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, 2004

                        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, 2004, the Registrant's revenues
were approximately $230,580. As of April 15, 2005, the aggregate market value of
 Registrant's voting stock held by non-affiliates was approximately $2,684,872.

The number of shares of Common Stock, $0.001 par value, outstanding on April 15,
                          2005 was 15,463,821 shares.

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


                                                                               1
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                           FOR THE FISCAL PERIOD ENDED
                                December 31, 2004

                                 Index to Report
                                 On Form 10-KSB

PART I                                                                      Page

Item 1.  Description of Business                                             3
Item 2.  Description of Properties                                          11
Item 3.  Legal Proceedings                                                  11
Item 4.  Submission of Matters to a Vote of Security Holders                12

PART II

Item 5.  Market for Registrant's Common Equity and                          12
           Related Stockholder Matters
Item 6.  Management's Discussion and Analysis or Plan of Operation          14

Item 7.  Financial Statements                                               19
Item 8.  Changes in and Disagreements with Accountants on Accounting and    19
           Financial Disclosure
Item 8A. Controls and Procedures                                            19

PART III

Item 9.  Directors, Executive Officers, Promoters and Exchange Persons;
           Compliance with Section 16(a) of the Exchange Act                20
Item 10. Executive Compensation                                             22
Item 11. Security Ownership of Certain Beneficial Owners                    23
           And Management and Related Stockholder Matters
Item 12. Certain Relationships and Related Transactions                     24

Item 13. Exhibits                                                           24

Item 14. Principal Accountant Fees and Services                             26

Signatures                                                                  27


                                                                               2
<PAGE>

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. DESCRIPTION OF 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 in 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 forces. In October 2002, the Company acquired Royal
Products, Inc., 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.

      Desert Health markets over 300 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
outstanding shares of common stock of Intercontinental were exchanged for
400,000 shares of common stock of Desert Health, in a transaction in which
Desert Health was the successor and took on the reporting requirements of
Intercontinental Capital Fund, Inc.


                                                                               3
<PAGE>

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 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.


                                                                               4
<PAGE>

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.

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 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:


                                                                               5
<PAGE>

                  >>    LaVraie Night-Time Treatment Cream

                  >>    LaVraie Treatment Cleanser

                  >>    LaVraie Treatment Under Makeup Cream

                  >>    LaVraie Treatment Toner

                  >>    LaVaie Two-Phase Treatment Mask and Lift

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

o     Pregnenalone - 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.

o     Pain Management - The addition of the Celadrin based new Pain and Joint
      Support products have launched us into new markets. Some pharmaceutical
      medications have recently been removed from the market by the Federal Drug
      Administration because of costly and dangerous side effects such as
      strokes and increased heart attacks. Over 70 million people suffer from
      arthritic conditions. Joint function and mobility challenges are a growing
      segment of musculo-skeletal health challenges and are estimated to cost
      $250 billion dollars in the U.S. alone. Thus, there is a growing lucrative
      market for non-pharmaceutical products.

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 who 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.


                                                                               6
<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 the Nutrition Business Journal, the global nutrition industry
exceeds $150 billion per year. 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 American products. While
the market is highly competitive and indeed saturated, best prospects are those


                                                                               7
<PAGE>

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, are 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 our 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, 2004 and 2003, a significant volume of
sales was concentrated with three customers. These accounted for approximately
76% of sales during 2004. In 2003 these customers accounted for 60% 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
63% and 62% in fiscal 2004 and 2003, respectively. The Company expects that
international sales will continue to represent a significant portion of its
sales. International sales and operations may be subject to risks such as the


                                                                               8
<PAGE>

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


                                                                               9
<PAGE>

drug identification number or general 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:
Austria, Republic of China. Denmark, Argentina, Brazil, Canada, Egypt, France,
Germany, Hong Kong, Indonesia, Italy, Malaysia, China, Mexico, Norway, Spain,
Sweden, Taiwan, Britain, Japan, United Arab Emirates 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 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 require
each of our suppliers to carry product liability insurance covering each of our
products. While management believes that this 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.


                                                                              10
<PAGE>

Employees

      As of December 31, 2004, we had four full time employees at our
headquarters in Scottsdale, Arizona, USA and an additional two employees in our
offices in Beijing, China. None of our employees 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 1, 2006. 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. DESCRIPTION OF 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 $9,403 per month. All property is in
good repair.

      The Company has an office in Beijing, China and pays rent of approximately
$1,500 per month on a month-to-month basis.

      The Company's website address is www.dhpi.com

ITEM 3. LEGAL PROCEEDINGS

      On March 5, 2003, we instituted suit in the Arizona Superior Court,
Maricopa County, Arizona, against a Phoenix based marketer of health care
products, seeking unspecified damages for fraud and negligent misrepresentation,
arising from a product licensing and marketing agreement. The parties have
exchanged forms of Settlement Agreement. Settlement as contemplated will result
in relief of approximately $50,000 in obligations of Desert Health to a third
party, a cash payment of $10,000 to Desert Health, and the execution of a mutual
general release.

      Nicholas M. Simak and NMS Solutions Group, Inc., filed a complaint in
Maricopa County Superior Court of the State of Arizona against the Company on
May 11, 2004, alleging non-payment of various loans. We have demanded return of
all intellectual property, which includes customer lists and


                                                                              11
<PAGE>

contacts belonging to the Company. We have set forth a counter claim which we
intend to vigorously pursue. We were named in a suit filed June 2, 2002, in the
Maricopa County Superior Court in the State of Arizona by a plaintiff claiming
to hold an assignment of a note in the amount of $50,000 from this same
plaintiff. The Company's position is that the note was paid in full prior to the
alleged assignment and intends to vigorously defend our position. These two
cases have been consolidated into a single case.

      Michael and Marti Medina filed a complaint in Maricopa County Superior
Court of the State of Arizona against the Company June 14, 2004, alleging
non-payment of a loan in the amount of $25,000, and seeking payment of principal
and interest. They have been awarded a judgment against the Company in the
amount of $29,180. We are arranging payment for this judgment.

      February 23, 2005, a complaint was filed against the Company in Maricopa
County Superior Court in the State of Arizona by Kathleen Corum Trust No. 1 for
rent payments in the aggregate amount of $12,224 plus late fees. A settlement
agreement has been reached.

      February 22, 2005, the Company filed suit in the Maricopa County Superior
Court of the State of Arizona against ParTrusT "Beheer" B.V., a foreign business
entity, for Breach of Contract, Breach of Covenant, based on a three year loan
agreement for $500,000, of which only $225,000 has been funded.

      February 19, 2004, a complaint was filed against the Company in Maricopa
County Superior Court in the state of Arizona by Pamela Peterson alleging
non-payment of a loan in the amount of $50,000 and seeking payment of principal
and interest. On June 1, 2004, Ms. Peterson was awarded a judgment against the
Company in the amount of $60,000 together with interest at the rate of 10% per
annum. A settlement agreement as contemplated will result in relief of the
amount of the judgment whereby a third party will assume full responsibility for
the debt.

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, 2004.

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
                                                               ----         ---
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

2004
Quarter ended March 31                                         0.92         0.61
Quarter ended June 30                                          0.78         0.42
Quarter Ended September 30                                     0.48         0.20
Quarter Ended December 31                                      0.47         0.20


                                                                              12
<PAGE>

      As of December 31, 2004, we had 15,663,821 shares outstanding held by
approximately 392 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 2004 are as follows:

      January 26, 2004, an aggregate number of 1,430,000 shares of Preferred
Stock subscribed to in 2003, valued at $1.00 per share, were issued to an
individual, who is a sophisticated investor, and three entities for
consideration received. All have prior relationships with the Company.

      February 2, 2004, 50,000 shares Rule 144 common stock, valued at $0.78 per
share were issued to an individual for consulting services.

      February 2, 2004, 50,000 shares Rule 144 common stock, valued at $0.78 per
share, were issued to a sophisticated investor as a loan inducement.

      February 25, 2004, an aggregate number of 185,000 shares Rule 144 common
stock, valued at an average price of $1.00 per share were issued to eight
sophisticated investors for cash and other consideration.

      March 1, 2004, pursuant to agreements, a warrant was issued to an
institutional investor with a prior relationship with us, authorizing the
purchase of 150,000 shares Rule 144 common stock at an exercise price of $.50
cents per share and expiring on March 1, 2005. The warrants were exercisable
upon issuance.

      March 1, 2004, pursuant to agreements, a warrant was issued to an
institutional investor with a prior relationship with us, authorizing the
purchase of 150,000 shares Rule 144 common stock at an exercise price of $1.00
per share and expiring March 1, 2006. The warrants were exercisable upon
issuance.

      March 1, 2004, 130,625 shares Preferred stock valued at $0.95 per share,
were issued to an institutional investor with a prior relationship with us, as
agreed per contract dated June 16, 2003, to pay interest for third and fourth
quarters 2003, and through first quarter 2004.

      March 2, 2004, 200,000 shares Rule 144 common stock with a value of $0.99
per share, were authorized to be issued as a loan inducement to a sophisticated
investor with a prior relationship with us.

      March 2, 2004, 25,000 shares Rule 144 common stock with a value of $0.99
per share, were authorized to be issued to an individual as payment for
consulting services.

      April 9, 2004, an aggregate number of 265,000 shares Rule 144 common
stock, valued at $1.00 per share, were issued to nine sophisticated investors
for cash and other consideration.

      April 12, 2004, 50,000 shares Rule 144 common stock with a value of $0.90
per share were authorized to be issued to institutional entities as payment for
a research report.


                                                                              13
<PAGE>

      July 8, 2004, 400,000 shares Rule 144 common stock subscribed in 2003,
valued at $0.50 per share were issued to an institutional investor with a prior
relationship with us.

      July 8, 2004, 200,000 shares Preferred stock subscribed in 2003, valued at
$0.50 per share were issued to an institutional investor with a prior
relationship with us.

      July 20, 2004, 100,000 shares Rule 144 common stock valued at $0.45 per
share were issued to an institution for services.

      August 9, 2004, an aggregate number of 45,000 shares Rule 144 common stock
valued at $0.30 per share were issued to five individuals as sales incentives.

      August 9, 2004, 25,000 shares Rule 144 common shares valued at $0.30 per
share were issued to an institution for payment of clinical studies to be
conducted.

      August 9, 2004, 25,000 shares Rule 144 common shares valued at $0.30 per
share were issued to an institution as a contribution.

      August 9, 2004, an aggregate number of 65,000 shares Rule 144 common stock
valued at $0.30 per share were issued to four individuals as loan inducements to
sophisticated investors.

      October 19, 2004, an aggregate number of 750,000 shares Rule 144 common
stock valued at $0.52 per share were issued as loan inducements to three
institutional investors with prior relationships with the Company.

      November 2, 2004, 50,000 shares Rule 144 common stock with a value of
$0.51 per share were issued to a sophisticated investor as a loan inducement.

      December 13, 2004, an aggregate number of 100,000 shares Rule 144 common
stock, valued at $0.24 per share were issued for services rendered for a study
on a weight loss product.

      During 2004, 110,000 shares Preferred stock held by three shareholders
were converted to common stock : 90,000 shares in first quarter and 20,000 in
fourth quarter.

The above transactions were exempt pursuant to Section 4(2) of the Securities
Act.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      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.


                                                                              14
<PAGE>

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.

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, revenue recognition, and the valuation of warrants and
options using the Black-Scholes valuation model.

Overview

      Our auditor's report reflects the fact that without realization of
additional capital, it would be unlikely for us to continue as a going concern.
As a result of our deficiency in working capital at December 31, 2004, and other
factors, our auditors have included a paragraph in their report stating those
factors create an uncertainty regarding our ability to continue as a going
concern.

Results of Operations

Comparison of years ended December 31, 2004 and 2003

      Revenues. Revenues for the year ended December 31, 2004 were $230,571, an
increase of $37,481 or 19.4% increase from $193,090 for the year ended December
31, 2003. This increase is principally attributable to an increase in
international sales.

      Gross Profit Margin. Gross profit was $79,359 or 34.4% for the year ended
December 31, 2004, an increase of $93,482 from $[14,123] for the year ended
December 31, 2003. This increase is due to an inventory impairment of $43,682
recorded in the year ended December 31, 2003, increased sales of bulk shipments
to the foreign markets and lower packaging and distribution costs.


                                                                              15
<PAGE>

      Operating Expenses. Operating expenses for the year ended December 31,
2004 were $2,863,074 which was an increase of $873,963 from the $1,989,111 for
the year ended December 31, 2003. This increase was primarily the result of the
complete write-off of goodwill and intangibles in 2004. See Note A- "Summary of
Significant Accounting Policies".

      Interest Expense. Interest expense for the year ended December 31, 2004,
was $1,651,685, an increase of $1,298,341 or 367% from $353,344 for the year
ended December 31, 2003. This increase is primarily the result of stock issuance
costs for loan inducements, costs related to loans, and deferred financing
costs.

      Net Loss. Net loss was $4,421,026 for the year ended December 31, 2004 as
compared to net loss of $2,369,564 for the year ended December 31, 2003. This
increase is primarily the result of the complete write-off of goodwill and
intangibles to record the impairment of these assets in compliance with
generally accepted accounting principles, increased interest expense and loan
inducement fees.

Liquidity and Capital Resources

      For the year end December 31, 2004, we used cash from operating activities
of $1,225,827 compared to $1,174,585 in 2003. The increase in cash used was
primarily due to an increase in net loss offset, in part, by non-cash charges
for impairment of intangibles and goodwill. Cash used by investing activities
was $27,243 in 2004 compared to $12,510 in 2003. The increase was primarily due
to purchase of intangibles. Cash provided by financing activities was $1,243,785
in 2004 compared to $1,143,000 in 2003. The increase was primarily due to
increases in proceeds from notes payable and stock sales offset, in part, by a
decrease in proceeds from stock subscribed.

      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:

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.

      As indicated in our financial statements attached, our net revenue was not
sufficient to meet our operating expenses for the year ended December 31, 2004.
In addition, as of December 31, 2004, our current liabilities exceeded our
current assets by $3,189,236. 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.


                                                                              16
<PAGE>

      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.

      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's Sports and Nutrition Inc.,
have been established. Rayfield Wright, President of Wright's 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 and has been inducted into the Ring of Honor
with the Dallas Cowboys. This product line focuses primarily on professional
athletes and aging baby boomers that associate themselves with professional
athletes and have similar needs for supplements. The area of Minority Health has
recently been a focal point. Mr. Wright is a prominent member of the Heroes of
Football, an organization currently in alliance with the National Minority
Health Month Foundation. Their objective is to build awareness and to
disseminate information about the impact of chronic health disparities.

      EIC, Inc. (Engaged In Caring) , a Scottsdale, Arizona based company, has
the exclusive rights to market its private label Skin Care Naturally Foot Care
system to the Native American communities in the United States. This product was
designed exclusively to treat the dry skin and other conditions often associated
with diabetes. The epidemic of diabetes related complications is the primary
focus of directing this skin care system to the Native American Diabetes
treatment centers. Additionally, EIC has begun marketing this product to the spa
industry. The Phoenician Resort in Scottsdale, Arizona is featuring this product
in its spa as a therapeutic herbal treatment.

      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.

      Ms. Cavanagh is establishing private label customers and is developing
signature lines for these clients. The ability to provide exclusive, specific
information and product training has propelled private label customers to begin
to set their sales and marketing strategies in place. We believe the development
of private label customers will aid in sales growth.

      A fast growing segment of the over fifty billion dollar U.S. nutritional
supplement market is being reached through the use of infomercials. Thus, we
have entered into a joint venture to participate in this form of marketing with
our new Celadrin Pain Management System, our Foot Care skin care system, and our
doctor tested and approved anti-aging products. These items are also being
offered to private label customers.

      During 2005, we are continuing to develop Royal Products, Inc., a wholly
owned subsidiary, which promotes sales in the network marketing arena. Interest
in this form of product sales is increasing as can be seen by the success of
major network marketing companies such as Forever Living, Herbalife, Shaklee and
others.

      There is increasing interest in our product lines from the international
markets. We have orders from our Middle East and United Kingdom customers and
have renewed the lease for the coming year at our office in Beijing, China, and
we are also becoming more aggressive in the domestic market.

      Management believes the implementation of 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.


                                                                              17
<PAGE>

      We will 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. A 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.

      We do not have any off-balance sheet arrangements.

Impact of Inflation

      We believe inflation has not had a material impact on our results of
operations. However, additional substantial increases in the cost of raw
materials could adversely affect our operations in future periods.

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.

      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.


                                                                              18
<PAGE>

      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:

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 24 of this Form 10-KSB.

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

        None

Item 8. Controls and Procedures

      As of December 31, 2004, 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.


                                                                              19
<PAGE>

      There have been no changes in our internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter
ended December 31, 2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

PART III

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

      The following table sets forth the 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.

         Name            Age    Title

Johnny Shannon           68     Chief Executive Officer, Chairman, President,
                                Director and Chief Financial Officer
Georgia Aadland          67     Secretary/Treasurer and Director
Lawrence G. Olson        63     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.

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.

There are no family relationships among our directors or executive officers.

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


                                                                              20
<PAGE>

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.

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 that is applicable to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, 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, 2004, the Board of Directors reviewed and approved the compensation of our
executive officers.

      Loans. In fiscal 2004, our Board of Directors granted no loans to any
officers or directors of the Company.

      Overall Policy; Significant Factors. During fiscal 2004, 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.


                                                                              21
<PAGE>

      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 2004 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.

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 1, 2006, by approval of the Board of
Directors. The Employment Agreements were filed as exhibits to our annual report
on Form10-KSB for the year ended December 31, 2001.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                      Long Term Compensation

                                        Annual Compensation                    Awards                      Payouts

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

      Name                                                                    Restricted     Securities
  and Principal                                           Other Annual          Stock        Underlying       LTIP        All other
    Position                    Salary          Bonus     Compensation         Award(s)     Options/SARs    Payouts     Compensation
                      Year        ($)            ($)          ($)                ($)            (#)            ($)           ($)
<S>                   <C>            <C>            <C>     <C>             <C>                     <C>            <C>           <C>
Johnny Shannon        2004                                  $228,273              0                 0              0              0
CEO,
Chairman,
President
and
Director
(1)                   2003           0              0       $125,736        200,000 shares          0              0              0
                      2002           0              0       $258,509              0                 0              0              0

Georgia Aadland       2004           0              0       $ 48,000              0                 0              0              0
Secretary/
Treasurer
and
Director              2003           0              0       $ 21,736        100,000 shares          0              0              0
                      2002           0              0       $ 44,300              0                 0              0              0
</TABLE>

(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".


                                                                              22
<PAGE>

Compensation of Directors

      All directors will be reimbursed for expenses incurred in attending Board
or committee meetings. Mr. Walker received $7,500 in 2004 and $10,000 in each of
2003, 2002 for consulting services.

Options, Grants and Exercises in 2004

      No executive officers were granted stock options or exercised options in
2004.

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

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

(1).  All options are currently exercisable.

(2).  Amounts based on closing price of $0.18 per share as of December 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,
2004, 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. As of December 31, 2004, we
had 15,663,821 shares outstanding. 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)                                     5,878,950    37.5
Georgia Aadland                                        1,005,400     6.4
Lawrence G. Olson                                        366,000     2.3
William T. Walker, Jr                                    150,000     1.0

All Directors & Officers as a Group (4 individuals)    7,400,350    47.2


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


                                                                              23
<PAGE>

                      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                     None                             N/A                            N/A
   plans approved by
    security holders
-----------------------------------------------------------------------------------------------------------------------
  Equity compensations                  1,500,000                         $0.25                           N/A
not approved by security
        holders
-----------------------------------------------------------------------------------------------------------------------
         Total                          1,500,000                         $0.25                           N/A
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In 2004 an entity, of which the president of the Company is a trustee,
loaned the company $86,352. Additionally, this entity received professional fees
of $100,675 from the Company.

ITEM 13. EXHIBITS

(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


                                                                              24
<PAGE>

2.         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:

                        (a)   Articles of Incorporation for Desert Health
                              Products, Inc. (Incorporated by (4)(I) 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


                                                                              25
<PAGE>

(23)              N/A

(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:

                                                      2004              2003
                                                      ----------------------
Audit Fees                                            $32,000           $31,816
Audit Related Fees                                    $27,000           $12,156
All Other Fees                                             -0-               -0-

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


                                                                              26
<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: April 15, 2005


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,       April 15, 2005
----------------------------      Chief Financial Officer and
Johnny Shannon                    President


/S/ Georgia Aadland               Secretary/Treasurer            April 15, 2005
----------------------------
Georgia Aadland


/S/ Lawrence Olson                Director                       April 15, 2005
----------------------------
Lawrence Olson


/S/ William T. Walker, Jr.        Director                       April 15, 2005
----------------------------
William T. Walker, Jr.


                                                                              27
<PAGE>

                          DESERT HEALTH PRODUCTS, INC.
                        CONSOLIDATED FINANCIAL STATEMENTS

                               For the years ended
                           December 31, 2004 and 2003

                                TABLE OF CONTENTS

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM                        F-1

FINANCIAL STATEMENTS

      Consolidated Balance Sheets                                       F-2

      Consolidated Statements of Operations                             F-3

      Consolidated Statements of  Stockholders' Deficit                 F-4

      Consolidated Statements of Cash Flows                             F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              F-6-F-21

<PAGE>

Report of Independent Registered Public Accounting Firm

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

We have audited the  accompanying  consolidated  balance sheets of Desert Health
Products,  Inc. and  Subsidiary as of December 31, 2004 and 2003 and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended.  These financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion, the 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, 2004 and 2003 and the results of
its  operations,  stockholders'  deficit  and its cash  flows for the years then
ended in conformity with accounting  principles generally accepted in the United
States of America.

The accompanying  consolidated  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  consolidated  financial  statements do not include any  adjustments
that might result from the outcome of this uncertainty.


/s/ Semple & Cooper, LLP

Phoenix, Arizona
April 15, 2005

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     2004             2003
                                                                                 ------------     ------------
<S>                                                                              <C>              <C>
                                                    ASSETS
Current Assets
         Cash and cash equivalents                                               $      2,135     $     11,420
         Accounts receivable, net                                                         175           25,793
         Inventory, net                                                                75,141           99,770
         Prepaids                                                                       7,500               --
         Advances                                                                          --            1,010
                                                                                 ------------     ------------
                 Total Current Assets                                                  84,951          137,993
                                                                                 ------------     ------------

Property and Equipment, net                                                            64,410           79,779
                                                                                 ------------     ------------

Other Assets
         Deferred financing costs                                                     129,122          241,246
         Intangibles, net                                                                  --          756,822
         Goodwill, net                                                                     --          233,645
         Deposits and other                                                                --           21,326
                                                                                 ------------     ------------
                 Total Other Assets                                                   129,122        1,253,039
                                                                                 ------------     ------------

                 TOTAL ASSETS                                                    $    278,483     $  1,470,811
                                                                                 ============     ============

                                     LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
         Bank Overdraft                                                          $        809     $         --
         Accounts payable and accrued expenses                                        609,212          314,920
         Loan inducement fees payable                                                  11,340           11,340
         Deferred revenue                                                              26,000           60,750
         Interest payable                                                             417,246          212,718
         Dividends payable                                                            274,387          157,604
         Current portion of notes payable                                           1,935,193        1,422,506
                                                                                 ------------     ------------
                 Total Current Liabilities                                          3,274,187        2,179,838

Long Term Liabilities
         Shares subject to mandatory redemption                                     1,100,000        1,100,000
         Long term note payable, net of current portion                               225,000            7,000
                                                                                 ------------     ------------

                 TOTAL LIABILITIES                                                  4,599,187        3,286,838
                                                                                 ------------     ------------

Commitments and Contingencies

Stockholders' Deficit
         Preferred Stock, convertible, $.001 par value, 10,000,000 shares
         authorized and 3,359,125 and 1,708,500 shares issued and
         outstanding as of  December 31, 2004 and 2003, respectively                    3,360            1,708
         Common stock, $.001 par value, 25,000,000 shares authorized,
         15,663,821 and 13,163,821 issued; and 15,238,821 and
         12,738,821 outstanding as of December 31, 2004 and 2003, respectively         15,664           13,164
         Stock subscribed                                                             404,881        1,744,000
         Treasury stock, 425,000 shares at cost                                      (191,250)        (191,250)
         Additional paid in capital                                                 8,758,124        5,390,025
         Accumulated deficit                                                      (13,311,483)      (8,773,674)
                                                                                 ------------     ------------

                 TOTAL STOCKHOLDERS' DEFICIT                                       (4,320,704)      (1,816,027)
                                                                                 ------------     ------------

                 TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                     $    278,483     $  1,470,811
                                                                                 ============     ============
</TABLE>

         See accompanying notes to the consolidated financial statements


                                      F-2
<PAGE>

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

                                                      2004             2003
                                                  ------------     ------------

Revenues, net                                     $    230,571     $    193,090
                                                  ------------     ------------

Cost of Revenues
     Merchandise                                       151,212          163,531
     Impairment of inventory                                --           43,682
                                                  ------------     ------------
                                                       151,212          207,213
                                                  ------------     ------------

     Gross Profit (Loss)                                79,359          (14,123)
                                                  ------------     ------------

Operating Expenses
     General and administrative                      1,849,421        1,689,111
     Impairment of intangibles                         780,008          300,000
     Impairment of goodwill                            233,645               --
                                                  ------------     ------------
          Total operating expenses                   2,863,074        1,989,111
                                                  ------------     ------------

     Net Loss From Operations                       (2,783,715)      (2,003,234)
                                                  ------------     ------------

Other Income (Expense)
     Interest expense                               (1,651,685)        (353,344)
     Other expense                                          --          (13,129)
     Other income                                       14,374               --
     Interest income                                        --              161
                                                  ------------     ------------
                                                    (1,637,311)        (366,312)
                                                  ------------     ------------

     Net Loss                                       (4,421,026)      (2,369,546)

Preferred Stock Dividends                              116,783          125,398
                                                  ------------     ------------

Net Loss Available to Common Stockholders         $ (4,537,809)    $ (2,494,944)
                                                  ============     ============

Basic and Diluted Earnings Per Share              $      (0.32)    $      (0.20)
                                                  ============     ============

Weighted Average Common Shares Outstanding -
     Basic and Diluted                              13,986,876       12,494,820
                                                  ============     ============

         See accompanying notes to the consolidated financial statements


                                      F-3
<PAGE>

                           DESERT HEALTH PRODUCTS, INC
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                             Convertible Preferred Stock              Common Stock
                                            -----------------------------     ----------------------------

                                               Shares         Par Value          Shares        Par Value
                                            ------------     ------------     ------------    ------------
<S>                                            <C>           <C>                <C>           <C>
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 receivable              --               --               --              --
            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

 Shares issued in 2004 for:
             Interest payment                    130,625              131               --              --
             Stock conversion                   (110,000)            (110)         110,000             110
             Stock subscribed                  1,630,000            1,631          665,000             665
             Loan inducement                          --               --          800,000             800
             Services and fees                        --               --          740,000             740
             Cash                                     --               --          185,000             185
 Warrants issued                                      --               --               --              --
Dividends                                             --               --               --              --
 Net loss for the year ended
    December 31, 2004                                 --               --               --              --
                                            ------------     ------------     ------------    ------------
 Balances, December 31, 2004                   3,359,125     $      3,360       15,663,821    $     15,664
                                            ============     ============     ============    ============

<CAPTION>
                                                   Treasury Stock
                                            ----------------------------      Additional
                                                                                paid-in
                                               Shares           Cost            Capital
                                            ------------    ------------     ------------
<S>                                              <C>        <C>              <C>
Balances, December 31, 2002                           --    $         --     $  4,801,076

Shares issued in 2003 for:
            Services and fees                         --              --          318,300
            Debt conversions                          --              --          270,649
            Repayment of note receivable         425,000        (191,250)              --
            Stock subscribed                          --              --               --
Dividends                                             --              --               --
Net loss for the year ended
  December 31, 2003                                   --              --               --
                                            ------------    ------------     ------------
Balances, December 31, 2003                      425,000        (191,250)       5,390,025

 Shares issued in 2004 for:
             Interest payment                         --              --          123,962
             Stock conversion                         --              --               --
             Stock subscribed                         --              --        1,995,704
             Loan inducement                          --              --          414,700
             Services and fees                        --              --          466,260
             Cash                                     --              --          184,815
 Warrants issued                                      --              --          182,658
Dividends                                             --              --               --
 Net loss for the year ended
    December 31, 2004                                 --              --               --
                                            ------------    ------------     ------------
 Balances, December 31, 2004                     425,000    $   (191,250)    $  8,758,124
                                            ============    ============     ============

<CAPTION>
                                               Stock          Accumulated     Total Equity
                                             Subscribed         Deficit         (Deficit)
                                            ------------     ------------     ------------
<S>                                         <C>              <C>              <C>
Balances, December 31, 2002                 $  1,466,000     $ (6,278,730)     $     2,168

Shares issued in 2003 for:
            Services and fees                         --               --          319,000
            Debt conversions                          --               --          270,999
            Repayment of note receivable              --               --         (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                    1,744,000       (8,773,674)      (1,816,027)

 Shares issued in 2004 for:
             Interest payment                         --               --          124,093
             Stock conversion                         --               --               --
             Stock subscribed                 (1,453,219)              --          544,781
             Loan inducement                     114,100               --          529,600
             Services and fees                        --               --          467,000
             Cash                                     --               --          185,000
 Warrants issued                                      --               --          182,658
Dividends                                             --         (116,783)        (116,783)
 Net loss for the year ended
    December 31, 2004                                 --       (4,421,026)      (4,421,026)
                                            ------------     ------------     ------------
 Balances, December 31, 2004                $    404,881     $(13,311,483)    $ (4,320,704)
                                            ============     ============     ============
</TABLE>

         See accompanying notes to the consolidated financial statements


                                      F-4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   2004            2003
                                                                               -----------     -----------
<S>                                                                            <C>             <C>
Cash Flows from Operating Activities
        Net loss                                                               $(4,421,026)    $(2,369,546)
        Adjustments to reconcile change in loss from operations to
               net cash used by operating activities:
               Depreciation                                                         19,426          18,912
               Impairment of intangibles and goodwill                            1,013,653         300,000
               Impairment of inventory                                                  --          43,682
               Reserve for inventory                                                43,000              --
               Compensation                                                             --          94,613
               Loan inducement fees, financing costs, discount amortization      1,041,875         118,667
               Stock issued for compensation                                            --         294,750
               Stock issued for interest                                           124,093              --
               Stock issued for services and fees                                  467,000          24,250
               Bad debt expense                                                     15,568          10,488
               Relinquishment of debt                                               21,139         (44,729)
        (Increase) decrease in operating assets:
               Accounts receivable                                                  10,050         (19,321)
               Inventory                                                           (18,372)         35,591
               Advances                                                              1,010           1,490
               Prepaid expense                                                      (7,500)         25,000
               Deposits                                                             21,326          (5,480)
        Increase (decrease) in operating liabilities:
               Accounts payable                                                    273,153         152,057
               Deferred revenue                                                    (34,750)          4,750
               Interest payable                                                    204,528         140,241
                                                                               -----------     -----------

                    Net Cash Used by Operating Activities                       (1,225,827)     (1,174,585)
                                                                               -----------     -----------
Cash Flows from Investing Activities
        Purchase of furniture and equipment                                         (4,057)        (11,010)
        Purchase of intangibles                                                    (23,186)         (1,500)
                                                                               -----------     -----------

               Net Cash Used by Investing Activities                               (27,243)        (12,510)
                                                                               -----------     -----------

Cash Flows from Financing Activities
        Proceeds from notes payable                                                737,742         636,000
        Bank overdraft                                                                 809              --
        Payments on notes payable                                                  (48,267)       (102,000)
        Proceeds from sale of stock                                                439,001              --
        Proceeds from stock subscribed                                             114,500         609,000
                                                                               -----------     -----------

               Net Cash Provided by Financing Activities                         1,243,785       1,143,000
                                                                               -----------     -----------

               Net Decrease in Cash and Cash Equivalents                            (9,285)        (44,095)

Beginning Cash and Cash Equivalents                                                 11,420          55,515
                                                                               -----------     -----------

Ending Cash and Cash Equivalents                                               $     2,135     $    11,420
                                                                               ===========     ===========

Non-cash financing and investing transactions:
        Conversion of notes receivable to treasury stock                       $        --     $   208,917
        Impairment of intangibles and goodwill                                 $ 1,013,653     $   230,000
        Loan inducement fees, financing costs, discount amortization           $ 1,042,875     $   280,764
        Conversion of notes payable to preferred stock,
               accrued interest and stock subscribed                           $        --     $   965,339
        Stock issued for interest                                              $   124,093     $        --
        Stock issued for compensation and services                             $   467,000     $   319,000
        Debt Relinquishment                                                    $    21,139     $    17,898
Cash paid during the year for:
        Interest                                                               $    19,583     $    66,386
        Income taxes                                                           $        --     $        --
</TABLE>

         See accompanying notes to the consolidated financial statements


                                      F-5
<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  accounting  principles  generally  accepted in the United  States of
America 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  nutraceutical  and health  solutions  to the global
marketplace.  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,  2003  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
is  stated at the  lower of cost  (first-in,  first-out)  or  market  value.  At
December  31,  2004 and 2003,  the  Company  had an  allowance  for  potentially
obsolete inventory in the amounts of $43,000 and $0 respectively.

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.

At December 31, 2004,  all of the Company's  inventory was pledged as collateral
for a note payable.

Deferred Revenue

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


                                      F-6
<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  $17,573 and $26,253 in shipping  costs,  which are
expensed  as  incurred  for  the  years  ended   December  31,  2004  and  2003,
respectively.

Property and Equipment, net

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
statement 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, net

Fair value of each intangible and goodwill was determined by calculating the net
present  value of  management's  estimate  of future  cash flows  expected to be
generated by the  intangible or goodwill  over the next three years.  In 2004 an
impairment  loss to  goodwill  and  intangibles  was  recorded in the amounts of
$233,645 and $780,008 in the second quarter of 2004, respectively.

The Company's impairment loss for the year ended December 31, 2003 in the amount
of $530,000 was 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.  Three  hundred  thousand  dollars  of the  $530,000
impairment is reported as operating  expenses on the consolidated  statements of
operations and the balance of $230,000 was charged off against stock subscribed.

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
interpretations  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". No new stock options were issued in 2004 or 2003.


                                      F-7
<PAGE>

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

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

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 inventory, goodwill and intangibles,
accruals, taxes, contingencies and valuation of warrants using the Black-Scholes
valuation  model,  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.

Advertising Costs

The Company expenses  advertising costs as they are incurred.  Advertising costs
for the  years  ended  December  31,  2004  and 2003  were  $8,070  and  $6,595,
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, 2004 and 2003,  an allowance of $40,971 and $25,403,  respectively,
was established for potentially  uncollectible  accounts receivable.  During the
years  ended  December  31,  2004 and 2003,  the  Company  recorded  $15,568 and
$10,488, respectively, in bad debt expense.

Fair Value of Financial Instruments

The  Company  has  cash  and  cash  equivalents,  accounts  receivable,  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.

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.


                                      F-8
<PAGE>

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

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

Loss Per Share

Basic loss per common  share  excludes  dilution and is computed by dividing net
loss by the  weighted  average  number of shares  of common  stock  outstanding.
Diluted loss per common share  reflects  potential  dilution that would occur if
securities or other  contracts to issue common stock were exercised or converted
into common stock. The following is the  reconciliation of loss per common share
for the years ended December 31,

<TABLE>
<CAPTION>
                                                                       2004             2003
                                                                   ------------     ------------
<S>                                                                <C>              <C>
Net loss available to common shareholders                          $ (4,537,809)    $ (2,494,944)
Weighted average number of common shares assuming no dilution        13,986,876       12,494,820
Weighted average number of common shares assuming full dilution      13,986,876       12,494,820
                                                                   ------------     ------------
Basic loss per common share                                        $      (0.32)    $      (0.20)
                                                                   ============     ============
Diluted loss per common share                                      $      (0.32)    $      (0.20)
                                                                   ============     ============
</TABLE>

The impact of outstanding stock options, warrants,  convertible preferred stock,
and common stock  pledged as  collateral  for debt has not been  included in the
computation  of  diluted  loss per  common  share  as it would be  anti-dilutive
(reduces the loss per share).  The number of potential dilutive shares of common
stock at December 31, 2004, would have been an estimated 12.8 million.  At March
31,  2005,  the number of potential  dilutive  shares of common stock would have
been an estimated 9.5 million (unaudited).

NOTE B - NEW PRONOUNCEMENTS

Recent Accounting Pronouncements

In  November  2004,  the  Financial  Accounting  Standard  Board  (FASB)  issued
Statement of Financial  Accounting Standard (SFAS) No. 151, "Inventory Costs, an
amendment of ARB No. 43,  Chapter 4," which  requires that  abnormal  amounts of
idle facility expense, freight, handling costs and wasted material (spoilage) be
recognized as current-period  charges. In addition,  the statement requires that
allocation of fixed production  overheads to the costs of conversion be based on
the normal capacity of the production facilities.  SFAS No. 151 is effective for
fiscal  years  beginning  after  June 15,  2005.  The  Company  will  adopt this
statement as required,  and management does not believe the adoption will have a
material effect on the Company's results of operations,  financial  condition or
liquidity.

In December 2004, the FASB issued SFAS 153,  "Exchanges of Nonmonetary  Assets."
SFAS 153 amends the guidance in APB No. 29, "Accounting for Nonmonetary Assets."
APB No. 29 was based on the  principle  that  exchanges  of  nonmonetary  assets
should be  measured on the fair value of the assets  exchanged.  SFAS 153 amends
APB No. 29 to  eliminate  the  exception  for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary  assets  that do not have  commercial  substance  if the future cash
flows of the  entity are  expected  to change  significantly  as a result of the
exchange. SFAS 153 is effective for financial statements issued for fiscal years
beginning after June 15, 2005.  Management has not yet determined the effects of
adopting  this  statement  on the  Company's  financial  position  or results of
operations.

In December  2004 FASB  issued  SFAS No.  123R,  Share-Based  Payment,  which is
effective for reporting  periods  beginning  after June 15, 2005 (third  quarter
2005 for the Company).  SFAS No. 123R requires the Company to recognize the cost
of employee services received in exchange for the Company's equity  instruments.
Currently,  in accordance with APB Opinion 25, the Company records the intrinsic
value of stock based compensation as expense. Accordingly, no


                                      F-9
<PAGE>

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

NOTE B - NEW PRONOUNCEMENTS (CONT'D)

compensation expense is currently recognized for fixed stock option plans as the
exercise price equals the stock price on the date of grant.  Under SFAS No.123R,
the  Company  will be required to measure  compensation  expense  over the stock
options'  vesting  period based on the stock options' fair value at the date the
options are granted.  SFAS No. 123R allows for the use of the Black-Scholes or a
lattice  option-pricing  model  to  value  such  options.  The  Company  has not
determined  which model it will use to calculate  the fair value of its options.
As allowed by SFAS No. 123R, the Company can elect either  Modified  Prospective
Application, which applies SFAS No. 123R to new awards and modified awards after
the  effective  date,  and to any  unvested  awards as service is rendered on or
after the effective date, or Modified Retrospective  Application which can apply
SFAS No. 123R to either all prior years for which SFAS No. 123 was  effective or
only to prior interim periods in the year of adoption.  The Company is currently
evaluating  which method of application  will be used and has not yet determined
the effects of adopting this  statement on the Company's  financial  position or
results of operations.

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.

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,  2004.  Additionally,  as of that date the  Company's
current  liabilities  exceeded its current assets by  $3,189,236.  Those factors
create an uncertainty regarding the Company's ability


                                      F-10
<PAGE>

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

to continue as a going  concern.  Management  of the Company has  developed  the
following plan to reduce its liabilities and increase its gross revenues.

NOTE C - GOING CONCERN AND MANAGEMENT'S PLAN (CONT'D)

We are  continuing  to position  ourselves  in the North  American  markets.  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.  Over the next twelve months we intend
to increase our revenues through the strong support from our  international  and
domestic  clients and  registrations  in various  countries around the world are
continuing to be approved.

Sales of private labeled products for Wright's Sports and Nutrition,  Inc., have
been established.  Rayfield Wright,  president of Wright's Sports and Nutrition,
was a star football player with the Dallas Cowboys,  making five Super Bowls and
six Pro Bowl  appearances.  He was a  candidate  for the  National  Professional
Football  Hall of Fame and has  been  inducted  into the Ring of Honor  with the
Dallas Cowboys.

Wright's product line focuses  primarily on the market to professional  athletes
and the aging baby boomers who recognize the increasing  need to be proactive in
caring for their  health.  They  recognize the need for nutrients in the form of
vitamins,  minerals,  enzymes, water, amino acids and phytonutrients and that if
we deprive our bodies of essential  nutrients we impair  normal  functions.  The
area of  Minority  Health  has  recently  been a focal  point.  Mr.  Wright is a
prominent  member of the  Heroes  of  Football,  an  organization  currently  in
alliance with the National Minority Health Month Foundation.  Their objective is
to build  awareness and to disseminate  information  about the impact of chronic
health disparities.

A  Scottsdale,  Arizona  based  company has  exclusive  rights from us to market
private label products to the Native American  communities in the United States.
They are  focusing on products  designed  exclusively  to treat the dry skin and
other conditions associated with diabetes.  Additionally, this company has begun
sales of these  private  labeled  products to the spa  industry  and have placed
product  with the spa in the world  renowned  Phoenician  Resort in  Scottsdale,
Arizona.

Joanne Cavanagh,  H.N.T., A.H.G., National Director of Sales, has certifications
in the fields of Nutrition, Supplements, Stress Management, Nutrition Therapies,
Weight  Management  and Western  Herbalism.  Ms.  Cavanagh  provides  support in
special formulations, education and information for our clients. We believe this
ability to provide  information  and  support to both the  wholesale  and retail
sectors will increase our penetration into numerous markets.

A  fast  growing  segment  of  the  over  Fifty  Billion  Dollar  United  States
nutritional  supplement market is being reached through the use of infomercials.
Thus,  we have  entered  into a joint  venture  to  participate  in this form of
marketing with three infomercials on the following  products:  (1) Celadrin Pain
Management  System,  (2) Desert Health's Foot Care - a skin care system, and (3)
our doctor tested and approved anti-aging product line. The infomercials will be
prepared and aired during 2005.

During 2005, we are continuing to develop Royal  Products,  Inc., a wholly owned
subsidiary.  Royal is a network  marketing  company  specializing in nutritional
supplements  and herbal  products.  Interest  in this form of  product  sales is
increasing  as can be seen by the success of major network  marketing  companies
such as Forever Living, Herbalife, Shaklee and others.

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

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-11
<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,

                                                       2004              2003
                                                     --------          --------
Office equipment                                     $ 89,403          $ 85,346
Leasehold improvements                                 60,572            60,572
Less: accumulated depreciation                        (85,565)          (66,139)
                                                     --------          --------
                                                     $ 64,410          $ 79,779
                                                     ========          ========

Depreciation  expense for financial  reporting  purposes was $19,426 and $18,912
for the years ended December 31, 2004 and 2003, respectively.

NOTE E - INTANGIBLE ASSETS

Intangible assets consisted of the following at December 31,

                                                      2004              2003
                                                  -----------       -----------
Patents, trademarks, and registrations            $ 1,294,317       $ 1,281,841
Websites                                               16,655             5,945
Exclusive marketing rights                                 --           530,000
Customer list                                          20,000            20,000
                                                  -----------       -----------
                                                    1,330,972         1,837,786
Impairment losses                                    (780,008)         (530,000)
                                                  -----------       -----------
                                                      550,964         1,307,786
Less: accumulated amortization                       (550,964)         (550,964)
                                                  -----------       -----------
                                                  $        --       $   756,822
                                                  ===========       ===========

NOTE F - GOODWILL

Goodwill consisted of the following at December 31,

                                                       2004              2003
                                                    ---------         ---------
Goodwill                                            $ 272,300         $ 272,300
Impairment losses                                    (233,645)               --
                                                    ---------         ---------
                                                       38,655           272,300
Less: accumulated amortization                        (38,655)          (38,655)
                                                    ---------         ---------
                                                    $      --         $ 233,645
                                                    =========         =========

NOTE G - CONCENTRATIONS

For the years ended  December 31, 2004 and 2003, a  significant  volume of sales
were concentrated with three customers. Of the total revenue for the years ended
December 31, 2004 and 2003, 76.4% and 60% or $176,093 and $118,845 were received
from those  customers,  respectively.  At December  31,  2004 and 2003  accounts
receivable related to these customers totaled $9,312 and $6,429, respectively.


                                      F-12
<PAGE>

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

NOTE H - INCOME TAXES

The cumulative  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:

<TABLE>
<CAPTION>
                                                                 2004              2003
                                                             -----------       -----------
<S>                                                          <C>               <C>
Federal tax benefit of net operating losses at expected
    statutory rates                                          $ 1,397,928       $   871,641
State tax benefit of net operating losses at expected
    statutory rates                                              309,472           176,237
Impairment of intangibles and goodwill                           406,091                --
Depreciation                                                    (230,595)               --
                                                             -----------       -----------
                                                               1,882,896         1,047,878
                Less Valuation Allowance                      (1,882,896)       (1,047,878)
                                                             -----------       -----------
   Net tax benefit                                           $        --       $        --
                                                             ===========       ===========
</TABLE>

The deferred tax asset and deferred tax liability comprised the following at
December 31,

                                                       2004            2003
                                                   -----------     -----------
      Tax benefit at the federal statutory rate    $ 4,083,978     $ 2,686,050
      Tax benefit at the State statutory rate          852,991         543,519
      Intangible/Goodwill                          $   406,091
      Depreciation                                 $  (230,595)
      Valuation allowance                           (5,112,465)     (3,229,569)
                                                   -----------     -----------
      Net Deferred Tax Asset                       $        --     $        --
                                                   ===========     ===========

The net change in the  valuation  allowance  was  $1,882,896  for the year ended
December 31, 2004,  which  represents  primarily  the current  year's income tax
benefit of the net operating loss.

The Company has estimated federal and state net operating loss carry forwards at
December  31,  2004 of  $11,472,989  and  $10,753,703.  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          2005        $ 1,468,195
                2017             86,270          2006          1,880,380
                2018             45,978          2007          1,268,637
                2019            583,701          2008          2,563,649
                2020          1,468,195          2009          3,572,842
                2021          1,880,380                               --
                2022          1,268,637                               --
                2023          2,563,649                               --
                2024          3,572,842                               --
                            -----------                      -----------
                            $11,472,989                      $10,753,703
                            ===========                      ===========

NOTE I - STOCK SUBSCRIBED

On December 31, 2004, stock subscribed  consisted of $404,881 for  approximately
1,179,700  shares of  un-issued  common  stock.  On  December  31,  2003,  stock
subscribed  consisted  of $100,000  for 200,000  shares of  un-issued  preferred
stock,  $200,000 for 400,000 shares of un-issued common stock and $1,444,000 for
1,444,000 shares of un-issued and  unauthorized  class of preferred stock with a
specified  dividend rate of 12%.  Subsequent to December 31, 2003,  1,430,000 of
the  unauthorized  class of preferred  stock was  authorized  and issued.  As of
December 31, 2004 and 2003 accrued  dividends payable on this class of preferred
stock was $274,387 and $157,604, respectively


                                      F-13
<PAGE>

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

NOTE J -NOTES PAYABLE

Notes payable consists of the following at December 31,

<TABLE>
<CAPTION>
                                                                                                 2004            2003
                                                                                             -----------     -----------
<S>                                                                                          <C>             <C>
      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     $   710,500

      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

      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                         28,018          30,018

      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         140,000

      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                               19,000          24,000

      Unsecured note payable to an individual, net of discount of $0 and $41,212,
      respectively. 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                340,000         298,788

      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          30,000

      Unsecured interest bearing notes payable to various individuals, interest rates
      from 10% to 20% per annum, with maturity dates ranging from July 21, 2004
      to April 29, 2005                                                                          319,400              --

      Unsecured note payable to an individual with $5,000 interest and all principal
      due at maturity on November 15, 2004                                                        50,000              --
      Unsecured note payable to an individual bearing interest of 100,000 shares of
      common stock (approximately $18,000 at December 31, 2004) and all
      principal due at maturity on February 6, 2005                                               25,000              --

      Unsecured note payable to an entity, bearing interest at a rate of 12% per
      annum, with a maturity date of October 6, 2007                                             225,000              --

      Four unsecured notes payable to officers and a director of the Company,
      bearing interest at rates of zero to 13% interest per annum, with principal and
      interest due at maturity; two notes are  due on demand, and two notes mature
      September 3, 2005 and November 19, 2005                                                    102,075              --

                                                                                             -----------     -----------
      Total notes payable                                                                      2,160,193       1,429,506
      Less: current maturities                                                                (1,935,193)     (1,422,506)
                                                                                             -----------     -----------
                                                                                             $   225,000     $     7,000
                                                                                             ===========     ===========
</TABLE>


                                      F-14
<PAGE>

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

The  following is a list of principal  payments due on the  Company's  long-term
debt at December 31, 2004:

      o     $ 1,935,193 in 2005;

      o     $ 0 in 2006;

      o     $ 225,000 in 2007;

      o     $ 0, thereafter.

Of the  Company's  $2,160,193  in  debt  obligations,  $819,218  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 was 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, 2004, the principal balance and unamortized discount relating
to the above note was fully amortized.  The Company recorded interest expense of
$41,212, during the years ended December 31, 2004 and 2003.

Of the Company's $2,160,193 in debt obligations, $240,075 of the debt is secured
by a pledge of a  sufficient  number  of free  trading  shares of Desert  Health
Products, Inc., common stock to fully collateralize the amount of $240,075.


                                      F-15
<PAGE>

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

NOTE K - RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
                                                                         2004       2003
                                                                        -------    -------
<S>                                                                     <C>        <C>
Notes payable to officers and directors of the Company
    Loan from officer of $86,342 - Interest 6% APR - Balance
           of principal due September 3, 2005                           $70,075    $    --
    Loan from officer - non-interest bearing - due on demand            $15,000    $    --
    Loan from director - interest  $1,000 - due on demand               $15,000    $15,000
    Loan from director - non interest bearing - September 3, 2005       $12,000    $    --
    Loan from officer bearing 13% interest beginning January 1, 2005
           - due on demand                                              $ 5,000    $    --
    Balance of accrued interest relating to the note;                   $ 1,624    $    --
</TABLE>

Payment terms for the above notes are payment at maturity date or upon demand.

For the year ended  December  31,  2004,  the Company  owed  $101,304 as fees to
officers and directors of the Company. For the year ended December 31, 2003, the
Company paid $803,177 as fees to officers,  directors, and relatives of officers
of the Company.

NOTE L - COMPENSATED ABSENCES

The Company has not accrued for compensated absences as of December 31, 2004 and
2003.  Management  believes that any potential  liability would be immaterial to
the consolidated financial statements

NOTE M- COMMITMENTS AND CONTINGENCIES

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. No royalties on the Burn & Scald
Relief Spray were paid during the year ended December 31, 2004. No sales of this
product have commenced due to delays in the product's formulation, packaging and
labeling.

As of  December  31, 2004 and 2003 the Company is under  written  obligation  to
issue 21,000 shares of Desert Health  Products,  Inc.'s common stock,  valued at
$11,340 in each year as loan inducement fees to various individuals.

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 the 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  accrued
royalty due at December 31, 2004, relative to these royalties is $17,000.

The  Company   conducts  its  operations  from  facilities  under  a  three-year
non-cancelable  operating  lease  expiring  January 31, 2006,  with monthly rent
expense of $9,403. Additionally, the Company leases office space at its Beijing,
China branch,  with month to month rental  expense of  approximately  $1,457 per
month. The following is the future minimum rental payments for the years ended:


                                      F-16
<PAGE>

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

NOTE M - COMMITMENTS AND CONTINGENCIES (CONT'D)

                    December 31,
                        2005                               $112,838
                        2006                                  9,403
                                                           --------
                                                           $122,241
                                                           ========

Total rent  expense for the years ended  December 31, 2004 and 2003 was $153,084
and $135,113 respectively.

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

On March 5, 2003, we instituted  suit in the Arizona  Superior  Court,  Maricopa
County,  Arizona,  against a Phoenix  based  marketer of health  care  products,
seeking unspecified damages for fraud and negligent  misrepresentation,  arising
from a product  licensing and marketing  agreement.  The parties have  exchanged
forms of Settlement Agreement.  Settlement as contemplated will result in relief
of  approximately  $50,000 in  obligations  of Desert Health to a third party, a
cash payment of $10,000 to Desert Health,  and the execution of a mutual general
release.

Nicholas M. Simak and NMS Solutions  Group,  Inc., filed a complaint in Maricopa
County  Superior Court of the State of Arizona against the company May 11, 2004,
alleging   non-payment  of  various  loans.  We  have  demanded  return  of  all
intellectual  property,  which includes customer lists and contacts belonging to
the  Company.  We have set forth a counter  claim which we intend to  vigorously
pursue.  We were  named in a suit filed June 2,  2002,  in the  Maricopa  County
Superior  Court in the  state of  Arizona  by a  plaintiff  claiming  to hold an
assignment  of a note in the amount of  $50,000  from this same  plaintiff.  The
Company's  position  is that  the note  was  paid in full  prior to the  alleged
assignment and intends to vigorously  defend our position.  These two cases have
been consolidated into a single case.

Michael and Marti Medina filed a complaint in Maricopa  County Superior Court of
the State of Arizona against the Company June 14, 2004, alleging  non-payment of
a loan in the amount of $25,000,  and seeking payment of principal and interest.
They have been awarded a judgment  against the Company in the amount of $29,180.
Notes payable  include the original debt amount of $25,000 at December 31, 2004.
The  remaining  $4,180 is included in  accounts  payable and accrued  expense at
December 31, 2004. We are arranging payment for this judgment.

February 23, 2005, a complaint was filed against the Company in Maricopa  County
Superior  Court in the State of Arizona by  Kathleen  Corum Trust No. 1 for rent
payments in the amount of $12,224  plus late fees. A  settlement  agreement  has
been  reached for  interest and  penalties  amounting to $18,850  which has been
accrued as of December 31, 2004.

February 22, 2005, the Company filed suit in the Maricopa  County Superior Court
of the State of Arizona  against  ParTrusT  "Beheer"  B.V.,  a foreign  business
entity,  (ParTrusT) for Breach of Contract, Breach of Covenant, based on a three
year loan  agreement for $500,000,  of which only $225,000 has been funded.  The
preferred  stock  intended to be a part of a  completed  loan  transaction  with
ParTrusT has been invalidated due to alleged breach of contract.

February 19, 2004, a complaint was filed against the Company in Maricopa  County
Superior Court in the State of Arizona by Pamela Peterson  alleging  non-payment
of a loan in the  amount  of  $50,000  and  seeking  payment  of  principal  and
interest.  June 1, 2004, Ms. Peterson was awarded a judgment against the Company
in the amount of $60,000  together with interest at the rate of 10% per annum. A
settlement  agreement as contemplated will result in relief of the amount of the
judgment whereby a third party will assume full responsibility for the debt.


                                      F-17
<PAGE>

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

NOTE M- COMMITMENTS AND CONTINGENCIES (CONT'D)

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 equal bi-monthly installments.

In 2004 the Company entered into investment  agreements whereby  individuals are
to  receive a return on their  investment  equal to 5% of 75% of total  sales of
Royal  Products,  Inc. As of December  31,  2004,  no amounts  have been paid or
accrued.

NOTE N - SHARES SUBJECT TO MANDATORY REDEMPTION

On June 16, 2003 the Company  entered into an agreement  with one of its lenders
to  convert  $965,339  of debt and  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 recorded a deferred  issuance cost in relation to this conversion of
$134,661.  The deferred  issuance  costs are being  amortized  over a term of 24
months.  Amortization  expense for this  deferred  financing  cost for the years
ended December 31, 2004 and 2003, amounted to $67,320 and $33,668, respectively,
and is reported as interest expense in the financial statements.

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.  At December 31, 2004
and 2003,  debt issuance costs  amounted to $52,187 and $140,250,  respectively,
and is being amortized over 24 months.  Amortization expense for the years ended
December 31, 2004 and 2003  amounted to $88,063 and $46,750,  respectively.  The
amortization   expense  is  reflected  in  interest  expense  on  the  financial
statements.

NOTE O - STOCKHOLDERS' EQUITY

Options

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, 2004 and 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, 2004 and 2003 is as follows:

                                                                    Weighted
                                                                     Average
                                                      Shares     Exercise Price
                                                    ----------   --------------
Outstanding at January 1, 2003                       2,000,000     $      .25
Granted                                                     --             --
Exercised                                                   --             --
Forfeited                                                   --             --
                                                    ----------     ----------

Outstanding and exercisable at December 31, 2003     2,000,000            .25
Granted                                                     --             --
Exercised                                                   --             --
Forfeited                                             (500,000)            --
                                                    ----------     ----------
Outstanding and exercisable at December 31, 2004     1,500,000     $      .25
                                                    ==========     ==========


                                      F-18
<PAGE>

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

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, 2004 include the following:

<TABLE>
<CAPTION>
                                      Outstanding Options                                Exercisable Options
                      -----------------------------------------------------         -----------------------------
                                           Weighted
                                            Average             Weighted                              Weighted
 Exercise                                  Remaining             Average                               Average
Price Range             Number         Contractual Life      Exercise Price           Number       Exercise Price
-----------           ---------        ----------------      --------------         ---------      --------------
<S>                   <C>               <C>                     <C>                 <C>               <C>
$       .25           1,500,000         Less than 1 mo.         $     .25           1,500,000         $     .25
</TABLE>

The Company has no issuances of stock options for the periods  presented and, as
such, has no pro forma earnings per share presentation.

Warrants

During the year ended December 31, 2004, the Company  granted a total of 491,300
warrants to various parties as loan inducement fees.

                                                                     Weighted
                                                                     Average
                                                         Shares   Exercise Price
                                                        -------   --------------
Outstanding at January 1, 2003                               --      $    --
Granted                                                      --           --
Exercised                                                    --           --
Forfeited                                                    --           --
                                                        -------      -------

Outstanding and exercisable at December 31, 2003             --           --
Granted                                                 491,300          .50
Exercised                                                    --           --
Forfeited                                                    --           --
                                                        -------      -------
Outstanding and exercisable at December 31, 2004        491,300      $   .50
                                                        =======      =======

Warrants exercisable at December 31, 2004 include the following:


                                      F-19
<PAGE>

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

NOTE O - STOCKHOLDERS' EQUITY (CONT'D)

<TABLE>
<CAPTION>
                                      Outstanding Warrants                               Exercisable Warrants
                      -----------------------------------------------------         -----------------------------
                                           Weighted
                                            Average             Weighted                              Weighted
 Exercise                                  Remaining             Average                               Average
Price Range             Number         Contractual Life      Exercise Price           Number       Exercise Price
-----------           ---------        ----------------      --------------         ---------      --------------
<S>                    <C>             <C>                       <C>                 <C>               <C>
                                       Approximately 6
$       .50            491,300              months               $ .50               443,500           $     .50
</TABLE>

The fair value of warrants  granted was  estimated  at the date of grant using a
Black-Scholes  options  valuation  model  with the  following  weighted  average
assumptions:  risk free and one year interest rates of 5.00% (for all warrants),
no dividend yield (for all warrants),  volatility  factor of the expected market
price of the Company's  common stock of 100% (for 443,500  warrants) and 204.16%
(for 47,800  warrants) and approximate  expected life of six months (for 191,300
warrants) and one year (for 300,000  warrants).  A deferred  financing  cost was
recorded in the amount of $182,657 and is being  amortized  over the life of the
agreements as financing  costs.  Amortization/financing  costs  recorded for the
year ended December 31, 2004 was $161,927.  Weighted  average  remaining life of
the warrants outstanding as of December 31, 2004, is approximately six months.

The  Black-Scholes  options  valuation model was developed for use in estimating
the fair value of traded  options  that have no vesting or trading  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility. Changes in the subjective assumptions can materially affect the fair
value estimate.

Preferred Stock

There were 798,500  preferred  shares  outstanding at December 31, 2004, held by
various individuals and entities. These shares are non-voting and convertible to
common stock at a ratio of 1:1.

Outstanding at December 31, 2004, are 130,625 shares of preferred  stock held by
an entity. These shares are non-voting and convertible to common stock at 80% of
the prior 31 day average bid price for common stock.

Outstanding at December 31, 2004, are 1,100,000  shares  preferred stock subject
to mandatory redemption, that are non-voting and non-convertible. See Note N for
discussion of the shares.

Outstanding at December 31, 2004, are 1,000,000  shares  preferred stock held by
an  officer of the  Company,  that are  convertible  at a ratio of 1:1 and carry
voting rights at a ratio of 10:1.

During  2004,  1,430,000  shares of  non-voting  preferred  stock were issued to
various  individuals  which had been  subscribed to at December 31, 2003.  These
shares of preferred  stock  included  certain  rights  including  the accrual of
dividends and the ability to convert into common stock over a two-year period at
a ratio of 1:1.  Dividends  accrued  at the rate of 12% in year one,  and 14% in
year two. The accrual of dividends ceased in August 2004, as the two-year period
expired. There were no conversions of preferred stock into common stock.


                                      F-20
<PAGE>

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

NOTE P - SUBSEQUENT EVENTS

Stock Issuances

Subsequent to December 31, 2004,  550,000  shares of common stock were issued to
individuals for loan  inducements,  consulting  services and settlements  with a
combined market value of $101,250. Additionally,  750,000 shares of common stock
were  cancelled  due to breach of  contract.  On January  10,  2005,  one of the
Company's  existing  sophisticated  investors  subscribed  to 500,000  shares of
common stock at $0.15 per share in exchange for $75,000.

Notes Payable

Subsequent to December 31, 2004,  the Company  entered into 30 day notes payable
upon demand totaling $135,000 . The notes carry an annual interest rate of 7%.

Employment Agreements

Subsequent to year end 2004, the board of directors renewed employment contracts
through January 1, 2006 for Johnny Shannon and Georgia Aadland. The terms of the
employment contracts are substantially unchanged.


                                      F-21