Dynamic Health Products, Inc. Reports Second Quarter Results

LARGO, FL, Nov 14, 2006 (MARKET WIRE via COMTEX) -- Dynamic Health Products, Inc. (DYHP) , a leading distributor in the sports nutrition product and performance drink industries, announced today that total revenue for the fiscal second quarter ending September 30, 2006 was $12.9 million, an increase of 12.9% over the prior year's quarter ending September 30, 2005. Dynamic Health Products also reports positive cash flows from operations of $192,845 for the six months ending September 30, 2006 versus cash used in operations of $614,302 for the six months ended September 30, 2005.
Mandeep Taneja, Chief Executive Officer, commented, "Our second quarter ending September 30, 2006 demonstrated our continued growth in revenue and profitability. Mr. Taneja further stated, "We are pleased with this quarter's results and are excited to move into our 3rd and 4th quarters".
Selected 2nd Quarter 2007 Discussion
Revenues
Dynamic Health Products, Inc. ("Dynamic" or the "Company") generated revenues of $12,901,647 and $26,719,669, respectively, for the three and six months ended September 30, 2006, an increase of $1,478,177 or 12.9% and $2,225,168 or 9.1%, respectively, compared to $11,423,470 and $24,494,501, respectively, for the three and six months ended September 30, 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
Dynamic achieved a gross profit of $2,467,976 and $5,174,025, respectively, for the three and six months ended September 30, 2006, an increase of $481,610 or 24.2% and $625,795 or 13.8%, respectively, compared to $1,986,366 and $4,548,230, respectively, for the three and six months ended September 30, 2005. Gross margin, as a percentage of revenues, was 19.1% and 19.4%, respectively, for the three and six months ended September 30, 2006 and 17.4% and 18.6%, respectively, for the three and six months ended September 30, 2005. We expect gross margins of 18% to 20% in the future.
Operating Expenses
The Company incurred operating expenses of $2,559,639 and $5,255,424, respectively, for the three and six months ended September 30, 2006, compared to $2,290,650 and $4,739,828, respectively, for the three and six months ended September 30, 2005.
For the three months ended September 30, 2006 and 2005, selling, general and administrative expenses included non-cash amortization of deferred consulting fees of $65,939 and $65,939, respectively. For the six months ended September 30, 2006 and 2005, selling, general and administrative expenses included non-cash amortization of deferred consulting fees of $131,877 and $154,377, respectively.
Outbound transportation expenses, which are included in selling, general and administrative expenses, were $488,277 and $477,709, respectively, for the three months ended September 30, 2006 and 2005, and were $995,409 and $961,479, respectively, for the six months ended September 30, 2006 and 2005.
Operating expenses, excluding amortization and depreciation expenses decreased from 19.1% of revenues for the three months ended September 30, 2005, to 18.9% of revenues for the three months ended September 30, 2006. The decrease in operating expenses as a percentage of revenues was attributable to audit related accounting fees incurred in the first quarter this year versus the second quarter in the prior year, a decrease in advertising expenses, a decrease in deferred consulting fees and a decrease in contract labor, and was partially offset by the amortization of stock-based compensation costs, an increase in profit sharing plan expenses, an increase in commissions paid to brokers and outside sales representatives, an increase in compensation related expenses, an increase in credit card fees, an increase in insurance expenses, an increase in public relations expenses and an increase in tradeshow expenses.
Operating Income (Loss)
Operating loss decreased by 69.9% or $212,621, to $91,663 for the three months ended September 30, 2006 from $304,284 for the three months ended September 30, 2005. As a percentage of revenues, operating loss was 0.7% and 2.7%, respectively, for the three months ended September 30, 2006 and 2005. For the six months ended September 30, 2006, operating loss decreased by 57.5% or $110,199, to $81,399, from $191,598 for the six months ended September 30, 2005. As a percentage of revenues, operating loss was 0.3% and 0.8%, respectively, for the six months ended September 30, 2006 and 2005.
Other Income (Expense)
Other income (expense) was $(1,028,396) and $(426,470), respectively, for the three and six months ended September 30, 2006, compared to $2,290,232 and $7,203,216, respectively, for the six months ended September 30, 2005. Derivative instrument income (expense), net, was $1,530 and $733,033, respectively, for the three and six months ended September 30, 2006, compared to $3,231,799 and $9,093,058, respectively, for the three and six months ended September 30, 2005. Derivative instrument interest expense was $827,938 and $1,573,743, respectively, for the three and six months ended September 30, 2006, compared to $827,938 and $1,655,876, respectively, for the three and six months ended September 30, 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 three and six months ended September 30, 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.
Interest income was $6,683 and $12,801, respectively, for the three and six months ended September 30, 2006, compared to $7,715 and $12,330, respectively, for the three and six months ended September 30, 2005. The increase in interest income was due to interest received on notes receivable and higher cash amounts held in interest bearing accounts in banks.
For the three months ended September 30, 2006, other income and expenses, net, of $2,038, consisted primarily of proceeds from an insurance audit premium refund. For the six months ended September 30, 2006, other income and expenses, net, of $95,216, consisted primarily of proceeds from an insurance claim, proceeds from a disputed escrow balance, and income from negotiated allowances on prior years. For the three and six months ended September 30, 2005, other income and expenses, net, of $68,719 and $68,138, respectively, consisted primarily of negotiated allowances on prior years.
For the three and six months ended September 30, 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 six months ended September 30, 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 $210,709 and $420,398, respectively, for the three and six months ended September 30, 2006, compared to $190,063 and $311,939, respectively, for the three and six months ended September 30, 2005. Interest expense increased for the three and six months ended September 30, 2006, primarily as a result of interest rate increases. In addition, $38,335 and $67,992, respectively, of the interest expense for the three and six months ended September 30, 2006, and $17,486 and $17,486, respectively, of the interest expense for the three and six months ended September 30, 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.
Net Income (Loss) per Share
The Company had a net loss of $1,135,447 or $0.08 per basic share and $0.08 per diluted share for the three months ended September 30, 2006, compared to net income of $2,111,587 or $0.15 per basic share and $0.10 per diluted share for the three months ended September 30, 2005. For the six months ended September 30, 2006, our net loss was $693,745 or $0.05 per basic share and $0.05 per diluted share, compared to net income of $7,179,156 or $0.51 per basic share and $0.33 per diluted share for the six months ended September 30, 2005.
Cash Flows
Net cash provided by operating activities was $192,845 for the six months ended September 30, 2006, as compared to net cash used in operating activities of $614,302 for the six months ended September 30, 2005. The cash provided was primarily attributable to an increase in amounts due to/from affiliates, net, of $7,520, an decrease in other assets of $60,335, an increase in accounts payable of $558,041 based on increased purchases made on accounts, an increase in income taxes payable of $18,743, and an increase in deferred income taxes of $147,783 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 accounts receivable of $279,487 based on increases in credit sales, an increase in inventories of
$84,519 due to increased restocking levels, an increase in prepaid expenses of $109,212 primarily due to the timing of insurance policy renewals, an increase in other current assets of $68,239 based on increases in allowances and refunds due from vendors, a decrease in other payables of $106,745 primarily based on a decrease in prepayments received from customers, a decrease in accrued expenses of $2,543 and a decrease in accrued income taxes of $5,819 based on payments made.
Net cash provided by investing activities was $386,333, representing proceeds from the sale of property of $14,500, proceeds from the sale of marketable equity securities of $572,096 and proceeds from repayments on notes receivable of $56,847, partially offset by purchases of property and equipment of $157,110, the purchase of a distributor agreement of $25,000 and the purchase of certificates of deposit of $75,000.
Net cash used in financing activities was $1,008,335, representing payments of long-term obligations of $464,529, the excess of payments versus advances received of $526,783 on our short-term revolving note and payments of short-term obligations of $17,023.
About Dynamic Health Products
DYHP is a distributor in the sports nutrition product and performance drink industries and is engaged in developing, wholesaling, and distributing a wide variety of non-prescription drugs, dietary supplements, vitamins, health foods, nutritional products, soft goods and other related products. Their wholly owned subsidiaries include Bob O'Leary Health Food Distributor Co., Inc., Dynamic Marketing I, Inc. and Herbal Health Products, Inc. They can be contacted at http://www.dyhp.biz http://www.bossonline.net http://www.dymark.com
Safe Harbor
Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of 1995: This release may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements are presented based on current information available to management and in consideration of assumptions concerning information available to management regarding future events. Forward-looking statements are subject to risks and uncertainties that could cause future events or results to differ materially from such statements. Dynamic Health Products, Inc. disclaims any intent or obligation to update or revise any forward-looking statements and presents information herein solely for the intent of delivering general information regarding the company.

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