UNTIED STATES

SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB



[X] ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE
ACT OF 1934



For the fiscal year
ended: December 31, 2004



[ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE
ACT OF 1934



Commission file number:
333-72230



TERAX ENERGY, INC.


(Exact name of small
business issuer as specified in its charter)



|Nevada                                     | 88-0475757           
|------------------------------------------ | ---------------------
|(State or
		other jurisdiction of          | (I.R.S.
		Employer   
|incorporation
		or organization)           | Identification
		No.)
|                                           |                      
|8150 N.
		Central Expy., Suite 1800        |                      
|Dallas, Texas                              | 75206                
|(Address of
		principal executive offices) | (zip code)           



ROYAL PHOENIX


(Former name or former
address, if changed since last report.)



Issuer's Telephone Number: (512) 417-1742



Securities registered under Section
12(b) of the Exchange Act:

None


(Title if Class)



Securities registered under Section
12(g) of the Exchange Act:

None


(Title if Class)



---



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



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



The issuer's revenues
for its most recent fiscal year ended December 31, 2004. $-0-



At December 31, 2004,
the aggregate market value of the 7,800,000 shares of voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold was $25,300 based on an average share value of
$0.00324. As of the date of the filing of this 10-KSB there has been no trades
of our common stock on the Over-the-Counter Bulletin Board.



The number of shares
of Common Stock, $0.001 par value, outstanding on January 31, 2005, was
28,845,000 shares, held by 28 stockholders.



Transitional Small
Business Disclosure Format (check one): Yes     No X



---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(A DEVELOPMENT STAGE
COMPANY)

FOR THE FISCAL YEAR
ENDED

December 31, 2004



Index to Report

on Form 10-KSB

|PART I   |                                                                                                                     | Page
|-------- | ------------------------------------------------------------------------------------------------------------------- | ----
|         |                                                                                                                     |     
|Item 1.  | Description of Business                                                                                             | 1   
|Item 2.  | Description of Property                                                                                             | 6   
|Item 3.  | Legal Proceedings                                                                                                   | 6   
|Item 4.  | Submission of Matters
		to a Vote of Security Holders                                                               | 6   
|        
|PART II 
|        
|Item 5.  | Market for Common
		Equity and Related Stockholder Matters                                                          | 7   
|Item 6.  | Plan of
		Operation                                                                                                 | 9   
|Item 7   | Financial Statements                                                                                                | 14  
|Item 8   | Changes in and
		Disagreements With Accountants on Accounting and Financial Disclosure                              | 15  
|Item 8A  | Controls and Procedures                                                                                             | 15  
|Item 8B  | Other Information                                                                                                   | 15  
|        
|PART III
|         |                                                                                                                     |     
|Item 9   | Directors, Executive
		Officers, Promoters and Control Persons; Compliance With Section 16(a)
		of the Exchange Act | 15  
|Item 10  | Executive Compensation                                                                                              | 17  
|Item 11  | Security Ownership of
		Certain Beneficial Owners and Management and Related Stockholder Matters                    | 18  
|Item 12  | Certain Relationships
		and Related Transactions                                                                    | 19  
|Item 13  | Exhibits                                                                                                            | 19  
|Item 14  | Principal Accountant
		Fees and Services                                                                            | 20  



---



This form 10-KSB
contains forward-looking statements within the meaning of the federal securities
laws. These forward-looking statements are necessarily based on certain
assumptions and are subject to significant risks and uncertainties. These
forward-looking statements are based on management's expectations as of the date
hereof, and we do not undertake any responsibility to update any of these
statements in the future. Actual future performance and results could differ
from that contained in or suggested by these forward-looking statements as a
result of factors set forth in this Form 10-KSB (including those sections hereof
incorporated by reference from other filings with the Securities and Exchange
Commission), in particular as set forth in the "Plan of Operation" under Item 6.



In this filing
references to "Company," "we," "our," and/or "us," refers to Terax Energy, Inc.



PART I



ITEM 1. DESCRIPTION
OF BUSINESS



(a) General Business
Development



Terax Energy, Inc, a
Nevada corporation, is a development stage company originally incorporated in
Nevada as Royal Phoenix in October of 2000. We were initially a wholly-owned
subsidiary of Desert Health Products, Inc. ("Desert Health Products"); however
it was decided by Desert Health Products to separate the Company from Desert
Health Products. Under the terms and conditions of the Separation and
Distribution Agreement entered into between the Company and Desert Health
Products on October 18, 2000, as amended June 22, 2001, we agreed to issue
10,000 shares of our common stock to Desert Health Products. On March 15, 2005,
we changed our name from Royal Phoenix to Terax Energy, Inc.



We have an authorized
capitalization of 60,000,000 shares of common stock, $0.001 par value per share,
and as of December 31, 2004 there were 28,845,000 shares outstanding. We also
have an authorized capitalization of 5,000,000 shares of preferred stock at a
par value of $0.001 per share, and as of December 31, 2004 there were no shares
outstanding.



The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles that contemplate the continuance of us
as a going concern. Our cash position may be inadequate to pay all of the costs
associated with our operations. We have incurred losses of $32,110 since
inception. Our management intends to use borrowings and security sales to
mitigate the effects of its cash position, however, no assurance can be given
that debt or equity financing, if and when required will be available. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets and classification of
liabilities that might be necessary should we be unable to continue existence.



1

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Recent Developments



On March 22, 2005,
our sole officer and director, Joseph Scott Wilson, appointed Bill Chester as a
director and as President, Secretary and Treasurer. Mr. Wilson subsequently
resigned, leaving Mr. Chester as the sole director of the Company. Mr. Wilson
had been unable to secure adequate funding necessary to further the Company's
business plan and felt that Mr. Chester's experience in the oil and gas industry
is anticipated to provide the Company with new opportunities and directions that
lead to the maximization of stockholder value. More information on Mr. Chester
can be found in Item 9 of this filing.



Concurrent with his
resignation, Mr. Wilson sold 21,030,000 shares of the Company's common stock
owned by Mr. Wilson to Mr. Chester for $10,000 in cash. The shares sold by Mr.
Wilson to Mr. Chester, represent approximately 73% of the Company's issued and
outstanding shares of common stock. Mr. Chester used his personal funds for the
purchase of the shares from Mr. Wilson.



(b) Business of
Issuer



Change in Business
Direction



As a result of our
lack of revenue generation and the extremely competitive environment for
nutritional supplements, we have not been satisfied with our business plan or
original plan of operation. In our June 30, 2004 Form 10-QSB we disclosed that
during the next 12 months we planned to re-assess our business plan and
alternatively seek out other business opportunities capable of increasing
stockholder value.



Consistent with this
goal, On March 15, 2005, we changed our name from Royal Phoenix to Terax Energy,
Inc. The name change was effected through an amendment to our articles of
incorporation and approved by the board of directors and by a majority consent
of its stockholders. A copy of the certificate of amendment to the articles of
incorporation was attached to the Form 8-K file on March 28, 2005 as exhibit
3(i)(a).



We have not totally
abandoned our prior business plan. However, we plan to locate and negotiate with
an established business entity for the merger of a target business or
alternatively acquire a business either compatible with our initial business
plan or a business unrelated to the nutritional supplement industry, for example
in the oil and gas industry. In certain instances, a target business may wish to
become a subsidiary of us or may wish to contribute assets to us rather than
merge. No assurances can be given that we will be successful in locating or
negotiating with any target business.



Management believes
that there are perceived benefits to being a reporting company with a class of
publicly-traded securities. These are commonly thought to include (1) the
ability to use registered securities to make acquisition of assets or
businesses; (2) increased visibility in the financial community; (3) the
facilitation of borrowing from financial institutions; (4) improved trading
efficiency; (5) stockholder liquidity; (6) greater ease in subsequently raising
capital; (7) compensation of key employees through stock options; (8) enhanced
corporate image; and (9) a presence in the United States capital market.



2

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A business entity, if
any, which may be interested in a business combination with us may include (1) a
company for which a primary purpose of becoming public is the use of its
securities for the acquisition of assets or businesses; (2) a company which is
unable to find an underwriter of its securities or is unable to find an
underwriter of securities on terms acceptable to it; (3) a company which wishes
to become public with less dilution of its common stock than would occur
normally upon an underwriting; (4) a company which believes that it will be able
to obtain investment capital on more favorable terms after it has become public;
(5) a foreign company which may wish to gain an initial entry into the United
States securities market; (6) a special situation company, such as a company
seeking a public market to satisfy redemption requirements under a qualified
Employee Stock Option Plan; or (7) a company seeking one or more of the other
perceived benefits of becoming a public company.



We are engaged in
seeking an acquisition, locating a new business opportunity, finding a business
partner, or locating a qualified company as a candidate for a business
combination. We are authorized to enter into a definitive agreement with a wide
variety of businesses without limitation as to their industry or revenues. It is
not possible at this time to predict with which company, if any, we will enter
into a definitive agreement or what will be the industry, operating history,
revenues, future prospects or other characteristics of that company.



We may seek a
business opportunity with entities which have recently commenced operations, or
which wish to utilize the public marketplace in order to raise additional
capital in order to expand business development activities, to develop a new
product or service, or for other corporate purposes. We may acquire assets and
establish wholly-owned subsidiaries in various businesses or acquire existing
businesses as subsidiaries.



As we are not
limiting our search for business opportunities to any particular sector, our
management, may not be experienced in matters relating to the business of a
target business and will rely solely upon its own efforts in accomplishing our
business purposes. Outside consultants or advisors may be utilized by us to
assist in the search for qualified target companies. If we do retain such an
outside consultant or advisor, any cash fee earned by such person will need to
be assumed by the target business, as we have limited cash assets with which to
pay such obligation.



The analysis of new
business opportunities will be undertaken by, or under the supervision of our
officer and director, who is not a professional business analyst. In analyzing
prospective business opportunities, management may consider such matters as:

- the available
	technical, financial and managerial resources;
- the availability
	of audited financial statements;
- working capital
	and other financial requirements;
- history of
	operations, if any;
- prospects for the
	future;
- nature of present
	and expected competition;

3

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- the quality and
	experience of management services which may be available and the depth of
	that management;
- the potential for
	further research & development;
- specific risk
	factors not now foreseeable but which then may be anticipated to impact our
	proposed activities;
- the potential for
	growth or expansion;
- the potential for
	profit;
- the perceived
	public recognition or acceptance of products, services, or trades;
- name
	identification; and
- other relevant
	factors.

Management does not
have the capacity to conduct as extensive an investigation of a target business
as might be undertaken by a venture capital fund or similar institution. As a
result, management may elect to merge with a target business which has one or
more undiscovered shortcomings and may, if given the choice to select among
target businesses, fail to enter into an agreement with the most
investment-worthy target business.



Following a business
combination we may benefit from the services of others in regard to accounting,
legal services, underwritings and corporate public relations. If requested by a
target business, management may recommend one or more underwriters, financial
advisors, accountants, public relations firms or other consultants to provide
such services.



A potential target
business may have an agreement with a consultant or advisor, providing that
services of the consultant or advisor be continued after any business
combination. Additionally, a target business may be presented to us only on the
condition that the services of a consultant or advisor be continued after a
merger or acquisition. Such preexisting agreements of target businesses for the
continuation of the services of attorneys, accountants, advisors or consultants
could be a factor in the selection of a target business.



In implementing a
structure for a particular business acquisition, we may become a party to a
merger, consolidation, reorganization, joint venture, or licensing agreement
with another corporation or entity. We may also acquire stock or assets of an
existing business. On the consummation of a transaction, our present management
and stockholders may no longer be in control of us. In addition, it is likely
that our officer and director will, as part of the terms of the acquisition
transaction, appoint one or more new officers and directors.



It is anticipated
that any securities issued in any such reorganization would be issued in
reliance upon an exemption from registration under applicable federal and state
securities laws. In some circumstances however, as a negotiated element of a
transaction, we may agree to register all or a part of such securities
immediately after the transaction is consummated or at specified times
thereafter. If such registration occurs, of which there can be no assurance, it
will be undertaken by the surviving entity after we have entered into an
agreement for a business combination or have consummated a business combination.
The issuance of additional securities and their potential sale into any trading
market which may develop in our securities may depress the market value of our
securities in the future if such a market develops, of which there is no
assurance.



4

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While the terms of a
business transaction to which we may be a party cannot be predicted, it is
expected that the parties to the business transaction will desire to avoid the
creation of a taxable event and thereby structure the acquisition in a tax-free
reorganization under Sections 351 or 368 of the Internal Revenue Code of 1986,
as amended.



With respect to any
merger or acquisition negotiations with a target business, management expects to
focus on the percentage of us which target business stockholders would acquire
in exchange for their shareholdings in the target business. Depending upon,
among other things, the target business's assets and liabilities, our
stockholders will in all likelihood hold a lesser percentage ownership interest
in us following any merger or acquisition. Any merger or acquisition effected by
us may have a dilutive effect on the percentage of shares held by our
stockholders at such time.



No assurances can be
given that we will be able to enter into a business combination, as to the terms
of a business combination, or as to the nature of the target business.



As of the date
hereof, management has not made any final decision concerning or entered into
any written agreements for a business combination. When any such agreement is
reached or other material fact occurs, we will file notice of such agreement or
fact with the Securities and Exchange Commission on Form 8-K. Persons reading
this Annual Report are advised to determine if we have subsequently filed a Form
8-K.



We anticipate that
the selection of a business opportunity in which to participate will be complex
and without certainty of success. Management believes (but has not conducted any
research to confirm) that there are numerous firms in various industries seeking
the perceived benefits of a publicly registered corporation. Such perceived
benefits may include facilitating or improving the terms on which additional
equity financing may be sought, providing liquidity for incentive stock options
or similar benefits to key employees, increasing the opportunity to use
securities for acquisitions, and providing liquidity for our stockholders and
other factors. Business opportunities may be available in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex. We can provide no assurance that we will be
able to locate compatible business opportunities.



OTC:BB Symbol Change



On October 13, 2004,
in connection with the 3:1 forward stock-split referenced above, our OTC:BB
symbol changed to "RYLP", subsequently on March 24, 2005, in conjunction with
our name change from Royal Phoenix to Terax Energy, Inc., our OTC:BB trading
symbol changed to "TXEI".



Employees



We are a development
stage company and currently have one part time employee, which is Bill Chester,
our sole officer and director. We look to Mr. Chester for his knowledge and
business experience. We plan to use consultants, attorneys and accountants as
necessary and do not plan to engage any full-time employees in the near future.
We believe the use of non-salaried personnel allows us to expend our capital
resources as a variable cost as opposed to a fixed cost of operations. In other
words, if we have insufficient revenues or cash available, we are in a better
position to only utilize those services required to generate revenues as opposed
to having salaried employees.



5

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Risk Management
Insurance



We do not maintain a
liability insurance program as we have not commenced the distribution of
products to the general public or others except by way of sample products.



ITEM 2. DESCRIPTION
OF PROPERTY



On March 22, 2005, we
changed our principal address to 8150 N. Central Expy., Suite 1800, Dallas,
Texas 75206. Our phone number is (512) 417-1742. We do not lease any office
space at this time..



As a result of our
method of operations and business plan we do not require personnel other than
Mr. Chester, to conduct our business.



ITEM 3. LEGAL
PROCEEDINGS



We are not presently
a party to any material litigation, nor to the knowledge of management is any
litigation threatened against us which may materially affect us.



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



No matters were
submitted to a vote of security holders, through the solicitation of proxies or
otherwise, during the fourth quarter of the fiscal year ended December 31, 2004.



Subsequent Event



On March 15, 2005, we
changed our name from Royal Phoenix to Terax Energy, Inc. The name change was
effected through an amendment to our articles of incorporation and approved by
the board of directors and by a majority consent of our stockholders. A copy of
the certificate of amendment to the articles of incorporation was attached to
the Form 8-K filed on March 28, 2005 as exhibit 3(i)(a).



6

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PART II



ITEM 5. MARKET FOR
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



(a) Market
Information



Since May 28, 2004,
we have been eligible to participate in the OTC Bulletin Board, an electronic
quotation medium for securities traded outside of the Nasdaq Stock Market, and
prices for our common stock were published on the OTC Bulletin under the trading
symbol "RPNX" through October 12, 2004. On October 13, 2004, in connection with
a three for one forward stock split, our OTC:BB symbol changed to "RYLP".
Subsequently on March 24, 2005, in conjunction with the name change to Terax
Energy, Inc., our OTC:BB trading symbol changed to "TXEI". The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions. This market is extremely limited and the
prices quoted are not a reliable indication of the value of our common stock. As
of the date of this filing there has been no trades of our common stock. The
following table sets forth the quarterly high and low bid prices for our Common
Stock during our last two fiscal years, as reported by a Quarterly Trade and
Quote Summary Report of the OTC Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission, and may not
necessarily represent actual transactions.



|                | 2004       
|--------------- | -----------
|                | High       
|1st Quarter (1) | Not Trading
|2nd Quarter     | 0.00       
|3rd Quarter     | 0.00       
|4th Quarter     | 0.05       

_______

(1) We were eligible
for quotation on the OTC Bulletin Board May 28, 2004



(b) Holders of Common
Stock



As of December 31,
2004, we had 28 stockholders of record of the 28,845,000 shares outstanding.



(c) Dividends



We have never
declared or paid dividends on our Common Stock. We intend to follow a policy of
retaining earnings, if any, to finance the growth of the business and do not
anticipate paying any cash dividends in the foreseeable future. The declaration
and payment of future dividends on the Common Stock will be the sole discretion
of the Board of Directors and will depend on our profitability and financial
condition, capital requirements, statutory and contractual restrictions, future
prospects and other factors deemed relevant.



7

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Recent Sales of
Unregistered Securities



On July 30, 2003, we
approved a forward stock split on the basis of 10 for 1.



During August 2003,
the Company agreed to issue the former sole officer and director of the Company
45,000 shares of its $0.001 par value common stock at a price of $0.0333 per
shares for conversion of a note payable to equity in the amount of $1,500. The
Company accounted for the shares in its fiscal year 2003. The issuance of the
shares occurred on February 4, 2004.



On September 29,
2004, our Board of Directors approved a 3 for 1 forward stock-split of our
issued and outstanding shares of common stock as of October 11, 2004. The
forward stock-split was effective on October 13, 2004 and increased our number
of shares outstanding from 9,615,000 to 28,845,000.



Use of Proceeds From
Registered Securities



Our Registration
Statement on Form SB- 2 (File No. 333-72230), related to our initial public
offering, was declared effective by the SEC on December 30, 2002. A total of
250,000 shares of our Common Stock was registered with the SEC with an aggregate
offering price of $25,000. All of these shares were registered on our behalf.
The offering commenced in June 2003, and all shares of common stock offered were
sold directly by us with no commissions paid on funds raised.



We incurred offering
expenses of approximately $6,000 in connection with the offering. Thus the net
offering proceeds to us (after deducting offering expenses) were approximately
$19,000. No offering expenses were paid directly or indirectly to any of our
directors or officers (or their associates), persons owning ten percent (10%) or
more of any class of our equity securities or to any other affiliates.



As of December 31,
2004, $4,500 of the net proceeds had been used for legal, accounting and
transfer agent expenses. The remaining $14,500 of the net proceeds remain in our
operating account pending future use.



Stock Split and
Increase in Authorized Capital Stock



On September 29,
2004, our Board of Directors approved a three for one forward stock-split of our
issued and outstanding shares of common stock as of October 11, 2004. The
forward stock-split was effective on October 13, 2004 and increased our number
of shares outstanding from 9,615,000 to 28,845,000.



In conjunction with
the forward stock-split, we increased our authorized shares of common stock from
20 million shares to 60 million shares, $0.001 par value per share. Pursuant to
NRS 78.209 a meeting of our stockholders was not required to increase the
authorized shares of common stock or approve the forward stock-split. A copy of
the Certificate of Change was filed in a Form 8-K on October 22, 2004 as Exhibit
3.



8

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ITEM 6. PLAN OF
OPERATION



This report contains
forward-looking statements. Actual results and events could differ materially
from those projected, anticipated, or implicit, in the forward-looking
statements as a result of the risk factors set forth below and elsewhere in this
report.



With the exception of
historical matters, the matters discussed herein are forward-looking statements
that involve risks and uncertainties. Forward-looking statements include, but
are not limited to, statements concerning anticipated trends in revenues and net
income, the date of introduction or completion of our products, projections
concerning operations and available cash flow. Our actual results could differ
materially from the results discussed in such forward-looking statements
primarily as the result of insufficient cash to pursue production and marketing
efforts. The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes thereto appearing elsewhere herein.



Overview



We were incorporated
in Nevada in October 2000 under the name Royal Phoenix, as a Development Stage
Company, previously engaged in the business of marketing and distributing Royal
Phoenix, a line of herbal products. The Royal Phoenix herbal product line was
developed by Desert Health Products several years ago, however, the product
line, after development, was not marketed. We are currently seeking potential
alternative business opportunities in conjunction with evaluating our current
business plan.



Subsequent Event



On March 15, 2005, we
changed our name from Royal Phoenix to Terax Energy, Inc. The name change was
effected through an amendment to our articles of incorporation and approved by
the board of directors and by a majority consent of our stockholders.



We have a limited
operating history and have not generated revenues from the sale of any products.
Our company and products are the result of an agreement, which was entered into
between us and Desert Health Products, which resulted in the separation from
Desert Health Products of the Royal Phoenix line of herbal products developed by
Desert Health Products. Our activities have been limited to the negotiation of a
license agreement and preliminary market analysis, capital raising and placing
us in a position of raising additional capital. Consequently, we have incurred
the expenses of start-up. Future operating results will depend on many factors,
including our ability to raise adequate working capital, our ability to locate a
potential merger or acquisition target, the level of competition and our ability
to deliver products while maintaining quality and controlling costs. As a result
of our lack of liabilities, our current cash position allows us to maintain a
status quo position for a period of approximately six months. However; this
position will not allow us to pursue any significant business opportunity.



9

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Since our
incorporation in October 2000 through December 31, 2004, we have not generated
any revenues and have incurred a net loss of $32,110. As a result of our
determination of the potential lack of viability of the business model, and our
lack of capital to pursue the business model, we have decided to seek other
business alternatives. However, we have not entirely abandoned our previous
business plan.



Satisfaction of our
cash obligations for the next 12 months. Our plan of operation has
provided for us to establish a marketing venue for the sale of private label
vitamin products supplied by Desert Health Products. We capitalized our company
with $13,500 from our former sole officer, director and stockholder, Mr. Wilson.
We subsequently raised $25,000 from a direct offering registration. After
covering costs related to our start up business operations, as of December 31,
2004, we had cash remaining of $15,690. We do not believe that the available
cash will satisfy our cash obligations for the next twelve months. We believe
that we will require at least $30,000 to continue our existence, which sum would
not include sufficient capital to continue with any significant business
opportunity. We have included in our recent business plan the concept of
seeking, either venture partners, merger candidates, or other means of
perfecting a business opportunity or funds needed if we consummate a merger or
acquisition. We have been unsuccessful in the past of generating sufficient
capital to perfect our business plan. In an effort to assist us in seeking other
business opportunities, we have changed our management.



Summary of any product research and
development that we will perform for the term of the plan. We do not
anticipate performing any significant product research and development under our
current plan of operation.



Expected purchase or sale of plant
and significant equipment. We do not anticipate the purchase or sale of
any plant or significant equipment, as such items are not required by us at this
time or anticipated in the next 12 months.



Significant changes
in number of employees. We currently do not have any employees other
than our sole officer, Bill Chester, and until we either obtain sufficient
capital to pursue our business plan, or either acquire a business with
sufficient cash, or merge with such a company, we will not require new
employees.



Plan of Operation



Change in Business
Direction



As a result of our
lack of revenue generation and the extremely competitive environment for
nutritional supplements, we have not been satisfied with our business plan or
original plan of operation. In our June 30, 2004 Form 10-QSB we disclosed that
during the next 12 months we planned to re-assess our business plan and
alternatively seek out other business opportunities capable of increasing
stockholder value.



We plan to locate and
negotiate with a business entity for the merger of a target business into us. In
certain instances, a target business may wish to become a subsidiary of us or
may wish to contribute assets to us rather than merge. No assurances can be
given that we will be successful in locating or negotiating with any target
business.



10

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Management is
actively engaged in seeking a qualified company as a candidate for a business
combination. We are authorized to enter into a definitive agreement with a wide
variety of businesses without limitation as to their industry or revenues. It is
not possible at this time to predict with which company, if any, we will enter
into a definitive agreement or what will be the industry, operating history,
revenues, future prospects or other characteristics of that company.



As of the date
hereof, management has not made any final decision concerning or entered into
any written agreements for a business combination. When any such agreement is
reached or other material fact occurs, we will file notice of such agreement or
fact with the Securities and Exchange Commission on Form 8-K.



On March 22, 2005 our
management changed to allow for the pursuit of other business opportunities.



Liquidity and Capital Resources



A critical component
of our operating plan impacting our continued existence is the ability to obtain
additional capital through additional equity and/or debt financing. We do not
anticipate enough positive internal operating cash flow until such time as we
can locate a merger or acquisition target or generate substantial revenues,
which may take the next few years to fully realize. In the event we cannot
obtain the necessary capital to pursue our operations, we may have to cease or
significantly curtail our operations. This would materially impact our ability
to continue operations.



Since inception, we
have financed our cash flow requirements through the issuance of common stock,
which has resulted in our receipt of $38,500. As we continue our activities, we
may continue to experience net negative cash flows from operations, pending
consummation of a merger or acquisition or the receipt of sales revenues.
Additionally we anticipate obtaining additional financing to fund operations
through common stock offerings and bank borrowings, to the extent available, or
to obtain additional financing to the extent necessary to augment our working
capital.



Over the next twelve
months we believe that existing capital and anticipated funds from operations
will not be sufficient to sustain operations. Consequently, we will be required
to seek additional capital in the future to fund operations through additional
equity or debt financing or credit facilities. No assurance can be made that
such financing would be available, and if available it may take either the form
of debt or equity. In either case, the financing could have a negative impact on
our financial condition and our Stockholders.



We anticipate
incurring operating losses over the next twelve months. Our lack of operating
history makes predictions of future operating results difficult to ascertain.
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies searching for viable merger or acquisition
candidates. Such risks include, but are not limited to, an evolving and
unpredictable business model and the management of growth. To address these
risks we must, among other things, implement and successfully execute our
revised business model, respond to competitive developments, and attract, retain
and motivate qualified personnel. There can be no assurance that we will be
successful in addressing such risks, and the failure to do so can have a
material adverse effect on our business prospects, financial condition and
results of operations.



11

---



As of December 31,
2004, we had assets of $15,690 and no in liabilities. Resulting in a
stockholder's equity of $15,690.



FACTORS THAT MAY
AFFECT OUR PLAN OF OPERATION



We are a development
stage company, with a minimal operating history, which raises substantial doubt
as to our ability to successfully develop profitable business operations.



We were incorporated
in October of 2000 as a wholly owned subsidiary of Desert Health Products.
Concurrent with formation it was determined to separate us from Desert Health
Products. We have yet to generate revenues from operations and have been focused
on organizational, start-up, and market analysis activities since we
incorporated. Although we have products to market as a result of our license
with Desert Health Products, there is nothing at this time on which to base an
assumption that our business operations will prove to be successful or that we
will ever be able to operate profitably. In addition, we are actively seeking
merger or acquisition candidates, which is anticipated to drastically change our
business operations.



We are an
insignificant participant in the business of seeking mergers wherein a large
number of established and well financed entities are our competitors.



We are and will
continue to be an insignificant participant in the business of seeking mergers
with and acquisitions of business entities. A large number of established and
well-financed entities, including venture capital firms, are active in mergers
and acquisitions of companies, which may be merger or acquisition target
candidates for us. Nearly all such entities have significantly greater financial
resources, technical expertise and managerial capabilities than we do and,
consequently, we will be at a competitive disadvantage in identifying possible
business opportunities and successfully completing a business combination.
Moreover, we will also compete with numerous other small public companies in
seeking merger or acquisition candidates.



We have no agreement
for a business combination or other transaction and have no predetermined
standards for a business combination.



We have reached no
definitive arrangement, agreement or understanding with respect to engaging in a
business combination with a specific entity. There can be no assurance that we
will be successful in identifying and evaluating suitable business opportunities
or in concluding a business combination. There is no assurance that we will be
able to negotiate a business combination on terms favorable to us. We have not
established a specific length of operating history or a specified level of
earnings, assets, net worth or other criteria, which we will require a Target
Company to have achieved, or without which we would not consider a business
combination with such business entity. Accordingly, we may enter into a business
combination with a business entity having no significant operating history,
losses, limited or no potential for immediate earnings, limited assets, negative
net worth or other negative characteristics.



12

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We recently changed
our management and are unsure of the effect on our ability to operate.



On March 22, 2005,
Bill Chester, took over management of our operations. Although Mr. Chester has
experience in business matters, we are unsure as to whether Mr. Chester will
provide a positive benefit to us in light of our current financial position.



Because our common
stock is deemed a low-priced "Penny" stock, an investment in our common stock
should be considered high risk and subject to marketability restrictions.



Since our common
stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange
Act, it will be more difficult for investors to liquidate their investment even
if and when a market develops for the common stock. Until the trading price of
the common stock rises above $5.00 per share, if ever, trading in the common
stock is subject to the penny stock rules of the Securities Exchange Act
specified in rules 15g-1 through 15g-10. Those rules require broker-dealers,
before effecting transactions in any penny stock, to:

- Deliver to the
	customer, and obtain a written receipt for, a disclosure document;
- Disclose certain
	price information about the stock;
- Disclose the
	amount of compensation received by the broker-dealer or any associated
	person of the broker-dealer;
- Send monthly
	statements to customers with market and price information about the penny
	stock; and
- In some
	circumstances, approve the purchaser's account under certain standards and
	deliver written statements to the customer with information specified in the
	rules.

Consequently, the
penny stock rules may restrict the ability or willingness of broker-dealers to
sell the common stock and may affect the ability of holders to sell their common
stock in the secondary market and the price at which such holders can sell any
such securities. These additional procedures could also limit our ability to
raise additional capital in the future.



We will need
additional capital in the future to finance our operations, which we may not be
able to raise or it may only be available on terms unfavorable to us or our
stockholders, which may result in our inability to fund our working capital
requirements and harm our operational results.



We have and expect to
continue to have substantial capital expenditure and working capital needs. We
believe that current cash on hand and the other sources of liquidity are only
sufficient enough to fund our operations through June 30, 2005. After that time
we may need to raise additional funds to fund our operations.



13

---



If operating
difficulties or other factors, many of which are beyond our control, cause our
revenues or cash flows from operations, if any, to decrease, we may be limited
in our ability to spend the capital necessary to complete our development,
exploitation and exploration programs. If our resources or cash flows do not
rapidly commence, we will require additional financing to fund our planned
growth.



Additional financing
might not be available on terms favorable to us, or at all. If adequate funds
were not available or were not available on acceptable terms, our ability to
fund our operations, take advantage of unanticipated opportunities, develop or
enhance our business or otherwise respond to competitive pressures would be
significantly limited.



If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders would be reduced, and these newly
issued securities might have rights, preferences or privileges senior to those
of existing stockholders.



Our auditor's report
reflects the fact that without realization of additional capital, it would be
unlikely for us to continue as a going concern.



As a result of our
deficiency in working capital at December 31, 2004 and other factors, our
auditors have included a paragraph in their report regarding substantial doubt
about our ability to continue as a going concern. Our plans in this regard are
to seek merger or acquisition candidates, seek additional funding through future
equity private placements or debt facilities.



Going Concern



The consolidated
financial statements included in this filing have been prepared in conformity
with generally accepted accounting principles that contemplate the continuance
of us as a going concern. As a result, we incurred accumulated net losses from
October 17, 2000 (inception) through the period ended December 31, 2004 of
$32,110. Management intends to use borrowings and security sales to mitigate the
effects of its cash position, however no assurance can be given that debt or
equity financing, if and when required will be available. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets and classification of liabilities that might
be necessary should we be unable to continue existence.



Off-Balance Sheet Arrangements



We do not have any
off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.



ITEM 7. FINANCIAL
STATEMENTS



See Index to
Financial Statements and Financial Statement Schedules appearing on page F-1
through F-10 of this Form 10-KSB.



14

---



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



We have not had any
disagreements with our independent auditor on accounting or financial
disclosures.



ITEM 8A. CONTROLS AND
PROCEDURES



We maintain
disclosure controls and procedures designed to ensure that information required
to be disclosed in reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the specified
time periods. As of the end of the period covered by this report, our sole
officer evaluated the effectiveness of our disclosure controls and procedures.
Based on the evaluation, which disclosed no significant deficiencies or material
weaknesses, our sole officer concluded that our disclosure controls and
procedures are effective. There were no changes in our internal control over
financial reporting that occurred during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.



ITEM 8B. OTHER
INFORMATION



NONE



PART III



ITEM 9. DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT



The following table
sets forth the name and position of the executive officer and directors of us.
Directors will be elected at our annual meeting of stockholders and serve for
one year or until their successors are elected and qualify. Officers are elected
by the Board and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board.



|Name                | Age | Positions and
		Offices held                             
|------------------- | --- | ---------------------------------------------------------
|Joseph Scott Wilson | 37  | Former President, Secretary,
		Treasurer and Director (1)
|Bill Chester        | 55  | President, Secretary,
		Treasurer and Director (1)       

1. On March 22,
	2005, Joseph Scott Wilson, resigned from our board of directors and as
	President, Secretary and Treasurer, concurrent with Mr. Wilson's
	resignation, Mr. Chester was appointed our President, Secretary and
	Treasurer.

Duties, Responsibilities and
Experience



Bill Chester Mr. Chester has
over 25 years experience in the oil and gas, banking and real estate industries.
Since 2000, Mr. Chester has been an independent consultant providing services to
the oil and gas and real estate industries. From 1998 to 2000 Mr. Chester was
Vice-President of Strategy One Solutions, a 3D seismic services company and from
1985 to 1997 Mr. Chester was President of Crestar Investments, an oil and gas
exploration company. Mr. Chester received a Bachelor of Science Degree in 1971
from Lamar University and a Masters Degree form Stephen F. Austin State
University in 1977.



15

---



Joseph Scott Wilson
was our President, Secretary/Treasurer and Director from inception through March
22, 2005. Mr. Wilson has been self-employed in various building trades in Las
Vegas, Nevada since 1994. While working in the building trades Mr. Wilson
acquired a usefulness and education on herbal products. Mr. Wilson's knowledge
of the herbal products created his interest in developing a method of marketing
herbal products through the Internet and other retail channels.



Limitation of Liability of Directors



Pursuant to the
Nevada General Corporation Law, our Articles of Incorporation exclude personal
liability for our Directors for monetary damages based upon any violation of
their fiduciary duties as Directors, except as to liability for any breach of
the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or any transaction from
which a Director receives an improper personal benefit. This exclusion of
liability does not limit any right which a Director may have to be indemnified
and does not affect any Director's liability under federal or applicable state
securities laws. We have agreed to indemnify our directors against expenses,
judgments, and amounts paid in settlement in connection with any claim against a
Director if he acted in good faith and in a manner he believed to be in our best
interest.



Section 16(a) Beneficial Ownership
Reporting Compliance



Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires
executive officers and directors, and persons who beneficially own more than ten
percent of an issuer's common stock, which has been registered under Section 12
of the Exchange Act, to file initial reports of ownership and reports of changes
in ownership with the SEC



As a company with
securities registered under Section 15(d) of the Exchange Act, our executive
officers and directors, and persons who beneficially own more than ten percent
of our common stock are not required to file Section 16(a) reports.



Audit Committee and
Financial Expert



We do not have an
Audit Committee, Bill Chester, our sole director will perform some of the same
functions of an Audit Committee, such as: recommending a firm of independent
certified public accountants to audit the annual financial statements; reviewing
the independent auditors independence, the financial statements and their audit
report; and reviewing management's administration of the system of internal
accounting controls. We do not currently have a written audit committee charter
or similar document.



16

---



We have no financial
expert. We believe the cost related to retaining a financial expert at this time
is prohibitive. Further, because of our start-up operations, we believe the
services of a financial expert are not warranted.



Code of Ethics



A code of ethics
relates to written standards that are reasonably designed to deter wrongdoing
and to promote:

1. Honest and
	ethical conduct, including the ethical handling of actual or apparent
	conflicts of interest between personal and professional relationships;
2. Full, fair,
	accurate, timely and understandable disclosure in reports and documents that
	are filed with, or submitted to, the Commission and in other public
	communications made by an issuer;
3. Compliance with
	applicable governmental laws, rules and regulations;
4. The prompt
	internal reporting of violations of the code to an appropriate person or
	persons identified in the code; and
5. Accountability
	for adherence to the code.

We have not adopted a
corporate code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions in that our sole officer and director
serves in all the above capacities.



Our decision to not
adopt such a code of ethics results from our having only one officer and
director operating as the sole management for us. We believe that as a result of
the limited interaction which occurs having a sole officer/director for us
eliminates the current need for such a code, in that violations of such a code
would be reported to the party generating the violation.



Nominating Committee



We do not have a
Nominating Committee or Nominating Committee Charter. Bill Chester, our sole
director will perform some of the functions associated with a Nominating
Committee. We have elected not to have a Nominating Committee in that we are a
development stage company with limited operations and resources. Additionally,
our common stock is registered under Section 15(d) of the Exchange Act, which
currently does not subject us to the Proxy rules of the Exchange Act.



ITEM 10. EXECUTIVE
COMPENSATION



The following table
sets forth the cash compensation of our executive officer and director during
the last three fiscal years. The remuneration described in the table does not
include the cost to us of benefits furnished to the named executive officers,
including premiums for health insurance and other benefits provided to such
individual that are extended in connection with the conduct of our business.



17

---



Summary Compensation
Table



|                                                                           | Annual
		Compensation | Long Term
		Compensation
|-------------------------------------------------------------------------- | --------------------- | ------------------------
|Name and
		Principal Position                                              | Year                  | Salary                  
|Bill Chester
		President/Secretary/
		Treasurer/Director (1)               | 2004                  | $-0-                    
|                                                                           |                       |                         
|Joseph Scott Wilson
		Former President/Secretary/
		Treasurer/Director (1) | 2004
		2003
		2002    | $-0-
		$-0-
		$-0-      

1. On March 22,
	2005, Joseph Scott Wilson, resigned from our board of directors and as
	President, Secretary and Treasurer, concurrent with Mr. Wilson's
	resignation, Mr. Chester was appointed our President, Secretary and
	Treasurer.

Compensation
Committee



We do not have a
formal Compensation Committee. Bill Chester, our sole director will perform some
of the functions of a Compensation Committee. Due to the lack of revenues, our
lack of payment of any executive compensation and our development stage status,
we deemed a Compensation Committee to not be necessary at this time.



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



The following table
sets forth information as of March 23, 2005 with respect to the beneficial
ownership of common stock by (i) each person who to our knowledge beneficially
owned or had the right to acquire more than 5% of the outstanding common stock,
(ii) each director of us and (iii) all executive officers and directors of us a
group.



|Name of
		Beneficial Owner (1)                                                                                            |  | Number
		of Shares |  | Percent
		Beneficially
		Owned
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------ |  | ------------------------------
|Bill
		Chester(2)
		Current sole
		officer and Director
		200A West
		Chester
		Pflugerville,
		TX 78660                  |  | 21,030,000         |  | 73%                           
|Joseph Scott
		Wilson(3)
		Former sole
		officer and director
		2950 E
		Flamingo Rd., Suite B-A2
		Las Vegas, NV
		89121 |  | 15,000             |  | 0%                            
|All Directors
		& Officers and Beneficial Owners as a Group                                                               |  | 21,045,000         |  | 73%                           



18

---



1. As used in this
	table, "beneficial ownership" means the sole or shared power to vote, or to
	direct the voting of, a security, or the sole or shared investment power
	with respect to Common Stock (i.e., thepower to dispose of, or to
	direct the disposition of, a security).
2. On March 22,
	2005, Joseph Scott Wilson, our former sole officer and director of, sold
	21,030,000 shares of our common stock owned by Mr. Wilson to Bill Chester
	for $10,000 in cash.
3. On March 22,
	2005, Joseph Scott Wilson, resigned from our board of directors and as
	President, Secretary and Treasurer, concurrent with Mr. Wilson's
	resignation, Mr. Chester was appointed our President, Secretary and
	Treasurer.

Change in Control



On March 22, 2005,
our sole officer and director, Joseph Scott Wilson, appointed Bill Chester as a
director and as President, Secretary and Treasurer. Mr. Wilson subsequently
resigned, leaving Mr. Chester as the sole director of the Company. Concurrent
with his resignation, Mr. Wilson sold 21,030,000 shares of the Company's common
stock owned by Mr. Wilson to Mr. Chester for $10,000 in cash. The shares sold by
Mr. Wilson to Mr. Chester, represent approximately 73% of the Company's issued
and outstanding shares of common stock. Mr. Chester used his personal funds for
the purchase of the shares from Mr. Wilson.



ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS



During August 2003,
the Company agreed to issue the former sole officer and director of the Company
45,000 shares of its $0.001 par value common stock at a price of $0.0333 per
shares for conversion of a note payable to equity in the amount of $1,500. The
shares were deemed to have been issued pursuant to an exemption provided by
Section 4(2) of the Act, which exempts from registration "transactions by an
issuer not involving any public offering."



ITEM 13. EXHIBITS



(a) Documents filed
as part of this Report

1. Financial Statements:



A. INDEX TO FINANCIAL
STATEMENTS

|1.
		Independent Auditors Report               | F-1         
|---------------------------------------------- | ------------
|2. Financial
		Statements:                    
|Balance Sheet                                  | F-2         
|Statements of
		Operations                     | F-3         
|Statement of
		Changes in Stockholders' Equity | F-4         
|Statements of
		Cash Flows                     | F-5         
|Notes to
		Financial Statements                | F-6 -
		F-10



19

---



2. Exhibits



|Exhibit   | Description                                                                                                              
|--------- | -------------------------------------------------------------------------------------------------------------------------
|Number    |                                                                                                                          
|3(i)**    | Articles of Incorporation                                                                                                
|3(i)a***  | Certificate of Change                                                                                                    
|3(i)b**** | Certificate of Name Change                                                                                               
|3(ii)**   | Bylaws                                                                                                                   
|10(a)**   | Separation and Distribution
		Agreement dated October 18, 2001, between Desert Health Products, Inc.
		and Royal Phoenix.
|10(b)**   | License, Manufacture and
		Distribution Agreement                                                                        
|10(c)**   | Addendum to Separation and
		Distribution Agreement                                                                      
|31*       | Certification Pursuant to
		Section 302 of the Sarbanes-Oxley Act                                                        
|32*       | Certification Pursuant to
		Section 906 of the Sarbanes-Oxley Act                                                        

_____

* Filed herewith.

** Filed in Form SB-2
on October 26, 2001

*** Certificate of
Change was filed in a Form 8-K on October 22, 2004 as Exhibit 3.

**** Certificate of
Name Change was filed in a Form 8-K on March 29, 2005 as Exhibit 3ia



ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES



(1) AUDIT FEES



The aggregate fees
billed for professional services rendered by Beckstead and Watts, LLP, for the
audit of the registrant's annual financial statements and review of the
financial statements included in the registrant's Form 10-QSB or services that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for fiscal years 2004 and 2003 were $4,250 and
$3,500, respectively.



(2) AUDIT-RELATED
FEES



NONE



(3) TAX FEES



NONE



(4) ALL OTHER FEES



NONE



(5) AUDIT COMMITTEE
POLICIES AND PROCEDURES



We do not have an
audit committee.



20

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(6) If greater
than 50 percent, disclose the percentage of hours expended on the principal
accountant's engagement to audit the registrant's financial statements for the
most recent fiscal year that were attributed to work performed by persons other
than the principal accountant's full-time, permanent employees.



Not applicable.



21

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SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



TERAX ENERGY, INC.



By /s/ Bill
Chester

Bill Chester,
President/Director



Dated: March 30, 2005





Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.



|NAME               | OFFICE                              | DATE            
|------------------ | ----------------------------------- | ----------------
|                  
|/s/ Bill
		Chester | President,
		Secretary/             | March
		30, 2005
|                   | Bill Chester
		Treasurer, Director,
|                   | Principal
		Financial              
|                   | Officer                            



22

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TERAX ENERGY, INC.



INDEX TO FINANCIAL
STATEMENTS



|INDEPENDENT
		AUDITORS' REPORT                 | F-1     
|---------------------------------------------- | --------
|BALANCE SHEET                                  | F-2     
|STATEMENTS OF
		OPERATIONS                     | F-3     
|STATEMENT OF
		CHANGES IN STOCKHOLDERS' EQUITY | F-4     
|STATEMENTS OF
		CASH FLOWS                     | F-5     
|NOTES TO
		FINANCIAL STATEMENTS                | F-6-F-10



23

---



Beckstead and Watts, LLP

Certified Public Accountants

2425 Horizon Ridge

Henderson, NV 89052

702.257.1984

702.362.0540 (fax)



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM



We have audited the
accompanying balance sheet of Terax Energy, Inc., (formerly Royal Phoenix) (the
"Company") (A Development Stage Company), as of December 31, 2004, and the
related statement of operations, stockholders' equity, and cash flows for the
period ended December 31, 2004 and 2003 and from October 17, 2000 (Date of
Inception) to December 31, 2004. 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 audit.



We conducted our
audit in accordance with the standards of Public Company Accounting Oversight
Board (United States). 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 audit provides 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 Terax Energy, Inc., (formerly Royal Phoenix) (A
Development Stage Company) as of December 31, 2004, and the results of its
operations and cash flows for the period ended December 31, 2004 and 2003 and
for the period October 17, 2000 (Date of Inception) to December 31, 2004, in
conformity with U.S. generally accepted accounting principles.



The accompanying
financial statements have been prepared assuming the Company will continue as a
going concern. As discussed in Note 2 to the financial statements, the Company
has had limited operations and have not commenced planned principal operations.
This raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.







Beckstead and Watts, LLP



Las Vegas, NV



March 24, 2005



F-1

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Balance Sheet



|                                                                                                           | December 31,
		2004
|---------------------------------------------------------------------------------------------------------- | -------------------
|Assets                                                                                                     |                    
|                                                                                                           |                    
|Current assets:                                                                                            |                    
|Cash                                                                                                       | $ 15,690           
|                                                                                                           |                    
|Total current assets                                                                                       | 15,690             
|                                                                                                           | $ 15,690           
|                                                                                                           |                    
|Liabilities and Stockholder's
		Equity                                                                     |                    
|                                                                                                           |                    
|Current liabilities:                                                                                       | $ 0                
|Total current liabilities                                                                                  | 0                  
|                                                                                                           |                    
|Stockholders' equity:                                                                                      |                    
|                                                                                                           |                    
|Preferred stock, $0.001 par
		value, 5,000,000 shares authorized, zero shares issued and outstanding       | -                  
|                                                                                                           |                    
|Common stock, $0.001 par
		value, 60,000,000 shares authorized, 28,845,000 shares issued and
		outstanding | 28,845             
|                                                                                                           |                    
|Additional paid-in capital                                                                                 | 18,955             
|                                                                                                           |                    
|(Deficit) accumulated during
		development stage                                                           | (32,110)           
|                                                                                                           | 15,690             
|                                                                                                           |                    
|                                                                                                           | $ 15,690           



The accompanying notes
are an integral part of these financial statements.



F-2

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Statements of
Operations

|                                                                                 | For the Year
		Ended December 31 | October 17, 2000
		(inception) to December 31, 2004
|-------------------------------------------------------------------------------- | -------------------------------- | ---------------------------------------------------
|                                                                                 | 2004                             | 2003                                               
|Revenue                                                                          | $ -                              | $ -                                                
|                                                                                 |                                  |                                                    
|Expenses:                                                                        |                                  |                                                    
|General and administrative
		expenses                                            | 7,661                            | 4,500                                              
|Total expenses                                                                   | 7,661                            | 4,500                                              
|                                                                                 |                                  |                                                    
|Net (loss)                                                                       | $ (7,661)                        | $ (4,500)                                          
|                                                                                 |                                  |                                                    
|Weighted average number of
		common shares outstanding - basic and fully diluted | 28,845,000                       | 28,845,000                                         
|                                                                                 |                                  |                                                    
|Net (loss) per share - basic
		and fully diluted                                 | $ (0.00)                         | $ (0.00)                                           



The accompanying notes
are an integral part of these financial statements.



F-3

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Statement of Changes
in Stockholders' Equity

For the Period October
17, 2000 (Inception) to December 31, 2004



|                                          | Common Stock
		
		Shares                   Amount | Additional
		Paid-in
		Capital | (Deficit)
		Accumulated
		During
		Development
		Stage | Total
		Stockholders'
		Equity
|----------------------------------------- | ------------------------------------------------- | ------------------------------ | ------------------------------------------------------ | ------------------------------
|                                          |                                                   |                                |                                                        |                               
|Balance, October 17, 2000                 | -                                                 | $ -                            | $ -                                                    | $ -                           
|                                          |                                                   |                                |                                                        |                               
|Founders shares                           | 300,000                                           | 300                            | -                                                      | -                             
|                                          |                                                   |                                |                                                        |                               
|Shares issued for services                | 7,500,000                                         | 7,500                          | -                                                      | -                             
|                                          |                                                   |                                |                                                        |                               
|Shares issued for cash                    | 7,500,000                                         | 7,500                          | -                                                      | -                             
|                                          |                                                   |                                |                                                        |                               
|Shares issued for cash                    | 6,000,000                                         | 6,000                          | -                                                      | -                             
|                                          |                                                   |                                |                                                        |                               
|Net (loss) year ended
		December 31, 2000 | -                                                 | -                              | -                                                      | (12,303)                      
|Balance, December 31, 2000                | 21,300,000                                        | 21,300                         | -                                                      | (12,303)                      
|                                          |                                                   |                                |                                                        |                               
|Net (loss) year ended
		December 31, 2001 | -                                                 | -                              | -                                                      | (6,090)                       
|Balance, December 31, 2001                | 21,300,000                                        | 21,300                         | -                                                      | (18,393)                      
|                                          |                                                   |                                |                                                        |                               
|Net (loss) year ended
		December 31, 2002 | -                                                 | -                              | -                                                      | (1,556)                       
|Balance, December 31, 2002                | 21,300,000                                        | 21,300                         | -                                                      | (19,949)                      
|                                          |                                                   |                                |                                                        |                               
|Shares issued for cash                    | 7,500,000                                         | 7,500                          | 17,500                                                 | -                             
|                                          |                                                   |                                |                                                        |                               
|Shares issued for debt
		conversion       | 45,000                                            | 45                             | 1,455                                                  | -                             
|                                          |                                                   |                                |                                                        |                               
|Net (loss) year ended
		December 31, 2003 | -                                                 | -                              | -                                                      | (4,500)                       
|Balance, December 31, 2003                | 28,845,000                                        | 28,845                         | 18,955                                                 | (24,449)                      
|                                          |                                                   |                                |                                                        |                               
|Net (loss) year ended
		December 31, 2004 | -                                                 | -                              | -                                                      | (7,661)                       
|Balance, December 31, 2004                | 28,845,000                                        | $ 28,845                       | $ 18,955                                               | $ (32,110)                    



The accompanying notes
are an integral part of these financial statements.



F-4

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Statements of Cash
Flows



| | For the Year
		Ended December 31 | October 17, 2000
		(inception) to December 31, 2004
| | -------------------------------- | ---------------------------------------------------
| | 2004                             | 2003                                               

|                                            |           |           |           
|------------------------------------------- | --------- | --------- | ----------
|Cash flows from operating
		activities      |           |           |           
|Net loss                                    | $ (7,661) | $ (4,500) | $ (32,110)
|Shares issued for services                  | -         | -         | 7,500     
|Net cash (used) by operating
		activities   | (7,661)   | (4,500)   | (24,610)  
|                                            |           |           |           
|Cash flows from financing
		activities      |           |           |           
|Debt conversion                             | -         | 1,500     | 1,500     
|Issuance of common stock                    | -         | 25,000    | 38,800    
|Net cash provided by
		financing activities | -         | 26,500    | 40,300    
|                                            |           |           |           
|Net (decrease) increase in
		cash           | (7,661)   | 22,000    | 15,690    
|Cash - beginning                            | 23,351    | 1,351     | -         
|Cash - ending                               | $ 15,690  | $ 23,351  | $ 15,690  
|                                            |           |           |           
|Supplemental disclosure                     |           |           |           
|Interest paid                               | $ -       | $ -       | $ -       
|Income taxes paid                           | $ -       | $ -       | $ -       
|                                            |           |           |           
|Non-cash transactions:                      |           |           |           
|Shares issued for services                  | -         | -         | 7,500,000 



The accompanying notes
are an integral part of these financial statements.



F-5

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Notes



Note 1 - Summary of
significant accounting policies



Organization

The Company was
organized October 17, 2000 (Inception) under the laws of the State of Nevada, as
Royal Phoenix. The Company began activities to license, manufacture and
distribute vitamin formulations. On March 15, 2005, the Company changed its name
from Royal Phoenix to Terax Energy, Inc. The Company has been unsuccessful in
conducting any business.



The Company has not
commenced significant operations and, in accordance with SFAS #7, the Company is
considered a development stage company.



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 and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
significantly from those estimates.



Cash and cash
equivalents

For the purpose of
the statements of cash flows, all highly liquid investments with the maturity of
three months or less are considered to be cash equivalents.



Revenue recognition

The Company's
revenues and cost of sales are to be recorded on a net basis upon receipt of the
revenues generated from the sale of its products.



Advertising Costs

The Company expenses
all costs of advertising as incurred. There were no advertising costs included
in general and administrative expenses as of December 31, 2004.



Fair value of
financial instruments

Fair value estimates
discussed herein are based upon certain market assumptions and pertinent
information available to management as of December 31, 2004. The respective
carrying value of certain on-balance-sheet financial instruments approximated
their fair values. These financial instruments include cash and accounts
payable. Fair values were assumed to approximate carrying values for cash and
payables because they are short term in nature and their carrying amounts
approximate fair values or they are payable on demand.



Impairment of
long-lived assets

Long-lived assets
held and used by the Company are reviewed for possible impairment whenever
events or circumstances indicate the carrying amount of an asset may not be
recoverable or is impaired. No such impairments have been identified by
management at December 31, 2004.



F-6

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Notes



Earnings per share

The Company follows
Statement of Financial Accounting Standards No. 128. "Earnings Per Share" ("SFAS
No. 128"). Basic earning per common share ("EPS") calculations are determined by
dividing net income by the weighted average number of shares of common stock
outstanding during the year. Diluted earning per common share calculations are
determined by dividing net income by the weighted average number of common
shares and dilutive common share equivalents outstanding. During periods when
common stock equivalents, if any, are anti- dilutive they are not considered in
the computation.



Segment reporting

The Company follows
Statement of Financial Accounting Standards No. 130, "Disclosures About Segments
of an Enterprise and Related Information". The Company operates as a single
segment and will evaluate additional segment disclosure requirements as it
expands its operations.



Income taxes

The Company follows
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("SFAS No. 109") for recording the provision for income taxes. Deferred
tax assets and liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and liabilities using the
enacted marginal tax rate applicable when the related asset or liability is
expected to be realized or settled. Deferred income tax expenses or benefits are
based on the changes in the asset or liability each period. If available
evidence suggests that it is more likely than not that some portion or all of
the deferred tax assets will not be realized, a valuation allowance is required
to reduce the deferred tax assets to the amount that is more likely than not to
be realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change.



Deferred income taxes
may arise from temporary differences resulting from income and expense items
reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse.



Recent pronouncements

In January 2004, the
FASB issued FIN No. 46, "Consolidation of Variable Interest Entities", an
interpretation of Accounting Research Bulletin No. 51. FIN No. 46 requires that
variable interest entities be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or is entitled to receive a majority of the entity's residual returns
or both. FIN No. 46 also requires disclosures about variable interest entities
that companies are not required to consolidate but in which a company has a
significant variable interest. The consolidation requirements of FIN No. 46 will
apply immediately to variable interest entities created after January 31, 2004.
The consolidation requirements will apply to entities established prior to
January 31, 2004 in the first fiscal year or interim period beginning after June
15, 2004. The disclosure requirements will apply in all financial statements
issued after January 31, 2004. The company will begin to adopt the provisions of
FIN No. 46 during the first quarter of fiscal 2004.



F-7

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Notes



In November 2004, the
FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter
4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing,
to clarify the accounting for abnormal amounts of idle facility expense,
freight, handing costs, and spoilage. This statement requires that those items
be recognized as current period charges regardless of whether they meet the
criterion of "so abnormal" which was the criterion specified in ARB No. 43. In
addition, this Statement requires that allocation of fixed production overheads
to the cost of production be based on normal capacity of the production
facilities. This pronouncement is effective for the Company beginning October 1,
2005. The Company does not believe adopting this new standard will have a
significant impact to its financial statements.



In December 2004, the
FASB issued SFAS No. 123 (revised 2004). Share-Based Payment, which is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees
and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS
No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS
No. 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. The new standard
will be effective for the Company in the first interim or annual reporting
period beginning after December 15, 2005. The Company expects the adoption of
this standard will have a material impact on its financial statements assuming
employee stock options are granted in the future.



Note 2 - Going
concern



The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern, which contemplates the recoverability of assets and the
satisfaction of liabilities in the normal course of business. As noted above,
the Company is in the development stage and, accordingly, has not yet generated
revenues from operations. Since its inception, the Company has been engaged
substantially in financing activities and developing its product line, setting
up its e-commerce website, and incurring substantial costs and expenses. As a
result, the Company incurred accumulated net losses from October 17, 2000
(inception) through the period ended December 31, 2004 of $32,110. In addition,
the Company's development activities since inception have been financially
sustained through equity financing.



The ability of the
Company to continue as a going concern is dependent upon its ability to raise
additional capital from the sale of common stock and, ultimately, the
achievement of significant operating revenues. The accompanying financial
statements do not include any adjustments that might be required should the
Company be unable to recover the value of its assets or satisfy its liabilities.



F-8

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Notes



Note 3 - Income taxes



For the period ended
December 31, 2004 the Company incurred net operating losses and accordingly, no
provision for income taxes has been recorded. In addition, no benefit for income
taxes has been recorded due to the uncertainty of the realization of any tax
assets. At December 31, 2004, the Company had approximately $32,110 of federal
and state net operating losses. The net operating loss carry forwards, if not
utilized will begin to expire in 2020.



The components of the
Company's deferred tax asset are as follows:



|                                                     | As of December
		31, | As of December
		31,
|---------------------------------------------------- | -------------------- | --------------------
|                                                     | 2004                 | 2003                
|Deferred tax assets:                                 |                      |                     
|Net operating loss carry
		forwards                  | $ 32,110             | $ 24,449            
|Total deferred tax assets                            | 32,110               | 24,449              
|                                                     |                      |                     
|Deferred tax liabilities:                            |                      |                     
|Depreciation                                         | -0-                  | -0-                 
|                                                     |                      |                     
|Net deferred tax assets
		before valuation allowance | 32,110               | 24,449              
|Less: Valuation allowance                            | (32,110)             | (24,449)            
|Net deferred tax assets                              | $ -0-                | $ -0-               



For financial
reporting purposes, the Company has incurred a loss in each period since its
inception. Based on the available objective evidence, including the Company's
history of losses, management believes it is more likely than not that the
deferred tax assets will not be fully realizable. Accordingly, the Company
provided a full valuation allowance against its net deferred tax assets at
December 31, 2004.



Note 4 -
Stockholder's equity



The Company is
authorized to issue 5,000,000 shares of it $0.001 par value preferred stock and
60,000,000 shares of its $0.001 par value common stock.



During October 2000,
the Company as a wholly owned subsidiary of Desert Health Products, Inc., agreed
under the terms and conditions of a Separation and Distribution Agreement to
issue 300,000 of its $0.001 par value common stock at $0.001 per share to Desert
Health Products, Inc. The Company accounted for the shares in its fiscal year
2000 as founder's shares. The issuance of the shares occurred on June 22, 2001
concurrent with the execution of the Amended Separation and Distribution
Agreement.



On October 17, 2000,
the Company issued 7,500,000 shares of its $.001 par value common stock in
exchange for services valued at $7,500.



F-9

---



TERAX ENERGY, INC.

(formerly Royal
Phoenix)

(a Development Stage
Company)

Notes



On October 18, 2000,
the Company issued 7,500,000 shares of its $.001 par value common stock in
exchange for cash in the amount of $7,500.



On October 18, 2000,
the Company agreed to issue 6,000,000 shares of its $.001 par value common stock
in exchange for cash in the amount of $6,000. The Company accounted for the
shares in its fiscal year 2000. The issuance of the shares occurred on December
22, 2001



During June 2003, the
Company completed a public offering on Form SB-2 registered under the Securities
Act of 1933, as amended. The Company sold 7,500,000 shares of its $0.001 par
value common stock at a price of $0.00333 per share for cash in the amount of
$25,000.



On July 30, 2003, the
Company approved a forward stock split on the basis of 10 for 1. All references
to the number of shares issued and outstanding have been retroactively restated
to reflect the forward split.



During August 2003,
the Company agreed to issue the former sole officer and director of the Company
45,000 shares of its $0.001 par value common stock at a price of $0.0333 per
shares for conversion of a note payable to equity in the amount of $1,500. The
Company accounted for the shares in its fiscal year 2003. The issuance of the
shares occurred on February 4, 2004.



During the period
ended September 30, 2004, the Company amended its articles of incorporation to
increase its authorized $0.001 par value common stock to 60,000,000 shares.



On September 29,
2004, the Company approved a forward stock split on the basis of 3 for 1. All
references to the number of shares issued and outstanding have been
retroactively restated to reflect the forward split.



There have been no
other issuances of common or preferred stock.



Note 5 - Warrants and
options



There are no warrants
or options outstanding to acquire any additional shares of common stock.