SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934]

                  For the fiscal year ended: December 31, 2003

                        Commission File Number: 000-27931

                          DESERT HEALTH PRODUCTS, INC.
             (Exact name of registrant as specified in our charter)

Arizona                                                      86-0699108
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

8221 E. Evans Rd
Scottsdale Arizona                                  85260
(Address of principal executive offices)            (Zip Code)

        Registrant's telephone number including area code: (480) 951-1941

          Securities registered pursuant to Section 12 (b) of the Act:
                                      None

          Securities registered pursuant to Section 12 (g) of the Act:
                         Common Stock, $0.001 par value
                                (Title of Class)

      Indicate by check mark whether the registrant (a) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 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 |_| .

      For the fiscal year ended December 31, 2003, the Registrant's revenues
were approximately $193,090. As of March 1, 2004, the aggregate market value of
Registrant's voting stock held by non-affiliates was approximately $6,392,047.

      The number of shares of Common Stock, $0.001 par value, outstanding on
March 1, 2004 was 13,263,821 shares.

                    Documents incorporated by reference: None
          Transitional Small Business Disclosure Format Yes |_| No |X|
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                           FOR THE FISCAL PERIOD ENDED
                                December 31, 2003

                                 Index to Report
                                 On Form 10-KSB

PART I                                                                      Page

Item 1.  Business                                                            3
Item 2.  Properties                                                         12
Item 3.  Legal Proceedings                                                  12
Item 4.  Submission of Matters to a Vote of Security Holders                13

PART II

Item 5.  Market for Registrant's Common Equity and                          13
         Related Stockholder Matters
Item 6.  Management's Discussion and Analysis of Financial Condition        14
         And Results of Operation
Item 7.  Financial Statements and Supplementary Data                        18
Item 8.  Changes in and Disagreements with Accountants on Accounting and    18
         Financial Disclosure
Item 8A. Controls and Procedures                                            18

PART III

Item 9.  Directors and Executive Officers of the Registrant                 18
Item 10. Executive Compensation                                             21
Item 11. Security Ownership of Certain Beneficial Owners                    22
         And Management
Item 12. Certain Relationships and Related Transactions                     23

PART IV

Item 13. Exhibits, Financial Statement Schedules and Reports                23
         On Form 8-K
Item 14. Principal Accountant Fees and Services                             25

Signatures                                                                  26


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Note concerning Forward Looking Statements:

      This form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on certain assumptions, are subject
to significant risks and uncertainties, and may be identified by reference to a
future period or periods or by the use of forward-looking terminology such as
"may", "will", "believe", "expect", "anticipate", "continue", or similar terms
or variations on those terms or the negative of those terms. These
forward-looking statements are based on management's expectations as of the date
hereof, and the Company does not undertake any responsibility to update any of
these statements in the future. Actual future performance and results could
differ materially 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 `Management's
Discussion and Analysis' under Item 6.

      In this form 10-KSB references to "Desert Health", "the Company", "we",
"us", and "our" refer to Desert Health Products, Inc.

PART I

ITEM 1.     BUSINESS

Overview

      Desert Health Products, Inc., an Arizona corporation, was formed in 1991.
Desert Health is engaged in the packaging, sale and distribution of branded and
store brand (private label) vitamins, nutritional supplements, skin care and
animal care products. Desert Health has focused its marketing and registration
efforts primarily in the foreign marketplace. This is a very time consuming and
expensive project, but the nutraceutical and nutritional supplement market is
growing at a faster pace internationally than the domestic market. One of the
many rewards of having customers in the international market is that once the
registrations are in place, the customer becomes a partner in developing that
market in the long-term.

      However, now that the international market is somewhat established and
starting to grow, the Company is starting to develop a customer base in the
United States and Canada specializing at present with companies that have
existing markets and sales force. In November 2002, the Company acquired a
company specializing in network marketing of nutritional supplements and skin
care products in the US. This company purchases all its products from Desert
Health.

      Joanne Cavanagh, H.N.T., A.H.G., National Director of Sales, is on our
staff as an on-site nutrition therapist. Ms. Cavanagh has certifications in the
fields of Nutrition, Supplements, Stress Management, Nutrition Therapies, Weight
Management and Western Herbalism. Ms. Cavanagh provides insight into special
formulations and developments in the natural products industry. The ability to
provide education and information to both the wholesale and retail divisions has
increased our potential to penetrate numerous markets.

      Desert Health markets over 200 products, which are packaged under various
labels and bottle counts. They are sold in Vitamin and Mineral combinations,
Chinese Herbal Products, Specialty Supplements, Weight Management Products,
Herbal/Botanical Products, FemAid Product Support Systems, Ayurvedic Products,
Skin Care Products, Pet Care Products, and Water Purification Products, with
varying potency levels in tablets and chewable and gelatin encapsulated capsules
("soft gels"). The Company has traditionally outsourced its raw materials
manufacturing.

      On January 26, 2000, pursuant to an Acquisition Agreement and Plan of
Merger entered into by and between Desert Health and Intercontinental Capital
Fund, Inc., (Intercontinental) a Nevada corporation, (a company subject to the
reporting requirements of the Securities and Exchange Act of 1934) all of the


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outstanding shares of common stock of Intercontinental were exchanged for
400,000 shares of common stock of Desert Health, restricted under Rule 144 of
the Securities Act of 1933, in a transaction in which Desert Health was the
successor and took on the reporting requirements of Intercontinental Capital
Fund, Inc.

Subsequent Events

      In January 2004, we appointed Leonard Makowka, M.D., Ph.D., as head of our
Medical Advisory Board. Dr. Makowka, a distinguished clinical surgeon,
transplantation surgeon and medical researcher, is recognized as one of the
world's leading authorities in hepatic science (study relating to the liver).
Dr. Makowka has retired from surgical practice and has been using his medical
expertise to pursue investment strategies and technology development in life
sciences and other technological areas.

      Dr. Makowka has agreed that Royal Products, Inc., a wholly owned
subsidiary of Desert Health Products, Inc., has exclusive use of his name and
endorsement on all Royal's labels, brochures, sales literature and audios and
CD's.

      Thor Lindvaag resigned from the Board of Directors, effective January 26,
2004.

      In February 2004, Desert Health Products, Inc., was accepted for listing
onto the Frankfurt Exchange in Germany. Trading commenced February 10, 2004,
under the symbol "DHE" and the German cusip (WKN) number ADBMFX. The Frankfurt
Exchange is the world's third largest organized exchange-trading market in terms
of turnover and dealings in securities. It accounts for more than 85 percent of
the total securities turnover in Germany and is the largest of the eight German
stock exchanges. It ranks third in the world behind the NYSE and NASDAQ markets.
It offers its clients only floor trading through brokers and, since the launch
of XETRA, also provides fully-electronic trading facilities, whereby orders from
any point in the globe are automatically inputted into the order book on the
central computer.

      We believe the listing on the Frankfurt Exchange will increase the profile
of Desert Health with investors, both institutional and retail, in Germany and
across Europe.

      In March 2004, Mr. Edward L. Beddow, joined Desert Health Products, Inc.,
as head of International Business Development and Corporate Finance. Mr. Beddow
has been Vice President and Global Quality Director CitiBusiness at Citigroup
(NYSE:C) and has over 20 years experience in Quality, Information Technology,
and Audit and Finance in large multinational companies in the financial services
and manufacturing industries. He has significantly participated in the
establishment and growth of new global businesses and functions within several
companies. His responsibilities have included recruitment of worldwide
personnel, budget management, process improvement projects and development of
policies and procedures. He has published several professional articles/books
and taught university courses at the Graduate level.

      We believe Mr. Beddow will utilize his experience and international
network to benefit the immediate and future growth of Desert Health and be a
major factor in achieving the funding and expertise needed to fuel our current
international expansion plans.

      Websites for Royal Products, Inc., www.royalproducts.net and Desert Health
Products, Inc., www.deserthealth.com have been updated and are now e-commerce
ready and specially geared toward our specialty products.

Products and Product Development

      Desert Health's products are marketed under its customers' store brands
(private label) as well as under our own brands.

      Desert Health introduces new products and reformulates existing products
on an ongoing basis in response to consumer trends and emerging scientific
evidence. Product concepts are generally developed


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<PAGE>

by Desert Health's management, key employees and consultants. Desert Health also
develops and formulates new products based on customers' requests and responds
to changes in existing product brands by reformulating existing products and
redesigning packaging.

      Our product lines include:

   o  Vitamin, mineral and antioxidant combinations.

   o  Chinese Herbal formulas based on classic Chinese formulas originally
      developed through 3000 years of medical practice as well as current
      clinical and laboratory studies. These products embody Chinese medicine's
      basic philosophy of balance, integrating prevention and treatment of
      illness while enhancing well-being and quality of life. These products
      were individually formulated by Dr. Henry Han, who draws from over 20
      years of clinical experience and research to design formulas to be
      agreeable to the typical body type of westerners.

   o  Specialty Supplements - We use current scientific research to create
      innovative specialty supplements. We search worldwide to find the
      naturally derived ingredients utilized to formulate these powerful
      products. All of these supplements contain targeted nutrition ingredients
      to provide safe and effective remedies for common ailments.

   o  Weight Management Products - In response to the obesity epidemic in the
      United States and elsewhere in the world. We have developed a line of
      products to assist in weight reduction and management. Our weight loss
      products incorporate natural ingredients, which help to reduce appetite,
      accelerate metabolism, diminish carbohydrate cravings, and encourage fat
      loss, so that weight loss may be achieved.

   o  Herbal/Botanical Products - Our herbs and other botanical products are
      created from premium raw materials. We utilize only botanical ingredients
      cultivated from reputable growers with strict quality standards. Our
      formulas blend the traditional wisdom of cultures across the globe, and
      modern science.

   o  FemAid Products Support Systems - FemAid is a comprehensive nutritional
      program formulated for women of all ages, but especially for women
      suffering from pre-menstrual syndrome (PMS), perimenopause and menopause.
      Today, a growing number of women are asking for more natural products and
      approaches whenever possible. Although there is not a lack of products
      available there is a lack of guidance and support in terms of how much,
      when, and in what combinations supplements should be taken in order to be
      truly beneficial.

      The FemAid line provides guidance for the consumer by recommending a
      distinct combination of natural products for each hormonal phase. The
      FemAid line is a combination of nutritional supplements, phyto (plant)
      hormones and herbs to help women maintain optimal health and alleviate
      uncomfortable symptoms resulting from hormonal and nutritional imbalance.

   o  Ayurvedic Products - For over 5000 years a health system referred to as
      'Ayurveda', meaning 'the science of life' has been practiced in India.
      This system of natural medicine uses a holistic approach to healing using
      specialized herbal formulas to balance the body. Our Ayurvedic herbal
      formulas blend the traditional ancient wisdom with the finest current
      scientific research and manufacturing methods.

   o  Skin/Personal Care Products - The condition and appearance of one's skin
      is one of the first things that people notice. We offer some of the most
      innovative skin care technology available anywhere. Desert Health's skin
      care and personal care products are designed to maintain and protect the
      natural inheritance of youthful smoothness and the radiant vitality of
      healthy skin. We specialize in state of the art formulations that meet the
      industry standards and qualifications from all natural accepted products
      to Beta/Alpha Hydroxy items.


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<PAGE>

   o  Pet Care Products - Desert Health has researched and developed a complete
      line of pet care products for good nutrition and grooming for your pets.
      The philosophy behind our pet care line is to provide for the health and
      well being of pets by using natural raw materials with no negative side
      effects. The products are formulated using such ingredients as aloe vera,
      active essential oils, efficacious herbs, natural emollients and other
      natural ingredients. Of these agents aloe vera is a key ingredient for the
      health and beauty of pets. Only 100% natural liquid aloe vera is used in
      these products. The aloe vera is carefully cold processed in liquid form
      to preserve the efficacy of the fresh product.

   o  Burn and Scald Relief - This product was formulated under the guidance of
      traditional Chinese Medicine and Western medicine. It is made from all
      natural Chinese herbs and is patented in China. Burn and Scald Relief is
      for external use only. Desert Health's Burn and Scald Relief is one of
      many pearls in Chinese Medicine. It resolves the complexity of problems
      that occur when treating burns and scalds in the traditional way. It also
      gives birth to the new era of treating all kinds of burns and scalds
      without pain, festering, infection and scarring. The treatment has an
      immediate effect and the healing time is drastically reduced.

      Burn and Scald Relief has won many awards in China and elsewhere. These
      include the Brussels Eureka '98, Merite De L'Invention.

   o  Desert Health's FOOT CARE - A Skin Conditioning System - An innovative
      product designed specifically to treat the dry skin and other skin
      conditions often associated with diabetes. This topical skin care system
      is formulated to provide deep skin moisturization, enhance healthy looking
      skin, and make the skin feel fresh again. It is a two-phased natural
      product and is doctor recommended, often showing results starting with the
      first application.

      Following a daily regimen will help to remove dirt and debris from the
      surface of the feet and reduce the likelihood of contamination. Phase One
      also contains an incredible exfoliant, which removes excess dead or dry
      skin. Phase Two contains an antioxidant, which fights free radicals that
      may harm cells, and helps maintain the skin's own natural flexibility and
      elasticity. It enhances natural skin repair and strengthens the skin's own
      natural defenses. The potent skin conditioner helps reduce skin irritation
      caused by dry skin and stimulates the skin's own microcirculation. The
      special invigoration increases the skin's own microcirculation to deliver
      a special blend of moisturizers to distressed skin. The long lasting
      moisturizer re-moisturizes the skin.

      Numerous conditions may benefit from the use of this product. Individuals
      who have dry, cracked, and/or skin irritation as well as vascular
      insufficiency or diabetic skin conditions have used Desert Health's FOOT
      CARE to enhance healthy looking skin.

New Products

   o  Anti-Aging - A complete line of anti-aging products developed by
      nationally known dermatologists exclusively for Desert Health, are
      packaged and ready for market The product line, labeled with our
      nationally registered name and logo LaVraie(TM) (The Truth) includes the
      following products:

            >  LaVraie Night-time Treatment Cream
            >  LaVraie Treatment Cleanser
            >  LaVraie Treatment Under Makeup Cream
            >  LaVraie Treatment Toner
            >  LaVaie Two-phase Treatment Mask and Lift

   o  Children's Chewable Multi-Vitamins - These vitamins are available in
      cherry, orange and grape flavors, supplying the required nutritional needs
      of active children.


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<PAGE>

   o  Spf 30 Plus - an aloe vera based sun screen product.

   o  Pregnenalone - has been shown to act quickly and profoundly to restore
      balance to the basic stress chemistry of the body. It may be the most
      potent and quick acting brain nutrient. Pregnenalone has been found to
      strengthen the myelin sheath membranes that are vital to the healthy
      functioning of our brains and nervous systems.

   o  DHEA - Dehydroepiandrosterone or DHEA as it is more commonly called, is
      the most abundant steroid in the bloodstream and is present at even higher
      levels in brain tissue. Supplemental DHEA has been shown to have
      anti-aging and anti-obesity influences.

Desert Health is against animal testing for cosmetic products and ingredients.
We do not test our products or ingredients on animals, nor do we commission
others to do so.

Manufacturing and Packaging

      Desert Health has contracts with manufacturers that have FDA approved
facilities, GMP registration and in some cases, when necessary, topical drug
licenses. Thus, we are able to contract package for companies around the world
to meet their needs.

Marketing and Distribution Strategies

      Desert Health's strategy is to build relationships with distributors and
retail operators. Desert Health is developing a niche market by focusing on the
mid-size companies that need branded or private label products in affordable
volumes. Desert Health's in-house packaging and contract packaging agreements
enable us to provide multiples of various sizes and bottles to meet the
requirements of our customers.

Global Sales

      Desert Health will continue to capitalize on the global opportunities
created by the increasing worldwide recognition of the benefits of vitamins and
nutritional supplements and the perception that 'Made in USA' products are the
safest and highest quality products obtainable.

      Desert Health's office in Beijing, China, is located at B1501 Room, CaiZhi
International Plaza, No. 18 East Street, Zhongguancun, Haidian District, and the
Chief Agent is Ms. Zhong jianjian. We have an experienced staff that is
aggressively promoting our products to many areas of the huge Chinese market. At
the present time our products are either being tested or registered in Beijing,
Shanghai and Guangzhou China.

      In June 2003, we opened a European office for Desert Health in Trondheim
Norway. This office in the heart of Europe will enable us to respond promptly to
our European customers' needs and to develop new customer contacts.
Additionally, this closer contact will result in our increased awareness of the
public's requirements in the supplement industry throughout Europe.

         Thor Lindvaag, a native of Norway, is overseeing the European office.
Desert Health, in concert with Mr. Lindvaag, has signed a 10 year licensing
agreement with Royal Products Scandinavia, AS, a direct sales marketing company.
All their products will be supplied by Desert Health. Desert Health has 10%
ownership in the company and will receive royalty on the sales. The first order
to Royal Products Scandinavia was shipped in January 2004.


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<PAGE>

Industry Overview

Domestic Market

      Surveys find that the majority of Americans depend on dietary supplements
to maintain good health. As a result, the dietary supplement industry generates
billions of dollars in sales annually in the United States, making it one of the
most dynamic sectors of the United States economy.

      The Journal of the American Medical Association ("JAMA") published June
26, 2002, that all adults should take vitamin supplements to help prevent
chronic diseases. The article states, "...that most people do not consume an
optimal amount of vitamins by diet alone. It appears prudent for all adults to
take vitamin supplements." The study also notes that other supplements may be
needed to achieve the minimum daily requirement of certain vitamins and minerals
beyond the amount contained in any multivitamin. Three in five consumers - 59% -
take supplements on a regular basis.

      According to the Natural Marketing Institute (NMI), which monitors
consumer trends in the marketplace, demand for dietary supplements corresponds
with a strategic shift in how consumers view health and wellness. More than ever
before, consumers feel empowered to manage their health and are either actively
using supplements or are researching information about them.

      For this reason, new survey research conducted for the Dietary Supplement
Information Bureau finds that dietary supplements have become an American
standard. Three in five consumers - (59%) - take supplements on a regular basis.
Corresponding to the dramatic growth of herbal products over the past few years
the survey found that almost one in four Americans (23%) regularly uses herbs
and specialty supplements.

      Minerals consist of 8% of the supplement market, with sales of $1.4
billion in 2000. Nutrition Business Journal charts developments in the dietary
supplement industry. Their last reported supplement sales chart exceeded $16.8
billion for 2000 with vitamins remaining the largest seller with $6 billion in
sales - about 35% of the market. Within this category the biggest seller is
calcium, which comprised half of all mineral sales, followed by iron, magnesium,
chromium, zinc, selenium and potassium.

International Market

      According to a recent IMS Health study, the worldwide market for
over-the-counter products reached a value of USD 40.8 billion in 1999. The
European OTC market ranks second to North America with sales of USD 10.9 billion
and a 27% market share. Studies also show that the European population is
increasingly health conscious. People are taking more responsibility for their
physical welfare. The growth in information concerning health, particularly on
the Internet, has led to explosive growth in the consumption of so-called
self-medication products. Other trends contributing to the growth in this market
include increased availability of vitamins and nutritional supplements,
increasing disposable income and a tendency for consumers to buy products under
the motto "prevention is better than a cure."

      Vitamins and nutrition supplements are marketed to appeal to various
groups, including: health conscious; those with an increased health risk due to
hereditary or genetic factors; those who eat nutritionally inadequate meals; the
physically active; children, women of child-bearing age and pregnant women;
people on a weight reducing diet; and smokers.

      Vitamins and nutrition supplements are primarily distributed through
pharmacies and drugstores and over the Internet.

      Based on our research we believe that the market will increase by five to
six percent in the next three years.

      In Asia, the United States is an important player. Based on trade
statistics, health supplement imports from the United States showed a steady
growth. The marketplace is generally very receptive to


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<PAGE>

American products. While the market is highly competitive and indeed saturated,
best prospects are those supplements that are innovative with scientifically
proven benefits, focused on preventive care. Natural, holistic (i.e.
wellness-focused), enzymatic formulae, anti-oxidants, bone-mineral enhancement
formulae, brain-foods, vanity-related and those that provide a quick
"pick-me-up" for sports enthusiasts are increasing in popularity.
"Nutraceuticals," a recently coined term that refers to natural and herbal
remedies that are manufactured and packaged in capsule form, is fast gaining
acceptance. Multi-vitamins and vitamin C supplements are traditionally popular
with the mass market.

      Market expansion is estimated to be between three percent and five percent
annually as more Asians include supplements in their diet, with a view to
overall health improvement.

Source and Availability of Raw Materials

      Desert Health constantly searches worldwide with the help of its advisors
for the finest quality raw materials in order to guarantee that we continue to
provide the most active finished product to its customers.

      We have not experienced any material adverse effect on our business as a
result of shortages of raw materials or packaging materials used in the
manufacture of our products. An unexpected interruption or a shortage in supply
could adversely affect us.

Quality Control

      Tablets and capsules are purchased from manufacturing operations, which
include modern quality control laboratories and testing facilities. When
products are ready for bottling, automated equipment counts the tablets or
capsules, inserts them into bottles, applies a cap, (which includes a
tamper-resistant inner seal), affixes a label and adds a tamper-resistant outer
safety seal. All of this is done according to Good Manufacturing Practice
regulations for dietary supplements. Finished blended powders and bulk products
undergo the same quality control.

Major Customers

      For the years ended December 31, 2003 and 2002, a significant volume of
sales was concentrated with three to four customers. These accounted for 60% of
sales during fiscal 2003. In 2002 these three customers accounted for 63% of
sales. If these customers, or any of the Company's other major customers
substantially reduce their volume of purchases from Desert Health, results of
operations could be materially adversely affected.

Competition

      The market for vitamins and other nutritional supplements is highly
competitive in all of the Company channels of distribution. The marketplace for
private label business is extremely price sensitive with service levels,
quality, innovative packaging, marketing and promotional programs and uniqueness
of products being the key factors influencing competitiveness.

      We believe that there are also numerous companies competing for
nutritional product lines in our geographical markets. As most companies are
privately held, we are unable to precisely assess the size of our competitors or
where we stand with respect to sales volume by brand. Most competitors are
substantially larger than we are and have greater financial resources, which
could adversely impact our success. We believe that we derive a competitive
benefit in having spent several years establishing import rights into various
countries.

International Sales

      Sales of our products outside of North America represented approximately
62% and 71% in fiscal 2003 and 2002, respectively. The Company expects that
international sales will continue to represent a


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<PAGE>

significant portion of its sales. International sales and operations may be
subject to risks such as the imposition of governmental controls, export license
requirements, restrictions on the export of critical ingredients, currency
exchange fluctuations, generally longer receivable collection periods, political
instability, trade restrictions, changes in tariffs, difficulties in staffing
and managing international operations, potential insolvency of international
distributors and difficulty in collecting accounts receivable. There can be no
assurance that these factors will not have an adverse effect on our future
international sales and, consequently, on our business, operating results and
financial condition.

Government Regulation

      The processing, formulation, packaging, labeling and advertising of our
products are subject to regulation by one or more Federal agencies, including
the Food and Drug Administration ("FDA"), the Federal Trade Commission, the
Consumer Product Safety Commission, the United States Department of Agriculture
and the United States Environmental Protection Agency. These activities are also
regulated by various agencies of the states, localities and countries in which
Desert Health's products are sold. In addition, we market certain of our
products in compliance with the guidelines promulgated by the United States
Pharmacopoeia Convention, Inc., (USP) and other voluntary standard
organizations.

      The FDA in particular, is primarily responsible for regulation of the
labeling, manufacture and sale of nutritional supplements, which the FDA
believes to be unapproved drugs or food additives rather than food supplements.
These products are primarily regulated by the FDA under the auspices of the
Federal Food, Drug and Cosmetic Act ("FFDCA"). Under the FFDCA, most dietary
supplements are currently regulated as foods, which require no approval from the
FDA prior to marketing. Therefore, the regulation of dietary supplements is far
less restrictive than that imposed upon manufacturers and distributors of
prescription drugs. Dietary supplements, however, must be labeled correctly to
avoid being misbranded under the FFDCA. Health claims made by nutritional
supplement companies with respect to their product are specifically regulated by
the FDA. If such products make unapproved health claims, the FDA may consider
them as unapproved drugs, which require approval by the FDA prior to marketing.

      The Dietary Supplemental Health and Education Act ("DSHEA") recognizes the
importance of good nutrition and the availability of safe dietary supplements in
preventive health care. DSHEA amends the Federal Food, Drug and Cosmetic Act by
defining dietary supplements, which include vitamins, minerals, nutritional
supplements and herbs, as a new category of food, separate from conventional
food. Under DSHEA, the FDA is generally prohibited from regulating such dietary
supplements as food additives or drugs. It requires the FDA to regulate dietary
supplements so as to guarantee consumer access to beneficial dietary
supplements, allowing truthful and proven claims. Generally, dietary ingredients
that were on the market before October 15, 1994 may be sold without FDA
pre-approval and without notifying the FDA. However, new dietary ingredients
(those not used in dietary supplements marketed before October 15, 1994) require
premarket submission to the FDA of evidence of a history of their safe use, or
other evidence establishing that they are reasonably expected to be safe. There
can be no assurance that the FDA will accept the evidence of safety for any new
dietary ingredient that we may decide to use, and the FDA's refusal to accept
such evidence could result in regulation of such dietary ingredients as food
additives, requiring the FDA pre-approval based on newly conducted, costly
safety testing.

      DSHEA also authorizes the FDA to promulgate Good Manufacturing Practice
regulations for dietary supplements, which would require special quality
controls for the manufacture, packaging, storage and distribution of
supplements. We believe that its facilities and those of independent third party
manufacturers have completed significant facility renovations that should allow
us to comply with the new regulations. DSHEA further authorizes the FDA to
promulgate regulations governing the labeling of dietary supplements including
claims for supplements pursuant to recommendations made by the Presidential
Commission on Dietary Supplement Labels.

      Our products which are sold in Canada are further subject to Canadian
government regulation under that country's Food and Drug Act and the regulations
thereunder (the "Canadian Act"), which includes regulatory approvals of
applicable products through a drug identification number and general proprietary
number by Health Canada. The loss of a particular drug identification number or
general proprietary number would adversely affect our ability to continue to
sell the particular product to which the drug identification number or general


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<PAGE>

proprietary number was assigned. Material non-compliance with the provisions of
the Canadian Act may result in the loss of a drug identification number or
general proprietary number or the seizure and forfeiture of the particular
products, which are sold in non-compliance with the Canadian Act.

      In addition, we cannot predict whether new legislation or regulations
governing our activities will be enacted by legislative bodies or promulgated by
agencies regulating our activities, or what the effect of any such legislation
or regulations on our business would be.

      Overseas, registration is mandatory in each country prior to distribution.
This process may take from several months to over a year to complete. We, at any
one time, may have several products waiting approval for registration and
eventual distribution. We can provide no assurance as to the timing of such
approvals.

Trademarks

      Desert Health owns or has applied for trademarks registered with the
United States Patent and Trademark Office. Additionally, we have registered the
Desert Health trade name and logo as Class 5 in the following countries:
Argentina, Brazil, Canada, Egypt, France, Germany, Hong Kong, Indonesia, Italy,
Malaysia, Mexico, Norway, Spain, Sweden, Taiwan, Britain and Northern Ireland.
Federally registered trademarks have a perpetual life, as long as they are
renewed on a timely basis and used properly as trademarks, subject to the rights
of third parties to seek cancellation of the trademarks. Desert Health believes
that its registered and unregistered trademarks and other proprietary rights are
valuable assets and believes they have significant value in the marketing of its
products. Desert Health vigorously protects its trademarks against infringement.

Research and Development

      Desert Health does not conduct primary research for the development of new
ingredients. Instead, Desert Health's research efforts are focused on developing
new products in response to market trends and consumer demands. Desert Health's
staff also continually reformulates existing Desert Health Products in response
to changes in nationally advertised brand formulas in order to maintain product
comparability.

      Desert Health believes that flexibility and innovation with respect to new
products are crucial factors in competing for market share in the field of
nutritional supplements. By monitoring market trends and by avoiding short-lived
'fad' items, we are able to anticipate significant consumer demand for certain
types of products. We develop high-quality new products on an ongoing basis,
capitalizing on the emerging science relative to nutritional products as well as
shifts in consumer demand. Thus, while the introduction of new products does not
entail the expenditure of significant funds by us for scientific research and
for the development of ingredients, considerable time and effort are devoted to
market research activities, product formulations and packaging.

Product Liability/Insurance

      Desert Health, as a distributor of products that are ingested, faces an
inherent risk of exposure to product liability claims. Accordingly, we maintain
product liability insurance coverage and require each of our suppliers to carry
product liability insurance covering. While management believes that its
insurance coverage is adequate, there can be no assurance that any judgment
against us will not exceed liability coverage. A judgment significantly in
excess of the amount of insurance coverage would have a material adverse effect
on us.

Employees

      As of December 31, 2003, we had seven full time employees at our
headquarters in Scottsdale, Arizona, USA and an additional three employees in
our offices in Beijing, China. None of our employees


                                                                              11
<PAGE>

are subject to any collective bargaining agreements. Consultants are utilized as
needed in marketing and sales. Commissioned personnel include persons we may
hire from time to time in sales and marketing.

      Our proposed personnel structure can be divided into three broad
categories: (1) management and professional, (2) administrative, and (3) project
personnel. As in most small companies, the divisions between these three
categories are somewhat indistinct, as employees are engaged in various
functions as projects and workload demands.

      We are dependent upon the services of Johnny Shannon, Chairman and
President of the Company. Mr. Shannon currently has an Employment Agreement with
us, which will expire January 31, 2005. Our future success also depends on our
ability to attract and retain other qualified personnel, for which competition
is intense. The loss of Mr. Shannon or our inability to attract and retain other
qualified employees could have a material adverse effect on us.

Additional Information

      We are subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, will
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected at public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington D.C. 20549; Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 5670 Wilshire Boulevard, Los Angeles,
California 90036. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D.C. 20549 at prescribed rates. For further information, the SEC
maintains a website that contains reports, proxy and information statements, and
other information regarding reporting companies at (http://www.sec.gov).

ITEM 2.     PROPERTIES

      Our main offices are located at 8221 East Evans Road, Scottsdale, Arizona,
USA, and our telephone number is 480.951.1941, Fax Number: 480.661.7163. E-mail
address: info@deserthealth.com. The facility is a leased 11,000 square foot
building. These headquarters are adequate for marketing efforts domestically and
internationally. We anticipate the need for additional space in the future, but
anticipate no difficulty in obtaining such space in the immediate vicinity at
favorable rates. We pay rent at the rate of $9403.00 per month. All property is
in good repair.

      The Company has an office in Beijing, China in the Dongcheng District and
pays rent of approximately USD 954.25 per month.

ITEM 3.     LEGAL PROCEEDINGS

      On March 5, 2003, we instituted suit in the Arizona Superior Court,
Maricopa County, against a Phoenix-based marketer of health care products,
seeking unspecified damages for fraud and misrepresentation arising from a
product licensing and marketing agreement.

      On November 12, 2002, we were named in a suit in the Superior Court in the
State of Arizona, by holders of various promissory notes. The claims against us
were resolved prior to December 31, 2003, and we have satisfied our obligations
under the terms of the resolution. As to one of the plaintiffs, we have asserted
a counterclaim for breach of fiduciary duty, conversion, and wrongful
interference with business relations. We intend to vigorously pursue our
counterclaim.

      We are named in a suit filed June 2, 2002, in the Maricopa County Superior
Court, brought by a plaintiff claiming to hold an assignment of note in the
amount of $50,000 from a former consultant to the Company. The Company asserts
that the note was paid in full prior to the alleged assignment, and intends to
vigorously defend our position. The matter is scheduled for a status conference
in April 2004.


                                                                              12
<PAGE>

      Buccaneer Holdings, Inc. secured a default judgment in Calgary, Alberta,
Canada, in December 2003 in the amount of USD 37,385 plus interest and legal
costs. Desert Health disputes that it ever received any loan funds from
Buccaneer Holdings, Inc., and intends to aggressively resist the perfecting of
the judgment in Arizona, and we have not accrued the amount in our financials.

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

      No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of our fiscal
year ended December 31, 2003.

PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

            Our Common Stock is traded in the over-the-counter securities market
            through the National Association of Securities Dealers Automated
            Quotation Bulletin Board System, under the symbol "DHPI". The
            following table sets forth the quarterly high and low bid prices for
            our Common Stock as reported by the OTC:BB for the last eight
            quarters. The quotations reflect inter-dealer prices, without retail
            mark-up, markdown or commission, and may not necessarily represent
            actual transactions.

                                    High                Low
                                    ----                ---
2002
----
Quarter ended March 31              0.51                0.17
Quarter ended June 30               0.31                0.16
Quarter Ended  September 30         0.31                0.18
Quarter Ended December 31           0.54                0.08

2003
----
Quarter Ended March 31              0.55                0.25
Quarter Ended June 30               0.62                0.15
Quarter Ended September 30          0.65                0.40
Quarter Ended December 31           0.65                0.35

      As of December 31, 2003, we had 13,163,821 shares outstanding held by
approximately 364 stockholders of record.

      Refer to Item 11 below with regard to information regarding our equity
compensation plans.

      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 our Common Stock will
be at 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.

Sales of unregistered securities in 2003 are as follows:

      545,000 shares Rule 144 common stock were authorized to be issued to nine
employees and/or directors of the company January 27, 2003, with a value of
Fifty-one cents per share.

      May 29, 2003, 50,000 shares Rule 144 common stock, valued at Twenty-one
cents per share, were issued to an individual as a retainer. However, we are
disputing this issuance.


                                                                              13
<PAGE>

      May 29, 2003, pursuant to agreements, an aggregate number of 80,000 shares
of Rule 144 common stock, valued at Twenty-one cents per share, were issued to
three individuals, who are all sophisticated investors with prior relationships
with the Company.

      July 8, 2003, 1,100,000 shares Preferred Stock, valued at $1.00 per share,
based on a Put option included in the agreement, were issued to an institutional
investor based on an agreement dated June 16, 2003, to convert $967,339 of debt.
See Note O "Shares Subject to Mandatory Redemption".

      July 8, 2003, 350,000 shares Rule 144 common stock, valued at Fifty-four
cents per share, were authorized to be issued to an institutional investor with
a prior relationship with us, in satisfaction of loan repayment agreements.

      July 18, 2003, 25,000 shares Rule 144 common stock valued at Fifty-five
cents per share were authorized to be issued as a loan inducement to a
sophisticated investor with a prior relationship with us.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

      The following discussion and analysis should be read in conjunction with
our Financial Statements and the notes thereto appearing elsewhere in this
document.

RISK FACTORS AND CAUTIONARY STATEMENTS

      This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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. 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.

Cautionary Statement Regarding Forward-looking Statements

      This report may include forward-looking statements which reflect our
current views with respect to future events and financial performance. The words
"believe", "expect", "anticipate", "intends", "estimate", "forecast", "project"
and similar expressions identify forward-looking statements.

      We wish to caution investors that any forward-looking statements made by
or on behalf of the Company are subject to uncertainties and other factors that
could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to the Risk Factors
listed below (many of which have been discussed in our prior SEC filings.).
Though we have attempted to list comprehensively these important factors, we
wish to caution investors that other factors could in the future prove to be
important in affecting our results of operations. New factors emerge from time
to time and it is not possible for management to predict all of such factors,
nor can it assess the impact of each such factor on the business or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.

      Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only of our views as of the date the
statement was made. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.


                                                                              14
<PAGE>

Critical Accounting Policies Used in Financial Statements

      We prepare our financial statements in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Management's estimates and judgments are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. These policies include the carrying value of
inventory, intangibles and goodwill, allowance for doubtful accounts,
depreciable lives and revenue recognition.

Overview

      Our auditors' 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, 2003, and other
factors, our auditors have included a paragraph in their report stating those
factors create an uncertainty regarding our ability to continue as a going
concern.

Results of Operations

Comparison of years ended December 31, 2003 and 2002

      Revenues. Revenues for the year ended December 31, 2003 were $193,090, an
increase of $60,015 or 45% increase from $133,075 for the year ended December
31, 2002. This increase was principally attributable to an increase in our
domestic sales.

      General and Administrative. General and administrative, legal and
consulting expenses for the year ended December 31, 2003, were $1,989,111 which
was a decrease of $22,718 from the $2,011,829 for the year ended December 31,
2002. This decrease was primarily the result of lower employee compensation. For
the year ended December 31, 2003 and December 31, 2002, impairment losses
related to goodwill were $0 and $386,111, respectively. Additionally, impairment
losses related to intangibles for the years ended December 31, 2003 and December
31, 2002 was $530,000 and $95,230, respectively. These amounts are reported as
operating expenses on the consolidated statements of operations and accumulated
deficit. See Note A- "Summary of Significant Accounting Policies".

      Our net loss was $2,369,546 for the year ended December 31, 2003 as
compared to net loss of $2,211,703 for the year ended December 31, 2002. This
increase was the result of increasing financing costs and a reduction of
inventory to market in the amount of $43,682 as well as increasing activity and
related additional expenses discussed above.

Liquidity and Capital Resources

      As indicated in our financial statements attached, our net revenue was not
sufficient to meet our operating expenses for the year ended December 31, 2003.
In addition, as of December 31, 2003, our current liabilities exceeded our
current assets by $2,041,845. These factors create an uncertainty regarding our
ability to continue as a going concern.

      Since inception, we have financed our cash flow requirements through debt
financing, issuance of common stock for cash and services, and minimal cash
balances. As we continue our marketing activities in Europe, Asia and North
America, we may continue to experience net negative cash flows from operations,
pending receipt of sales revenues, and will be required to obtain additional
financing to fund operations through common stock offerings and bank borrowings
to the extent necessary to provide our working capital.


                                                                              15
<PAGE>

      We are continuing our goal of supplementing anticipated international
business by means of development of a network marketing organization in the
United States. Our wholly owned subsidiary, Royal Products, Inc., has selected
management towards this goal. This management is under the leadership of Dr.
Cliff Baird and Dr. Leonard Makowka. Dr. Cliff Baird holds an MBA and a PhD. and
has for the last thirty years, trained well over 200,000 network marketing
distributors and other sales agents in the concepts of sudden success.

      Leonard Makowka, M.D., PhD., head of Desert Health's Medical Advisory
Board, in cooperation with Dr. Baird is developing a media network and a
complete product presentation that will be used by all distributors. Dr. Makowka
has agreed to allow Royal Products, Inc., to use his name and endorsement,
"DrMak" on all its labels, brochures, sales literature, audios and CD's. It is
their goal that "Dr.Mak /Royal Products becomes a recognized household name in
the nutrition and health industry.

      Furthermore, we are continuing to position ourselves in the lucrative
North American market. We believe that trademark and logo registrations under
Class 5 filed in Mexico and Canada will contribute to the presence of our
products in the network marketing, private label and branded label markets.

      Many of our international development agreements and registrations are in
the final phases with companies located in the Czech Republic, Sweden, Turkey,
China and Korea.

      Over the next 12 months, we intend to increase our revenues through the
strong support from our international and domestic clients and registrations
from various countries around the world are continuing to be approved.

      Sales of private labeled products for Wright Sports and Nutrition began in
2003. Rayfield Wright, President of Wright Sports and Nutrition, was a star
football player with the Dallas Cowboys, making five Super Bowl and six Pro Bowl
appearances. He was a candidate for the National Professional Football Hall of
fame as well as the Ring of Honor. This product line focuses primarily on
professional athletes and aging baby boomers that associate themselves with
professional athletes and have similar needs for supplements. Currently, these
products are being sold to Brookshire Brothers supermarket chain, United Foods,
and Apollo Men's spas. Mr. Wright is in final negotiations with Wal-Mart, and is
currently talking to Walgreen's, Sam's Clubs, Costco, B.J.'s, the US Military PX
and other smaller chains.

      We have entered into a 10 year agreement with a Scottsdale, Arizona based
company, EIC, for private labeling of our Desert Health's Foot Care - a skin
care system, in Mexico and all Indian Nations within the United States. Initial
shipments have commenced to the Osage Nation. R.C. "Dick" Eisenach, President of
EIC, has international and domestic management, sales and marketing experience.
His initial contract with the Osage Nation is expected to exceed $155,000 and he
has additional contracts pending.

      Management believes the events as described above will bring liquidity and
profitability to the Company in the coming year. We believe exclusive marketing
rights to the new health products, and other products being negotiated for, will
bring significant volume and profitability.

      We will continue to increase the number of our employees, and expand our
facilities where necessary to meet product development and completion deadlines.
We believe that existing capital and anticipated funds from operations will not
be sufficient to sustain operations and planned expansion in the next 12 months.
Consequently, we will be required to seek additional capital in the future to
fund growth and expansion through additional equity or debt financing or credit
facilities. Considering the state of market conditions, no assurance can be made
that such financing would be available, and if available it may take either the
form of debt, equity, or a combination thereof. The down turn in the capital
market will substantially impact our ability to sell securities in planned
amounts and in turn our ability to meet our capital requirements. In either
case, the financing could have a negative impact on our financial condition and
that of our shareholders.

      There are no off-balance sheet arrangements.


                                                                              16
<PAGE>

Risk Factors

      Our operating results are difficult to predict in advance and may
fluctuate significantly, and a failure to meet the expectations of analysts or
our stockholders would likely result in a substantial decline in our stock
price.

      Factors that are likely to cause our results to fluctuate include the
following:

   o  The gain or loss of significant customers or significant changes in
      purchasing volume;

   o  The amount and timing of our operating expenses and capital expenditures;

   o  Changes in the volume of our product sales and pricing concessions on
      volume sales;

   o  The timing, rescheduling or cancellation of customer orders;

   o  The varying length of our sales cycles;

   o  Our ability to specify, develop, complete, introduce and market new
      products and bring them to volume production in a timely manner;

   o  The rate of adoption and acceptance of new industry standards in our
      target markets;

   o  The effectiveness of our product cost reduction efforts and those of our
      suppliers;

   o  Changes in the mix of products we sell; and

   o  Changes in the average selling prices of our products.

      There is a limited public market for our common stock. Although our common
stock is listed on the OTC Bulletin Board, there is a limited volume of sales,
thus providing a limited liquidity into the market for our shares. As a result
of the foregoing, stockholders may be unable to liquidate their shares for any
reason.

      Our success depends heavily upon the continued contributions of Johnny
Shannon, our President, whose knowledge, leadership and technical expertise
would be difficult to replace. We have an Employment Agreement with Mr. Shannon
that expires January 1, 2005. Additionally, we have key man insurance in the
amount of $500,000 on Mr. Shannon.

      To grow our business successfully and maintain a high level of quality, we
will need to recruit, retain and motivate additional highly skilled sales,
marketing, and finance personnel. If we are not able to hire, train and retain a
sufficient number of qualified employees, our growth will be impaired. In
particular, we will need to expand our sales and marketing organizations in
order to increase market awareness of our products and to increase revenue.

      In addition, as a company focused on the development of complex products,
we will need to hire additional staff of various experience levels in order to
meet our product roadmap.

      We are subject to various risks associated with technological change and
if we do not adapt our products to the changes our business will be adversely
affected.

      Our performance will partially depend on our ability to enhance our
existing services, and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. We cannot predict
if we will use new methodologies effectively or adapt our products to consumer,
vendor, advertising or emerging industry standards. If we were unable, for
technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or customer requirements, our business,
results of operations and financial condition could be materially adversely
affected.

      If we need additional financing, we may not be able to raise further
financing or it may only be available on terms unfavorable to our stockholders
or us.

      We believe that our available cash resources will not be sufficient to
meet our anticipated working capital and capital expenditure requirements for
the next twelve months. We will need to raise additional funds to respond to
business contingencies, which could include the need to:


                                                                              17
<PAGE>

   o  Fund more rapid expansion;

   o  Fund additional marketing expenditures;

   o  Develop new products or enhance existing products;

   o  Enhance our operating infrastructure;

   o  Hire additional personnel;

   o  Respond to competitive pressures; or

   o  Acquire complementary businesses or technologies.

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

ITEM 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      See "Index to Consolidated Financial Statements" and Consolidated
Financial Statement schedules appearing on Page 22 of this Form 10-KSB.

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

      We have changed our auditors from James E. Raftery, CPA, PC, to Semple &
Cooper, L.L.P. James E. Raftery, CPA, PC, did not resign or decline to stand for
reelection. Rather, James E. Raftery, CPA, PC, is not certified under the PCAOB.
The change in accountants was approved by the Board of Directors. There are no
disagreements with James E. Raftery, CPA, PC. The new firm, Semple & Cooper,
L.L.P., commenced its engagement as of March 16, 2004.

Item 8A. Controls and Procedures

      As of December 31, 2003, an evaluation was carried out under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934). Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are, to the best of their
knowledge, effective to ensure that information required to be disclosed by us
in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Subsequent to December 31, 2003, our Chief
Executive Officer and Chief Financial Officer have concluded that there were no
significant changes in our internal controls or in other factors that could
significantly affect our internal controls.

PART III

ITEM 9.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: COMPLIANCE WITH
            SECTION 16(a) OF THE EXCHANGE ACT.

      The following table sets forth the names, positions with us and ages of
our executive officers and our directors. Directors shall be elected at our
annual meeting of shareholders and each director shall hold office for a term of
one year and until their successors shall have been duly chosen and shall have
qualified. The board elects officers and their terms of office are, except to
the extent governed by employment contract, at the discretion of the Board.


                                                                              18
<PAGE>

         Name              Age      Title

Johnny Shannon             67       Chief Executive Officer, Chairman,
                                    President, Director and Chief Financial
                                    Officer
Georgia Aadland            66       Secretary/Treasurer and Director
Thor Lindvaag              56       Director, Sr. Vice President of
                                    International Marketing
Lawrence G. Olson          62       Director
William T. Walker, Jr.     71       Director

Duties, Responsibilities and Experience

Johnny Shannon has been President, Director and Chief Financial Officer of the
Company since 1996. From 1984 - 1996 Mr. Shannon served as an officer, director
and shareholder with several nutritional supplement companies.

Georgia Aadland has been Secretary/Treasurer of the Company since 1997 and a
Director of the Company from 1991 to 1996 and from 1998 to present.

Thor Lindvaag has been Director and Senior Vice President of International
Marketing of the Company since 1996 through January 26, 2004. From 1991 - 1996,
Mr. Lindvaag was President of Trim and Fit International. From 1988 - 1991, and
he was the managing Director of Arizona Health Holding. Mr. Lindvaag resigned
from the Board of Directors effective January 26, 2004.

Lawrence G. Olson, Director of the Company since January 1998, is currently an
officer and director of Olson Precast of Arizona, Inc. Mr. Olson has been a
director of several public companies, including the Phoenix National Bank, and
is currently a member of the board of directors and chairman of the board of
AZCO Mining, Inc. Mr. Olson graduated from the School of Engineering at the
University of Southern California in 1959.

William T. Walker, Jr., Director of the Company since March 2000, has over 40
years experience in the capital markets industry. Mr. Walker has been a member
of the board of the Securities Industry Association, Chairman of the California
District Securities Industry Association, Governor of the Pacific Stock
Exchange, President of the Bond Club of Los Angeles, and a member of the
American Stock Exchange Advisory Committee. Mr. Walker graduated from Culver
Military Academy, and attended Stanford University and served in the United
States Air Force. Mr. Walker is currently serving as a member of the Board of
Directors for the following public companies: Health Sciences Group, Inc.,
King-Thomason Group, Inc., and Supralife International, Inc.

LIMITATION OF LIABILITY OF DIRECTORS

      Our by-laws provide as follows: " Except as hereinafter stated otherwise,
the Corporation shall indemnify all of its officers and directors, past, present
and future, against any and all expenses incurred by them, and each of them
including but not limited to legal fees, judgments and penalties which may be
incurred, rendered or levied in any legal action brought against any or all of
them for or on account of any act or omission alleged to have been committed
while acting within the scope of their duties as Officers or Directors of this
Corporation."

      However, insofar as indemnification for liabilities arising under the
Securities Act of 1933 as amended may be permitted to directors and officers of
the Company pursuant to the foregoing provisions, or otherwise, it is the
opinion of the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.


                                                                              19
<PAGE>

BOARD OF DIRECTORS COMMITTEES AND COMPENSATION

The Board of Directors acts as our audit committee. Due to our size we cannot at
this time appoint a director who meets all of the requirements and
qualifications of a financial expert pursuant to the regulations promulgated
under the Securities Exchange Act of 1934, as amended.

We have formally adopted a Code of Ethics which is publicly available on our
website at www.deserthealth.com

Compensation Committee Interlocks and Insider Participation

      The Board of Directors does not have a Compensation Committee. The Board
of Directors oversaw the compensation of our executive officers.

Board of Director's Report on Executive Compensation

      General. As noted above, our Board of Directors does not have a
Compensation Committee and, accordingly, during the fiscal year ended December
31, 2003, the Board of Directors reviewed and approved the compensation of our
executive officers.

      Loans. In fiscal 2003, our Board of Directors granted no loans to any
officers or directors of the Company.

      Overall Policy; Significant Factors. During fiscal 2003, our continued
entrance into the international market, which brings with it all the normal
capital requirements to sustain growth, influenced the compensation decisions
made by the Board of Directors in respect to our executive officers. Therefore,
certain stock compensation may be granted at times in lieu of salaries,
commissions and for services rendered. This practice may be extended into the
future on a case-by-case basis and accordingly filed with the Securities and
Exchange Commission. Finally, as we continue to mature, certain additions to the
executive staff will be required. As we are required to seek talent in outside
market, we will be required to provide a competitive compensation package.

      As overall policy, however, the Board continues to believe that long-term
compensation tied to the creation of stockholder value should constitute a
significant component of the compensation to be earned by our executive
officers. In this respect, it will be the Board's policy to attempt to restrain
base cash compensation (subject to competitive pressures), while providing the
incentive for Management to increase stockholder value by providing such
officers with significant numbers of market-price stock that will not confer
value upon the officers unless and until our share price rises. The Board of
Directors expects that stock options will constitute a significant component of
the compensation package provided to executive officers.

      The Board believes that cash bonuses are, at times, appropriate based upon
the performance of our business compared to our internal expectations and
general business conditions.

            Section 16 (a) Beneficial Ownership Reporting Compliance

      Section 16 (a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Desert Health executive officers and directors, and
persons who beneficially own more than ten percent of Desert Health's common
stock, to file initial reports of ownership and reports of changes in ownership
with the SEC. Executive officers, directors and greater than ten percent
beneficial owners are required by SEC regulations to furnish Desert Health with
copies of all Section 16 (a) forms they file. Based upon a review of such copies
of such forms furnished to Desert Health and written representations from Desert
Health executive officers and directors, Desert Health believes that during
fiscal 2003 all forms 3 and 4 were filed on a timely basis for Desert Health
executive officers and directors. Forms 5 for Mr. Shannon and Ms. Aadland were
not timely filed.


                                                                              20
<PAGE>

ITEM 10.    EXECUTIVE COMPENSATION

      The following table sets forth the compensation of our executive officers
and directors during each of the fiscal years since inception of the Company.
The remuneration described in the table does not include the cost to the Company
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. The value of such
benefits cannot be precisely determined, but the executive officers named below
did not receive other compensation in excess of the lesser of $50,000 or 10% of
such officer's cash compensation exclusive of loans footnoted herein.

      We have Employment Agreements with Johnny Shannon and Georgia Aadland,
both of which were extended to January 31, 2005, by approval of the Board of
Directors. The Employment Agreements were filed in a Form10-KSB March 29, 2002.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                    Long Term Compensation

                                       Annual Compensation                 Awards                           Payouts

      (a)                (b)       (c)       (d)            (e)              (f)                (g)           (h)            (i)

                                                                          Restricted        Securities
      Name                                             Other Annual         Stock           Underlying       LTIP         All other
 and Principal                    Salary    Bonus      Compensation        Award(s)        Options/SARs     Payouts     Compensation
    Position            Year       ($)       ($)            ($)              ($)                (#)           ($)            ($)
<S>                     <C>        <C>       <C>         <C>            <C>                     <C>           <C>            <C>
Johnny Shannon (1)      2003        0         0          $125,736       200,000 shares           0             0              0
CEO, Chairman           2002        0         0          $258,509       0                        0             0              0
President, and          2001        0         0          $143,863       75,000 shares            0             0              0
Director

Georgia Aadland         2003        0         0          $ 21,736       100,000 shares
Secretary/              2002        0         0          $ 44,300       0                        0             0              0
Treasurer               2001        0         0          $ 38,400       75,000 shares            0             0              0
And Director

Thor Lindvaag           2003        0         0          $ 68,202       50,000 shares            0             0              0
                        2002        0         0          $ 95,762       0                        0             0              0
Director, Vice          2001        0         0          $ 49,675       75,000 shares            0             0              0
President of
Intn'l Marketing
</TABLE>


                                                                              21
<PAGE>

      (1)   On February 7, 2003, Mr. Shannon returned 425,000 shares of our
            stock to be held as treasury stock as repayment for a note
            receivable and accrued interest. See Note L "Related Party
            Transactions:.

Compensation of Directors

      All directors will be reimbursed for expenses incurred in attending Board
or committee meetings. Mr. Walker received $10,000 in each of 2003, 2002, and
2001 for consulting services.

Options, Grants and Exercises in 2003

      No executive officers were granted stock options or exercised options in
2003.

      Aggregate Options/SAR Exercises in Last Fiscal Year and FY-End Options/SAR
Values

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
(a)                     (b)          (c)               (d)                                   (e)
-------------------------------------------------------------------------------------------------------------------------
Name                    Shares       Value Realized    Number of Securities Underlying       Value of Unexercised in the
                        Acquired                       Unexercised Options/SARs at FY-End    Money Options/SARs at FY-End
                        On                             (#)                                   ($)
                        Exercise
                        ($)          ($)               Exercisable/Unexercisable             Exercisable/Unexercisable
-------------------------------------------------------------------------------------------------------------------------
<S>                     <C>          <C>               <C>                                   <C>
Johnny Shannon          0            --                1,000,000(1)                          $1,000,000(2)
-------------------------------------------------------------------------------------------------------------------------
Georgia Aadland         0            --                  500,000(1)                            $500,000(2)
-------------------------------------------------------------------------------------------------------------------------
Thor Lindvaag           0            --                  500,000(3)                            $500,000(2)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

      1.    All options are currently exercisable.

      2.    Amounts based on closing price of $1.00 per share as of March 19,
            2004.

      3.    Options expired January 31, 2004

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners.

      The following table sets forth certain information as of December 31,
2003, 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 10% of the outstanding common stock, (ii) each of our directors and (iii)
all our executive officers and directors as a group. Unless otherwise indicted,
the address of each individual is C/O Desert Health Products, Inc., 8221 East
Evans Road, Scottsdale Arizona 85260

Name of Beneficial Owner (1)              Number                Percent
                                          Of Shares             Of Class (2)

Johnny Shannon (3)                        5,108,950                  40
Georgia Aadland                             505,400                   4
Thor Lindvaag                               305,000                   2
Lawrence G. Olson                           466,000                   4
William T. Walker, Jr.                      150,000                   1

All Directors & Officers as a Group       6,535,350                  51
(5 individuals)


                                                                              22
<PAGE>

      (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 a security (i.e.,
            the power to dispose of, or to direct the disposition of, a
            security). In addition for purposes of this table, a person is
            deemed, as of any date, to have "beneficial ownership" of any
            security that such person has the right to acquire within 60 days
            after such date.

      (2)   Figures are rounded to the nearest percentage. Less than 1% is
            reflected as 0%.

      (3)   Johnny Shannon holds 1,000,000 shares of Preferred stock with 10:1
            preferential voting rights.

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                             Number of securities to      Weighted average        Number of securities
       Plan Category         be issued upon exercise      exercise price of      remaining available for
                             of outstanding options,    outstanding options,         future issuance
                               warrants and rights       warrants and rights
--------------------------------------------------------------------------------------------------------
                                       (a)                       (b)                       (c)
--------------------------------------------------------------------------------------------------------
<S>                                 <C>                         <C>                        <C>
 Equity compensation plans            None                       N/A                       N/A
   approved by security
          holders
--------------------------------------------------------------------------------------------------------
 Equity compensations not           2,000,000                   $0.25                      N/A
   approved by security
          holders
--------------------------------------------------------------------------------------------------------
           Total                                                $0.25                      N/A
--------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Insider Relationships: Jonathan Gotcher, website development, is the
grandson of the Chairman and President, Johnny Shannon.

ITEM 13.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a) Documents filed as part of this Report

            1.    Financial Statements:

                  A. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                        1.    Independent Auditors' Report
                        2.    Financial Statements:
                                    Balance Sheet                         2
                                    Statements of Operation and
                                    Accumulated Deficit                   3
                                    Statements of Changes in
                                    Stockholders Equity                   4
                                    Statements of Cash Flows              5 - 6
                        3.    Notes to Consolidated Financial
                              Statements                                  7 - 18

      All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.

            1.    During the fiscal year 2003, we filed the following Form
                    8-K's: Form 8-K filed January 10, 2003

            2.    Subsequent to the end of the fiscal year we filed the
                    following reports on Form 8-K: Form 8-K filed March 22, 2004


                                                                              23
<PAGE>

            3.    Exhibits

Exhibit Number          Description
(1)                     N/A
(2)(1)                  Acquisition Agreement and Plan of Merger with
                        Intercontinental Capital Fund, Inc., (Incorporated by
                        Reference)
(3)(i)(2)               Articles of Incorporation
                              A.    Articles of Incorporation for Desert
                                    Health Products, Inc., (Incorporated by
                                    Reference)
                              B.    Amended Articles of Incorporation for
                                    Desert Health Products, Inc.,
                                    (Incorporated by Reference)
(3)(ii)(2)              Bylaws
                                    Bylaws of Desert Health Products, Inc.
                                    (Incorporated by Reference)
(4)(2)                  Instruments defining the rights of security holders:
(4)(i)                        (a)   Articles of Incorporation for Desert Health
                                    Products, Inc. (Incorporated by Reference.)
                              (b)   Amended Articles of Incorporation for
                                    Desert Health Products, Inc.,
                                    (Incorporated by Reference)
                              (c)   Bylaws of Desert Health Products, Inc.
                                    (Incorporated by Reference)
(5)                     N/A
(8)                     N/A
(9)                     N/A
(10)                    Material Contracts
                                    1.    (3) Separation and Distribution
                                          Agreement between Desert Health
                                          Products, Inc., and Royal Phoenix
                                          (Incorporated by Reference)
                                    2.    (2) Product Marketing and Distribution
                                          Agreement between Desert Health
                                          products, Inc., and GH Associates,
                                          Inc. (Incorporated by Reference)
                                    3.    (2) Agreement regarding Dr. Harris's
                                          Original Perfect Feet Formula
                                          (Incorporated by Reference)
                                    4.    (2) Exclusive Distribution Agreement
                                          between Desert Health Products, Inc.,
                                          and Silmarc Pharma s.r.l. in Italy.
                                          (Incorporated by Reference)
                                    5.    (2) Exclusive Distribution Agreement
                                          between Desert Health Products, Inc.
                                          and Snore Formula Inc. (Incorporated
                                          by Reference)
                                    6.    (2) Modification of Contract between
                                          Desert Health Products, Inc. and Snore
                                          Formula Inc. (Incorporated by
                                          Reference)
                                    7.    (4) Agreement regarding Dr. Harris's
                                          Original Diabetic Feet Formula
                                          (Incorporated by Reference)
                                    8.    (4) Employment Agreement between
                                          Desert Health Products, Inc. and
                                          Johnny Shannon (Incorporated by
                                          Reference)
                                    9.    (4) Employment Agreement between
                                          Desert Health Products, Inc. and
                                          Georgia Aadland (Incorporated by
                                          Reference)
                                    10.   (4) Employment Agreement between
                                          Desert Health Products, Inc. and Thor
                                          Lindvaag (Incorporated by Reference)
(11)                    N/A
(13)                    N/A
(15)                    N/A
(16)                    N/A
(17)                    N/A
(18)                    N/A
(19)                    N/A
(20)                    N/A
(21)                    List of Subsidiaries
(22)                    N/A


                                                                              24
<PAGE>

(23)                    Consent of Desert Health's Auditor
(24)                    N/A
(25)                    N/A
(26)                    N/A
(31.1)                  Certification of Chief Executive Officer pursuant to
                        Item 601(b)(31) of Regulation S-B, as adopted pursuant
                        to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2                   Certification of Chief Financial Officer pursuant to
                        Item 601(b)31) of Regulation S-B, as adopted pursuant to
                        Section 302 of the Sarbanes-Oxley Act of 2002.
32.1                    Certification of Chief Executive Officer pursuant to 18
                        U.S.D. Section 1350 as adopted pursuant to Section 906
                        of the Sarbanes-Oxley Act of 2002.
32.2                    Certification of Chief Financial Officer pursuant to 18
                        U.S.D. Section 1350 as adopted pursuant to Section 906
                        of the Sarbanes-Oxley Act of 2002.

(1)   Filed in a Form 8-K on March 15, 2000.

(2)   Filed in a Form 10-KSB on April 3, 2001.

(3)   Filed in a Form 8-K on October 31, 2000.

(4)   Filed in a Form 10-KSB March 29, 2002.

Item 14.    PRINCIPAL ACCOUNTING FIRM FEES AND SERVICES

      The following table sets forth information regarding fees paid to our
independent accountant during the last two fiscal years:

                           2003                               2002
                           ------------------------------------------
Audit Fees                 $31,816                            $22,859
Audit Related Fees         $12,156                            $ 4,769
All Other Fees             -0-                                -0-

The Board of Directors pre-approved all fees paid to our independent auditor.


                                                                              25
<PAGE>

                                   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
our behalf by the undersigned, thereunto duly authorized.

DESERT HEALTH PRODUCTS, INC.                         DATED: March 30, 2004


By: /S/ Johnny Shannon
    ------------------
        Johnny Shannon
        President

      Pursuant to the requirements 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.

DESERT HEALTH PRODUCTS, INC.
(Registrant)

Signature                        Title                           Date


/S/ Johnny Shannon               Chief Executive Officer,        March 30, 2004
---------------------------      Chief Financial Officer and
Johnny Shannon                   President


/S/ Georgia Aadland              Secretary/Treasurer             March 30, 2004
---------------------------
Georgia Aadland


/S/ Lawrence Olson               Director                        March 30, 2004
---------------------------
Lawrence Olson


/S/ William T. Walker, Jr.       Director                        March 30, 2004
---------------------------
William T. Walker, Jr.


                                                                              26
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                               For the years ended
                           December 31, 2003 and 2002


<PAGE>

                                TABLE OF CONTENTS

INDEPENDENT AUDITORS' REPORT                                              F-1-2

FINANCIAL STATEMENTS

         Consolidated Balance Sheets                                      F-3

         Consolidated Statements of Operations                            F-4

         Consolidated Statements of Changes in Stockholders' Deficit      F-5

         Consolidated Statements of Cash Flows                            F-6-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                F-8-19


                                      F-1
<PAGE>

Report of Independent Certified Public Accountants

To The Board of Directors and Stockholders of
Desert Health Products, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Desert Health
Products, Inc. and Subsidiary as of December 31, 2003 and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Desert Health
Products, Inc. and Subsidiary at December 31, 2003 and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note C to the financial
statements, the Company has suffered substantial recurring losses from
operations that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note C. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


/s/ Semple & Cooper, LLP

Phoenix, Arizona
March 19, 2004

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

Board of Directors and Stockholders
Desert Health Products, Inc.

I have audited the accompanying consolidated balance sheets of Desert Health
Products, Inc. as of December 31, 2002, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.

I conducted my audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that I 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. I believe that my audit provides a reasonable basis for
my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Desert Health Products, Inc. as of
December 31, 2002, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company has suffered substantial recurring losses from
operations that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note C. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


/s/ James E. Raftery CPA, PC

February 10, 2003
Mesa, Arizona

                                      F-2
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                  December 31,

<TABLE>
<CAPTION>
                                                                              2003            2002
                                                                          -----------     -----------
                                               ASSETS
<S>                                                                       <C>             <C>
Current Assets
      Cash and cash equivalents                                           $    11,420     $    55,515
      Accounts receivable, net                                                 25,793          16,961
      Notes receivable                                                             --         208,917
      Interest receivable                                                          --          76,946
      Inventory                                                                99,770         179,040
      Advances                                                                  1,010           2,500
      Prepaid expenses                                                             --          25,000
                                                                          -----------     -----------
          Total Current Assets                                                137,993         564,879
                                                                          -----------     -----------

Property and Equipment, net                                                    79,779         105,579

Other Assets
      Deferred financing costs, net                                           100,996              --
      Intangibles, net                                                        756,822       1,285,322
      Goodwill, net                                                           233,645         233,645
      Deposits                                                                 21,326          15,846
                                                                          -----------     -----------
                                                                            1,112,789       1,534,813
                                                                          -----------     -----------

                                                                          $ 1,330,561     $ 2,205,271
                                                                          ===========     ===========

                                LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
      Accounts payable and accrued expenses                               $   314,920     $   227,063
      Loan inducement fees payable                                             11,340          13,300
      Deferred revenue                                                         60,750          56,000
      Interest payable                                                        212,718         309,633
      Dividends payable                                                       157,604          32,206
      Current portion of long term notes payable                            1,282,256       1,236,718
                                                                          -----------     -----------
          Total Current Liabilities                                         2,039,588       1,874,920

Long Term Liabilities
      Shares subject to mandatory redemption                                1,100,000              --
      Long term note payable, net of current portion                            7,000         328,183
                                                                          -----------     -----------
          Total Liabilities Commitments and Contingencies                   3,146,588       2,203,103
                                                                          -----------     -----------

Commitments and Contingencies                                                      --              --

Stockholders' Deficit
      Preferred stock, convertible, $.001 par value, 10,000,000 shares
         authorized and 1,708,500 shares issued and outstanding
           as of December 31,  2003 and 2002                                    1,708           1,708
      Common stock, $.001 par value, 25,000,000 shares
         authorized and 13,163,821 and 12,113,821 shares issued and
           outstanding as of December 31, 2003 and 2002, respectively          13,164          12,114
      Treasury stock, 425,000 shares, stated at cost                         (191,250)             --
      Stock subscribed                                                      1,744,000       1,466,000
      Additional paid-in capital                                            5,390,025       4,801,076
      Accumulated deficit                                                  (8,773,674)     (6,278,730)
                                                                          -----------     -----------
                                                                           (1,816,027)          2,168
                                                                          -----------     -----------

                                                                          $ 1,330,561     $ 2,205,271
                                                                          ===========     ===========
</TABLE>

         See accompanying notes to the consoldiated financial statements


                                       F-3
<PAGE>

                           DESERT HEALTH PRODUCTS, INC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            Years Ended December 31,

                                                     2003             2002
                                                 ------------     ------------

Revenue, net                                     $    193,090     $    133,075
                                                 ------------     ------------
Cost of Sales
    Merchandise                                       163,531           70,062
    Impairment of inventory                            43,682               --
                                                 ------------     ------------
                                                      207,213           70,062
                                                 ------------     ------------

    Gross Profit                                      (14,123)          63,013

Operating Expenses                                  1,989,111        2,011,829
                                                 ------------     ------------

    Net Loss From Operations                       (2,003,234)      (1,948,816)
                                                 ------------     ------------

Other Income (Expense)
    Interest expense                                 (353,344)        (302,355)
    Miscellaneous expense                             (13,129)         (19,595)
    Miscellaneous income                                   --           32,500
    Loss on disposal of assets                             --           (1,540)
    Interest income                                       161           28,103
                                                 ------------     ------------
                                                     (366,312)        (262,887)
                                                 ------------     ------------

    Net Loss                                       (2,369,546)      (2,211,703)

Preferred Stock Dividends                             125,398           32,206
                                                 ------------     ------------

Net Loss Available to Common Shareholders        $ (2,494,944)    $ (2,243,909)
                                                 ============     ============

Basic and Diluted Earnings Per Share             $      (0.20)    $      (0.23)
                                                 ============     ============

Weighted Average Common Shares Outstanding         12,494,820        9,611,225
                                                 ============     ============

        See accompanying notes to the consolidated financial statements


                                       F-4
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                     Years ended December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                         Convertible
                                       Preferred Stock           Common Stock            Treasury Stock
                                   ----------------------    ---------------------   ----------------------
                                                Par Value                Par Value
                                      Shares    $.001 sh       Shares    $.001 sh      Shares       Cost
                                   ----------------------    ---------------------   ----------------------
<S>                                 <C>          <C>         <C>          <C>        <C>         <C>
Balances, December 31, 2001         1,338,500    $ 1,338      9,010,321   $ 9,010          --    $      --

Shares issued in 2002 for:
    Services and fees                 350,000        350      3,047,500     3,048          --           --
    Cash                               40,000         40             --        --          --           --
    Conversions                       (20,000)       (20)        20,000        20          --           --
    Stock subscribed                       --         --         36,000        36          --           --
Dividends                                  --         --             --        --          --           --
Prior period adjustment                    --         --             --        --          --           --
Net loss for the year ended
  December 31, 2002                        --         --             --        --          --           --
                                   ----------------------    ---------------------   ----------------------
Balances, December 31, 2002         1,708,500      1,708     12,113,821    12,114          --           --

Shares issued in 2003 for:
    Services and fees                      --         --        700,000       700          --           --
    Debt conversions                       --         --        350,000       350          --           --
    Repayment of note recievable           --         --             --        --     425,000     (191,250)
    Stock subscribed                       --         --             --        --          --           --
Dividends                                  --         --             --        --          --           --
Net loss for the year ended
  December 31, 2003                        --         --             --        --          --           --
                                   ----------------------    ---------------------   ----------------------
Balances, December 31, 2003         1,708,500    $ 1,708     13,163,821   $13,164     425,000    $(191,250)
                                   ======================    =====================   ======================

<CAPTION>
                                   Additional         Stock
                                     Paid-in       Subscriptions     Accumulated
                                     Capital        Receivable         Deficit           Total
                                  ------------     -------------     ------------     ------------
<S>                                <C>              <C>              <C>              <C>
Balances, December 31, 2001        $4,176,094       $  474,000       $(4,011,741)     $   648,701

Shares issued in 2002 for:
    Services and fees                 587,058               --                --          590,456
    Cash                               19,960               --                --           20,000
    Conversions                            --               --                --               --
    Stock subscribed                   17,964          992,000                --        1,010,000
Dividends                                  --               --           (32,206)         (32,206)
Prior period adjustment                    --               --           (23,080)         (23,080)
Net loss for the year ended
  December 31, 2002                        --               --        (2,211,703)      (2,211,703)
                                  ------------     -------------     ------------     ------------
Balances, December 31, 2002         4,801,076        1,466,000        (6,278,730)           2,168

Shares issued in 2003 for:
    Services and fees                 318,300               --                --          319,000
    Debt conversions                  270,649               --                --          270,999
    Repayment of note recievable           --               --                --         (191,250)
    Stock subscribed                       --          278,000                --          278,000
Dividends                                  --               --          (125,398)        (125,398)
Net loss for the year ended
  December 31, 2003                        --               --        (2,369,546)      (2,369,546)
                                  ------------     -------------     ------------     ------------
Balances, December 31, 2003        $5,390,025       $1,744,000       $(8,773,674)     $(1,816,027)
                                  ============     =============     ============     ============
</TABLE>

         See accompanying notes to the consolidated financial statements


                                       F-5
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years Ended December 31,

<TABLE>
<CAPTION>
                                                               2003           2002
                                                           -----------    -----------
<S>                                                        <C>            <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
        Cash received from customers                       $   173,769    $   118,407
        Cash paid to suppliers and employees                (1,282,129)    (1,381,311)
        Interest received                                          161            192
        Interest paid                                          (66,386)       (95,362)
                                                           -----------    -----------

             Net Cash Used in Operating Activities          (1,174,585)    (1,358,074)
                                                           -----------    -----------

Cash Flows from Investing Activities
        Purchase of furniture and equipment                    (11,010)        (7,990)
        Purchase of intangibles                                 (1,500)       (12,080)
        Payments on notes receivable                                --        (16,431)
                                                           -----------    -----------

             Net Cash Used in Investing Activities             (12,510)       (36,501)
                                                           -----------    -----------

Cash Flows from Financing Activities
        Proceeds from sale of common and preferred stock            --         12,000
        Proceeds from stock subscribed                         609,000      1,010,000
        Payments on notes payable                             (102,000)       (71,500)
        Proceeds from notes payable                            636,000        447,500
                                                           -----------    -----------

             Net Cash Provided by Financing Activities       1,143,000      1,398,000
                                                           -----------    -----------

             Net Increase (decrease) in Cash and
               Cash Equivalents                                (44,095)         3,425

Beginning Cash and Cash Equivalents                             55,515         52,090
                                                           -----------    -----------

Ending Cash and Cash Equivalents                           $    11,420    $    55,515
                                                           ===========    ===========
</TABLE>

         See accompanying notes to the consolidated financial statements


                                       F-6
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years Ended December 31,

<TABLE>
<CAPTION>
<S>                                                                      <C>            <C>
                                                                             2003            2002
Reconciliation of Changes in Net Operations to Net Cash Used
     by Operating Activities:
        Loss from operations                                             $(2,369,546)   $(2,211,703)
        Adjustments to reconcile change in loss from operations to
             net cash used by operating activities:
             Depreciation                                                     18,912         20,842
             Loss on disposal of assets                                           --          1,540
             Impairment of intangibles and goodwill                          300,000        481,341
             Impairment of inventory                                          43,682          6,733
             Miscellaneous expense                                                --          2,604
             Compensation                                                     94,613
             Loan inducement fees and financing costs                        118,667         49,695
             Stock issued for compensation                                   294,750        121,404
             Stock issued for services                                        24,250        197,761
             Bad debt expense                                                 10,488         24,506
             Settlement fees                                                      --         20,000
             Relinquishment of debt                                          (44,729)      (111,719)
        (Increase) decrease in operating assets:
             Accounts receivable                                             (19,321)       (49,772)
             Inventory                                                        35,591        (54,685)
             Advance                                                           1,490           (829)
             Interest receivable                                                  --        (27,911)
             Prepaid expense                                                  25,000         29,905
             Deposits                                                         (5,480)        (5,846)
        Increase (decrease) in operating liabilities:
             Accounts payable                                                152,057        (30,238)
             Deferred revenue                                                  4,750         21,000
             Interest payable                                                140,241        157,298
                                                                         -----------    -----------

                  Net Cash Used by Operating Activities                  $(1,174,585)   $(1,358,074)
                                                                         ===========    ===========

Non-cash financing and investing transactions
        Issuance of stock for acquisition of subsidiary                  $        --    $   221,000
        Decrease in note receivables and
             interest receivable for compensation                        $        --    $   121,404
        Conversion of notes receivable to treasury stock                 $   208,917    $        --
        Impairment of intangibles and goodwill                           $   230,000    $   481,341
        Deferred financing costs                                         $   280,764    $        --
        Conversion of notes payable to preferred stock,
             accrued interest and stock subscribed                       $   965,339    $        --
        Stock issued for compensation and services                       $   319,000    $        --
        Debt Relinquishment                                              $    17,898    $        --
</TABLE>

       See accompanying notes to the consolidated financial statements


                                       F-7
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Desert Health Products, Inc.
and the Subsidiary (collectively "the Company") is presented to assist in
understanding the Company's financial statements. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.

Nature of Operations

Desert Health Products, Inc was incorporated in the state of Arizona on July 21,
1991 to provide innovative supplements and health solutions to the global
marketplace. The Company has grown from its humble beginnings to a company with
a global vision to educate, assess and deliver nutritional products to a global
market place. The Company has a commitment to purity, quality, research,
information and support. Desert Health Products, Inc. has global distribution
capabilities and offers a choice of turnkey or customized private label options.
This, combined with professionally derived formulations, enables the Company to
offer products to fill any market niche. On October 31, 2002 the Company
acquired all of the outstanding capital stock of Royal Products, Inc (f.k.a.
JonDar Corp.), a Nevada corporation incorporated in 1991. Royal Product Inc.'s
principal business activity is to provide network marketing. They purchase all
of their products from Desert Health Products, Inc.

Basis of Consolidation

The consolidated financial statements include the accounts of Royal Products,
Inc., a wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Reclassifications

Certain balances as of and for the year ended December 31, 2002 have been
reclassified in the accompanying financial statements to conform to the current
year presentation. These classifications had no effect on previously reported
net income or stockholders' equity.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with an initial maturity of three months or
less to be cash equivalents.

Inventory

Inventory consists primarily of health food supplements and vitamin products and
are stated at the lower of cost (first-in, first-out) or market value. At
December 31, 2003 and 2002, the Company had no allowance for potentially
obsolete inventory, as all items are deemed to be saleable within their
remaining shelf lives.

The Company's inventory was written down to estimated net realizable value at
December 31, 2003. The cost of revenues for the year ended December 31, 2003
includes a charge of $43,682 which represents the cost over net realizable
value.

Deferred Revenue

Payments received from product sales that have not been shipped to the customer
are recorded as deferred revenue.


                                       F-8
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Shipping and Handling Costs

Operating expenses include $26,253 and $18,902 in shipping costs, which are
expensed as incurred for the years ended December 31, 2003 and 2002,
respectively.

Property & Equipment

Property and equipment consists of office equipment and leasehold improvements
and are recorded at cost. Depreciation is provided for on the straight-line
method with estimated useful lives of 3 to 7 years for financial reporting
purposes and the accelerated cost recovery method for federal income tax
purposes. Maintenance and repairs that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Betterments or renewals are capitalized when incurred. Leasehold
improvements are recorded at cost and are amortized over their useful lives or
the lease term, whichever is shorter. The Company reviews property and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.

Income Taxes

The Company accounts for income taxes in accordance with Financial Accounting
Standard No. 109 "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
the Company to recognize deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements carrying amounts and tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.

Intangible Assets

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Intangible
Assets, which supersedes APB Opinion No. 17, Intangible Assets. SFAS 142
eliminates the requirement to amortize goodwill and indefinite-lived intangible
assets, addresses the amortization of intangible assets with a defined life and
addresses the impairment testing and recognition for goodwill and intangible
assets. SFAS 142 will apply to goodwill and intangible assets arising from
transactions completed before and after the Statement's effective date. SFAS 142
is effective for fiscal years 2003 and 2002.

Other intangible assets consist primarily of marketing rights, trademarks, and
registrations. The Company will periodically review the carrying values of the
other intangibles and record an impairment loss, if anticipated future cash
flows do not equal or exceed the carrying value. No amortization expense was
recorded during the years ended December 31, 2003 and 2002 as the other
intangible assets were deemed to have indefinite lives. The Company has
performed the annual impairment test required under SFAS 142 for fiscal year
2003 and 2002 and recorded impairment losses related to the other intangible
assets of $530,000 and $481,341, respectively. During the year ended December
31, 2003, $300,000 of the $530,000 impairment is reported as operating expenses
on the consolidated statements of operations and the balance of $230,000 was
written off against stock subscribed.

The Company's impairment loss for the year ended December 31, 2003 in the amount
of $530,000 was solely to record impairment on an exclusive marketing rights
agreement with a Canadian based entity to market the Company's Dr. Harris's
Original Diabetic Feet product. This intangible was deemed to have no value as
the Canadian entity breached the contract and the Company is currently in
litigation to recover their losses.


                                       F-9
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and the related
interpretation in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provision of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation".

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclose contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Significant estimates are used when accounting for the allowance for doubtful
accounts, depreciation, carrying value of goodwill and intangibles, accruals,
taxes, and contingencies, which are discussed in the respective notes to the
financial statements.

Revenue and Cost Recognition

Revenues are recognized when earned, and expenses are recognized when incurred.
The Company generally recognizes revenue upon shipment of its products in
accordance with the terms and conditions of orders placed with the Company by
its customers. The application of Staff Accounting Bulletin 101 did not have a
material affect on the Company's financial position or results of operations.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising costs
for the years ended December 31, 2003 and 2002 were $6,595 and $14,951,
respectively.

Accounts Receivable, net

The Company follows the allowance method of recognizing uncollectible accounts
receivable. The allowance method recognizes bad debt expense based on a review
of the individual accounts outstanding and the Company's prior history of
uncollectible accounts receivable. The Company records delinquent finance
charges on outstanding accounts receivable only if they are collected. As of
December 31, 2003 and 2002, an allowance of $25,403 and $14,915, respectively,
was established for potentially uncollectible accounts receivable. During the
years ended December 31, 2003 and 2002, the Company incurred $10,488 and
$24,506, respectively, in bad debt expense.

Fair Value of Financial Instruments

The Company has cash and cash equivalents, accrued liabilities and short-term
borrowings for which the carrying value approximates fair value due to the
short-term nature of these instruments.

The fair value of the Company's long-term debt is estimated based on the market
values of financial instruments with similar terms. Management believes that the
fair value of the long-term debt approximates its carrying value.


                                      F-10
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Concentration of Credit Risk

The Company's business activities and accounts receivable are with customers in
the nutritional industry located throughout the United States of America and in
foreign countries. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses, returns and
potential cash and other discounts taken.

NOTE B - NEW PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, "Accounting for Asset Retirement Obligations." The Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Statement is effective for the fiscal year beginning after June 15,
2002. Specifically, the Statement requires that retirement obligations be
recognized when they are incurred and displayed as liabilities with the initial
measurement being at the present value of estimated third party costs. In
addition, the asset retirement cost will be capitalized as part of the asset's
carrying value and subsequently allocated to expense over the assets useful
life. The adoption of SFAS No. 143 did not have a significant impact on the
Company's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 replaces certain previously issued
accounting guidance, develops a single accounting model for long-lived assets
other than goodwill and indefinite-lived intangibles, and broadens the framework
previously established for assets to be disposed of by sale (whether previously
held or newly acquired). This Statement is effective for years after December
15, 2001. The adoption of SFAS No. 143 did not have a significant impact on the
Company's financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendments of FASB Statement No. 13, and Technical Corrections."
This Statement rescinds SFAS No. 4; SFAS No. 64 and further clarifies debt
extinguishments, which classify as extraordinary. Additionally, SFAS No. 145
amends SFAS No, 13 in order to clarify the accounting for the treatment of lease
modifications. Provisions of this Statement relating to the rescission of SFAS
No. 113 are effective for transactions occurring after May 15, 2002. The
pronouncement did not have a material impact on the financial position, results
of operations or cash flows.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 replaces Emerging Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit and Activity (including Certain Costs Incurred in a
Restructuring)". The primary difference from existing guidance is that SFAS No.
146 requires the recognition cost at fair value when a liability is incurred,
versus at the date of the exit plan approval. This Statement is effective for
exit and disposal activities of the Company that are initiated after December
31, 2002. The Company has not historically had significant exit or disposal
activities.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FAS 123". SFAS No.
148 provides alternative methods for transition for voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, the Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both interim and annual financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The statement was effective for
fiscal years ending after December 15, 2002. The Company adopted this Statement
in regards to disclosure provisions for the year ended December 31, 2003.


                                      F-11
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - NEW PRONOUNCEMENTS (CONT'D)

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
FIN 46 provides guidance in determining (1) whether consolidation is required
under the "controlling financial interest" model of Accounting Research Bulletin
No. 51 (ARB 51), Consolidated Financial Statements, or other existing
authoritative guidance, or, alternatively, (2) whether the variable interest
model under FIN 46 should be used to account for existing and new entities. The
Company has considered the guidance in FIN 46 and has determined that it did not
have a material effect on its financial position, results of operations, cash
flows or note disclosures.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
accounting for derivative instruments including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133 in
particular, this Statement clarifies under what circumstances a contract with an
initial net investment meets the characteristics of a derivative and when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. This statement is generally effective for contracts
entered into or modified after June 30, 2003. The Company is currently analyzing
the impact of adoption of SFAS No. 149 on our financial reporting and
disclosures.

In August 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability. Many of those instruments were previously classified as equity.
This Statement requires an issuer to classify the following instruments as
liabilities:

      o     A financial instrument issued in the form of shares that is
            mandatorily redeemable - that embodies an unconditional obligation
            requiring the issuer to redeem it by transferring its assets at a
            specified or determinable date (or dates) or upon an event that is
            certain to occur.

      o     A Financial instrument that embodies an unconditional obligation, or
            a financial instrument other than an outstanding share that embodies
            a conditional obligation, that the issuer must or may settle by
            issuing a variable number of its equity shares, if, at inception,
            the monetary value of the obligation is based solely or
            predominantly on any of the following.

                  1.    A fixed monetary amount known at inception, for example,
                        a payable settle-able with a variable number of the
                        issuer's equity shares

                  2.    Variations in something other than the fair value of the
                        issuer's equity shares, for example, a financial
                        instrument indexed to the S&P 500 and settle-able with a
                        variable number of the issuer's equity shares

                  3.    Variations inversely related to changes in the fair
                        value of the issuer's equity shares, for example, a
                        written put option that could be net share settled.

This Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The Company adopted this statement
in regards to reporting and disclosure provisions for the year ended December
31, 2003.


                                      F-12
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE C - GOING CONCERN AND MANAGEMENT'S PLAN

As indicated in the accompanying consolidated financial statements, the
Company's gross revenue is not sufficient to meet its operating expenses for the
year ended December 31, 2003. Additionally, as of that date the Company's
current liabilities exceeded its current assets by $1,901595. Those factors
create an uncertainty regarding the Company's ability to continue as a going
concern. Management of the Company has developed the following plan to reduce
its liabilities and increase its gross revenues.

Management believes they have strong support from their international and
domestic clients and continues to process registrations to sell product to
various other countries around the world. This, coupled with the exclusive
marketing rights for a newly formulated product geared to helping diabetic foot
problems and a new burn and scald relief product, is expected to increase
profitability. The Company has also finalized its formulation of an anti-aging
product and has commenced marketing activities. The Company is positioning
itself in the North American market, with registrations filed in Mexico and
Canada that will contribute to the presence of the Company's products in the
network marketing, private label and branded label markets. The Company has
entered into a contract with a representative to market Desert Health Products,
Inc's. signature foot care products to Native Americans as well as "at risk"
groups in Mexico, where people with Type I or Type II diabetes who have poor
circulation in their feet may benefit from the use of the Company's foot care
product.

Royal Products, Inc., a wholly owned subsidiary of the Company, is a network
marketing company that is working to develop markets in North America. Network
marketing is believed by management to be the quickest way to penetrate a market
with the least amount of investment. The Company believes its subsidiary will be
a major source of revenue as it works to penetrate the domestic markets.

The Company recently began dedicating resources to developing and cultivating
the domestic market in the United States. Desert Health Products, Inc. entered
into a contract in early 2004 with another party to private label certain
products. This party is in negotiations with major retailers to carry their
products. The contract states that the Company will receive $2,700,000 as
initial "seed money" of which, $400,000 is earmarked to cover overhead,
development expenses, travel, labels, packaging, and marketing materials.
$1,200,000 is for the exclusive rights to sell certain products in the domestic
markets and the remaining $1,100,000 is for initial start-up product inventory,
display cases, and marketing and sales materials. The Company anticipates
receiving $1,000,000 of the above contract by the end of April 2004.

Additionally, two international offices have been formed in Trondheim, Norway
and Beijing, China, and we hope to open a new office in Ecuador in 2004 to
service the Central and South American markets. The Beijing office has developed
a source of raw materials (herbs) and unique Chinese goods for use in our
products. An example of this is our Burn & Scald Relief Spray purchased from a
Chinese manufacturer, which the Company has exclusive rights to in 33 countries.
In addition, management believes that the Company has technical knowledge of
potential interest to companies in China. This knowledge includes the growing,
processing, and formulating of Aloe Vera, which it hopes to make into a viable,
economic venture.

Lastly, in February of 2004 the Company's shares began trading on the Frankfurt
Stock Exchange. Management is contemplating a potential offering through this
Exchange to generate additional equity capital.

Management believes the agreements entered into and actions taken as described
above will bring liquidity and profitability to the Company in the coming year.
However, there can be no assurance that anticipated sales will occur, or if they
do occur, they will generate anticipated profits, or that additional equity
financing will be found, or found on terms acceptable to the Company.

The ability of the Company to continue as a going concern is dependent upon the
aforementioned ability to raise additional outside capital and/or significantly
increase its market share to achieve profitability. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.


                                      F-13
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE D - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31,

                                                         2003           2002
                                                     -----------    -----------
Office equipment                                     $    85,346    $   105,019
Leasehold improvements                                    60,572         60,572
Less: accumulated depreciation                           (60,012)       (66,139)
                                                     -----------    -----------
                                                     $    79,779    $   105,579
                                                     ===========    ===========

Depreciation expense for financial reporting purposes was $18,912 and $20,842
for the years ended December 31, 2003 and 2002, respectively.

NOTE E - INTANGIBLE ASSETS

Intangible assets consisted of the following at December 31,

                                                         2003           2002
                                                     -----------    -----------
Patents, trademarks, and registrations               $ 1,281,841    $ 1,415,818
Websites                                                   5,945         28,911
Exclusive marketing rights                               530,000        530,000
Charter membership                                            --         25,000
Loan inducement fees                                          --          8,125
Customer list                                             20,000         20,000
                                                     -----------    -----------
                                                       1,837,786      2,027,854
Impairment losses                                       (530,000)       (95,230)
                                                     -----------    -----------
                                                       1,307,786      1,932,624
Less: accumulated amortization                          (647,302)      (550,964)
                                                     -----------    -----------
                                                     $   756,822    $ 1,285,322
                                                     ===========    ===========

NOTE F- GOODWILL

Goodwill consisted of the following at December 31,

                                                         2003           2002
                                                     -----------    -----------
Goodwill                                             $   272,300    $ 1,123,245
Impairment losses                                             --       (386,111)
                                                     -----------    -----------
                                                         272,300        737,134
Less: accumulated amortization                           (38,655)      (503,489)
                                                     -----------    -----------
                                                     $   233,645    $   233,645
                                                     ===========    ===========

NOTE G - CONCENTRATIONS

For the years ended December 31, 2003 and 2002, a significant volume of sales
were concentrated with four customers. Of the total revenue for the years ended
December 31, 2003 and 2002, 60% and 63% or $118,845 and $80,540 were received
from those customers, respectively. At December 31, 2003 accounts receivable
related to these customers totaled $6,429 and $13,128, respectively.


                                      F-14
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE H - INCOME TAXES

The income tax benefit differs from the amount computed by applying the U.S.
Federal statutory income tax rate of 34% and a State statutory income tax rate
of 7% to the net loss before income taxes, as shown:

                                                      2003           2002
                                                  -----------    -----------
      Tax benefit at the federal statutory rate   $ 2,686,050    $ 1,814,409
      Tax benefit at the State statutory rate         543,519        367,282
      Valuation allowance                          (3,229,569)    (2,181,691)
                                                  -----------    -----------
      Tax benefit                                 $        --    $        --
                                                  ===========    ===========

The net change in the valuation allowance was $1,047,878 for the year ended
December 31, 2003, which represents the current year's income tax benefit of the
net operating loss.

The Company has federal and state net operating loss carry forwards at December
31, 2003 of $7,900,147 and $7,764,562. The net operating loss carry-forwards may
offset against future taxable income. The net operating losses expire as
follows:

            December 31,    Federal     December 31,      State
            ------------  ----------    ------------    ----------
                2016      $    3,337        2004        $  583,701
                2017          86,270        2005         1,468,195
                2018          45,978        2006         1,880,380
                2019         583,701        2007         1,268,637
                2020       1,468,195        2008         2,563,649
                2021       1,880,380                            --
                2022       1,268,637                            --
                2023       2,563,649                            --
                          ----------                    ----------
                          $7,900,147                    $7,764,562
                          ==========                    ==========

NOTE I - MISCELLANEOUS INCOME

Miscellaneous income consists of $30,000 for the sale of marketing rights, both
domestic and foreign for certain Company products, and $2,500 in legal
settlement fees for the year ended December 31, 2002.

NOTE J - NOTE SUBSCRIBED

On December 31, 2003, note subscribed consisted of $100,000 for 100,000
shares of un-issued common stock, $200,000 for 400,000 shares of un-issued
preferred stock and $1,444,000 for 1,444,000 shares of un-issued and
unauthorized class of preferred stock. The Company is currently in the process
of filing all the required documents in order to issue this new class of
preferred stock, which will have a specified dividend rate of 12%. As of
December 31, 2003 and 2002 accrued dividends payable on this new class of
preferred stock was $157,604 and $32,206, respectively. Subsequent to December
31, 2003, 1,430,000 of the unauthorized class of preferred stock was authorized
and issued.


                                      F-15
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE K -LONG TERM DEBT

Long-term notes payable consists of the following at December 31,

                                                          2003          2002
                                                      -----------   -----------

      Unsecured notes payable to various individuals,
      payable in quarterly interest only installments
      totaling $20,144, bearing interest at rates of
      8% to 30% per annum. Maturity dates range from
      May 8, 2002 to August 17, 2004                  $   710,500   $ 1,145,683

      Notes payable to an individual, payable in
      quarterly interest only installments of $750,
      bearing interest at a rate of 12% per annum
      Secured by 25,000 shares of Desert Health
      Products, Inc. Preferred Stock with a maturity
      date of September 29, 2002                           25,000       125,000

      Note payable to an individual, payable in
      semi-annual interest only installments of
      $2,322, bearing interest at a rate of 15% per
      annum, with a maturity date of January 23,
      1998. The note is personally guaranteed by an
      officer of the Corporation                           18,700        18,700

      Unsecured, non-interest bearing demand notes
      payable to individuals                               30,018        28,018

      Unsecured notes payable to various individuals,
      payable in monthly interest only installments
      totaling $1,866, bearing interest at rates of
      4.75% to 30% per annum. Maturity dates range
      from July 12, 2002 to June 12, 2004                 140,000        90,000

      Unsecured, demand note payable, with a single
      $1,000 interest installment due at maturity of
      June 20, 2001                                        15,000        15,000

      Note payable to an individual, payable in
      monthly interest only installments of $500,
      bearing interest at a rate of 12% per annum,
      with a maturity date of June 28, 2000.
      Personally guaranteed by an officer of the
      Corporation                                          50,000        50,000

      Unsecured, note payable to an entity, payable
      in semi-annual interest only installments of
      $11,250, bearing interest at a rate of 15% per
      annum, with a maturity date of June 27, 2002         75,000        75,000

      Demand note payable to an individual, note was
      payable on May 10, 2001, note is accruing
      interest at a rate of $50 per day until
      principal balance is paid                            12,500        12,500

      Unsecured, non-interest bearing notes payables
      to various individuals, with maturity dates
      ranging from November 9, 2002 to July 11, 2005       24,000         5,000

      Unsecured note payable to an individual, net of
      discount of $181,462 Payable in annual interest
      only installments of $35,622, bearing interest
      at a rate of 10% per annum, with a maturity
      date of June 25, 2004                               158,538            --

      Unsecured demand notes payable to various
      individuals, payable in annual interest only
      installments of $3,000, bearing interest at a
      rate of 30% per annum                                30,000            --
                                                      -----------   -----------
      Total notes payable                               1,289,256     1,564,901
      Less: current maturities                         (1,282,256)   (1,236,718)
                                                      -----------   -----------
                                                      $     7,000   $   328,183
                                                      ===========   ===========


                                      F-16
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE K -LONG TERM DEBT (CONT'D)

Of the Company's $1,470,718 in debt obligations, $546,718 is in default,
$975,500 of notes payable have an option to convert to shares of common stock at
80% of the bid price, and $50,000 of notes payable have an option to convert to
shares of common stock at $1.00 per share

During the year ended December 31, 2003, the Company entered into a $340,000
note payable with an individual. This note contains a stated interest rate of
10% and is due on June 25, 2004. The note payable contains a beneficial
conversion feature, whereby, after one year the lender may convert the balance
of the note plus any accrued interest into shares of common stock at an exercise
price of 80% of the average bid price for the previous thirty days. This
beneficial conversion feature resulted in a discount to the note of $82,424,
which has been recorded to additional paid-in capital at the time the note was
issued and a discount to the related note. The discount is being amortized over
the life of the note.

As of December 31, 2003, the principal balance and unamortized discount relating
to the above note was $41,212. During the year ended December 31, 2003, the
Company recorded interest expense of $41,212, resulting from the amortization of
the discounts on the note.

NOTE L - RELATED PARTY TRANSACTIONS

For the years ended December 31, 2003 and 2002 the Company paid $803,177 and
$638,167, respectively, as independent contractor fees to officers, directors,
and relatives of officers of the Corporation.

During the year ended December 31, 2002 the Company purchased Royal Products,
Inc. a wholly owned subsidiary from an individual who is a majority shareholder,
director, and officer of the Company for 2,000,000 shares of Desert Health
Products, Inc. stock, valued at $221,000.

At December 31, 2003 and 2002 accrued wages to an officer of the Company totaled
$33,750 and $20,700, respectively.

During the year ended December 31, 2003, a majority shareholder, director, and
officer of the Company paid $89,000 on behalf of Desert Health Products Inc., to
settle claims against the Company.

On February 7, 2003 an officer of the Company returned 425,000 shares of the
Company's common stock to be held as treasury stock as repayment for the note
receivable and accrued interest. The stock received in the aforementioned
transaction was valued at a premium of $0.22 per share over the trading price at
the time of the exchange. As there was no additional stated or unstated
consideration issued for the stock, compensation expense was recorded as an
operating expense in the consolidated statement of operations in the approximate
amount of $94,000.

                                                               2003       2002
                                                            ---------   --------

      Notes receivable to an officer and director of
      the Company Interest was imputed at the rate of 8.5%  $      --   $208,917
                                                            =========   ========

NOTE M - COMPENSATED ABSENCES

The Company has not accrued for compensated absences as of December 31, 2003 and
2002. Management believes that any potential liability would be immaterial to
the consolidated financial statements.

NOTE N- COMMITMENTS AND CONTINGENCIES

As of December 31, 2003 and 2002 the Company is under written obligation to
issue 21,000 and 15,000 shares of Desert Health Products, Inc.'s common stock,
valued at $11,340 and $13,300 as loan inducement fees to various individuals,
respectively.


                                      F-17
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE N - COMMITMENTS AND CONTINGENCIES (CONT'D)

The Company has written agreements with several individuals to pay royalties
between $.02 and $.50 per unit of Dr. Harris's Original Diabetic Feet and Burn &
Scald Relief Spray sold. These royalties are to be paid quarterly for twelve
months. No royalties were paid during the year ended December 31, 2003 as the
sales of Burn & Scald Relief Spray or Dr. Harris's Original Diabetic Feet have
not commenced due to delays in the product's formulation and discontinuance of
sales of Dr. Harris's Original Diabetic Feet.

During the year ended December 31, 2003, the Company entered into a written
agreement, whereby the Company has committed to pay minimum royalties on sales
of foot care product in the amount of $2,000 per month from December 2003 to
June 2004 and $1,500 per month from July 2004 to December 2004.

The Company conducts its operations from facilities under a three-year
non-cancelable operating lease expiring January 31, 2005, with monthly rent
expense of $9,403. Additionally, the Company leases office space at its Beijing,
China branch under a month-to-month lease, with monthly rental expense of $954.
The following is the future minimum rental payments for the years ended:

                        December 31,
                        ------------
                            2004               $   112,838
                            2005                     9,403
                                               -----------
                                               $   122,241
                                               ===========

Total rent expense for the years ended December 31, 2003 and 2002 was $135,113
and $134,823 respectively.

The Company is a defendant in a lawsuit filed by an individual lender for
default on certain terms of agreements and disputes as to the amount of those
agreements. The suit asks for damages totaling $50,000. The Company intends to
vigorously defend its position and has not accrued a contingent liability.

The Company is a defendant in a lawsuit filed by a Canadian based entity for
default on certain terms of agreements and disputes as to the amounts of those
agreements. The suit asks for damages totaling $40,385. The Company intends to
vigorously defend its position and has not accrued a contingent liability.

The Company, in the ordinary course of business, may become a party in legal
proceedings over disputes relating to its contracts and agreements.

The Company currently has employment contracts with two officers of the Company
which are renewable on a yearly basis. Executive annual compensation for these
employment contracts total $198,000 payable in bi-monthly installments.

NOTE O - SHARES SUBJECT TO MANDATORY REDEMPTION

On June 16, 2003 the Company entered into an agreement with one of its lenders
to convert $967,339 of debt, accrued interest and subscribed stock to 1,100,000
shares of preferred stock. The agreement contains a call option, whereby, the
Company can repurchase up to 1,100,000 of the preferred stock at a strike price
of $1.00 in one or more transactions for a period of 24 months after the date of
the agreement. In addition, the agreement contains a put option, whereby, the
lender shall have the right to require the Company to repurchase up to 1,100,000
of preferred stock at $1.00 per share, for a period of 180 days following the
period of 24 months from the date of the agreement. The Company has recorded a
deferred financing cost in relation to this conversion of $134,661. The deferred
financing costs are being amortized over a term of 24 months. Amortization
expense for deferred financing costs for the year ended December 31, 2003 was
$33,665, and is reported in interest expense on the financial statements.


                                      F-18
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE O - SHARES SUBJECT TO MANDATORY REDEMPTION (CONT'D)

In addition, as incentive for the lender to convert the note payable to
preferred stock, the Company issued to the lender 350,000 shares of common
stock. The relative fair value of the common stock at the time of issuance was
$187,000 and was reflected as additional paid-in capital and a discount to the
related note. At December 31, 2003, the discount amounted to $140,250. The
discount is being amortized over 24 months and amortization expense amounted to
$46,750. The amortization expense is reflected in interest expense on the
financial statements.

NOTE P - STOCKHOLDERS' EQUITY

During the year ended December 31, 2003, the Company's Board of Directors
adopted the "2003 Stock Option, Deferred Stock and Restricted Stock Plan" ("the
Plan"). The Plan authorizes the Company's Board of Directors to grant both
qualified incentive and non-qualified stock options, deferred stock options and
restricted stock awards to selected officers and other employees, directors,
consultants and advisors of the Company for an aggregate of 1,000,000 shares of
the Company's common stock. The granted stock options vest over five years at
20% of the options per year. The maximum term of options granted is 10 years. As
of December 31, 2003, no stock options had been awarded under the Plan.

During the year ended December 31, 1999, the Company awarded stock options in
relation to various employment contracts. A status of these employee stock
options for the years ended December 31, 2003 and 2002 is as follows:

                                                                    Weighted
                                                                     Average
                                                       Shares    Exercise Price
                                                     ---------   --------------
Outstanding at January 1, 2002                       2,000,000      $     .25
Granted                                                     --             --
Exercised                                                   --             --
Forfeited                                                   --             --
                                                     ---------      ---------

Outstanding and exercisable at December 31, 2002     2,000,000            .25
Granted                                                     --             --
Exercised                                                   --             --
Forfeited                                                   --             --
                                                     ---------      ---------
Outstanding and exercisable at December 31, 2003     2,000,000      $     .25
                                                     =========      =========

On January 1, 2004, 500,000 of stock options expired and the balance of
1,500,000 is due to expire on January 1, 2005.

Stock options exercisable at December 31, 2003 include the following:

                        Outstanding Options                Exercisable Options
               -------------------------------------     -----------------------
                            Weighted
                             Average       Weighted                    Weighted
 Exercise                   Remaining       Average                     Average
  Price                    Contractual     Exercise                    Exercise
  Range         Number        Life           Price        Number         Price
----------     ---------   -----------    ----------     ---------    ----------
$      .25     2,000,000     1 Year       $      .25     2,000,000    $      .25

The Company is currently in the process of filing all the required paperwork to
differentiate the different classes of preferred stock. Of the 1,708,500 shares
issued and outstanding, 1,000,000 shares are convertible preferred stock with
10:1 preferential voting rights, 708,500 shares are convertible preferred stock
with no voting rights, 1,100,000 shares listed under shares subject to mandatory
redemption are non-convertible and 1,444,000 shares of subscribed but unissued
non-convertible preferred stock with a specified dividend rate of 12%.


                                      F-19