowings not to exceed $1,250,000. This line was unsecured and, when utilized, required monthly interest payments calculated at .5% below the national prime rate (4.0% at December 31, 2003). This line matured on August 31, 2004.

F-83

BOB O’LEARY

HEALTH FOOD DISTRIBUTOR CO., INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2003 AND 2002

5. Notes payable, shareholders:

These notes are due to the shareholders of the Company. The notes are non-interest bearing, unsecured and due on demand.

6. Related party lease:

The Company leases its facility from its individual shareholders under a month to month lease. Total rent expense under this lease was $90,000 in 2003 and 2002.

7. Defined contribution plan:

The expense for this plan was $141,000 in 2003 and $127,000 in 2002.

8. Litigation:

The Company is a defendant in several lawsuits filed by users of certain sports nutrition products. The suits also name other distributors and the manufacturers of these products. The ultimate outcome of this litigation cannot be determined, but management, after consultation with legal counsel, does not expect these matters will have a material adverse effect on the financial statements of the Company. The Company believes the lawsuits are without merit and intends to vigorously defend its position. In the normal course of business, there are various other outstanding legal proceedings. In the opinion of management, after consultation with legal counsel, the financial statements of the Company will not be materially affected by the outcome of such legal proceedings.

9. Subsequent event:

On September 10, 2004, the Company entered into a Stock Purchase Agreement (“Agreement”) with Dynamic Health Products, Inc. (“Dynamic”). Pursuant to the Agreement, Dynamic will acquire all of the issued and outstanding shares of common stock of the Company. The consideration to be paid by Dynamic to shareholders of the Company for the shares and the shareholders’ execution of Non-Competition, Non-Solicitation and Confidentiality Agreements is $5,500,000, subject to adjustments defined in the Agreement, plus the Shareholders Note Payable, subject to limitations defined in the Agreement.

10. Prior period adjustments:

Retained earnings at the beginning of 2002 and 2003 have been reduced by approximately $72,000 and $48,000, respectively, from previously issued reviewed financial statements. These adjustments principally resulted from additional depreciation, an increase in the allowance for doubtful accounts and a decrease in prepaid expenses. These adjustments resulted in a (decrease) increase of net income of approximately ($1,000) and $24,000 for the years ended 2002 and 2003, respectively.

F-84