DESERT HEALTH PRODUCTS, INC.
FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1999
Independent Auditor's Report
Board of Directors and Stockholders
Desert Health Products, Inc.
I have audited the accompanying balance sheets of Desert Health Products,
Inc. as of December 31, 1998 and June 30, 1999, and the related statements of
operations, changes in stockholders' equity and cash flows for the year
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Desert Health Products, Inc.
as of December 31, 1998 and June 30, 1999, and the results of its operations
and its cash flows for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note G 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 G. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ James Raftery
September 19, 1999
Mesa, Arizona
TABLE OF CONTENTS
Independent Auditor's Report 1
Financial Statements
Balance Sheets 2
Statement of Operations and Accumulated Deficit 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to the Financial Statements 6-8
DESERT HEALTH PRODUCTS, INC.
BALANCE SHEETS
December 3 1, June 30,
1998 1999
ASSETS
Current Assets
Cash 18,185 $ 11,143
Note Receivable 71,030 104,112
Inventory 119,297 143,443
------------- -----------
Total Current Assets 208,512 258,698
Proper(y and Equipment
Furniture and Equipment 2,862 10,830
Less: accumulated depreciation (590) (882)
------------- -----------
2,272 9,948
OtherAssets
Deferred tax benefit 31,926 39,187
Trademarks, net of amortization 104,458 105,756
Deposits - 10,000
------------- -----------
136,384 154,943
------------- -----------
$ 347,168 $ 423,590
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 87,802 $ 130,543
Advances 1,000 1,000
Current portion of long term debt 182,188 200,954
------------- -----------
Total Current Liabilities 270,990 332,497
Stockholders' Equity
Common stock, $.001 par value, 25,000,.000
shares
authorized and 5,736,121 issued and 4,305 5,736
outstanding
Subscriptions receivable - (1,000)
Preferred Stock, $.001 par value,
10,000,000 shares
authorized and 10,000 shares issued and 5 10
outstanding
Additional paid in capital in excess of par 274,287 625,199
value
Accumulated deficit (202,419) (538,852)
------------- -----------
76,178 91,093
------------- -----------
$ 347,168 $ 423,590
========== ========
See accompanying notes to the financial statements
DESERT HEALTH PRODUCTS, INC
STATEMENT OF OPERATION AND ACCUMULATED DEFICIT
Year Ended December 31, 1998
Revenue $135,359
Cost of sales (19,884)
------------------
Gross Profit 115,475
Operating Expenses 237,732
------------------
Loss from Operations (122,257)
Other income (expense)
Interest expense (15,163)
Interest income 1.259
Miscellaneous income 87,000
-------------------
73,096
------------------
Net loss before provision for income taxes (49,161)
Provision for income taxes
Deferred tax benefit 31,926
-------------------
Net Loss (17,235)
------------------
Beginning accumulated deficit (185,184)
------------------
Ending accumulated deficit $(202,419)
==========
Earnings per common share $(0.012)
==========
See accompanying notes to the financial statements
DESERT HEALTH PRODUCTS, INC
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1998
Common Stock
Balance at the beginning of the year $ -
Par value of shares issues
1998 - 4,309,900 shares at $.001 4,305
-------------
BALANCE AT END OF YEAR $ 4,305
===========
Preferred Stock
Balance at the beginning of the year $ -
Par value of shares issues
1998 - 4,309,900 shares at $.001 5
-------------
BALANCE AT END OF YEAR $ 5
===========
Additional Paid-In Capital
Balance at the beginning of the year $ -
Proceeds in excess of par value of
Shares of common stack issued: 274,287
----------
BALANCE AT END OF YEAR $ 274,287
===========
Balance at beginning of year $(185,184)
Net loss for the year (17,234)
-------------
BALANCE AT END OF YEAR (202,419)
------------
TOTAL STOCKHOLDERS' EQUITY $76,178
============
See accompanying notes to the financial statements
DESERT HEALTH PRODUCTS, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1998
Cash Flows from Operating Activities
Cash received from customers $ 135,359
Interest 'income 1,259
Miscellaneous income 87,000
Cash paid to suppliers and employees (364,531)
Interest expense (15,163)
----------
Net Cash Provided (Used) in Operating Activities (156,076)
Cash Flows from Investing Activities
Cash used for purchase of trademarks (47,040)
Additional paid in capital in excess of par value 275,288
----------
Net Cash Provided by Investing Activities 228,248
Cash Flows from Financing Activities
Cash Provided by notes and loans
Issuance of common stock 4,305
Issuance of preferred stock
Payments on notes and loans (59,668)
----------
Net Cash Provided (Used) by Financing Activities (55,358)
Net Increase (Decrease) in Cash and Cash Equivalents 16,814
Beginning Cash and Cash Equivalents 1,371
----------
Ending Cash and Cash Equivalents $ $ 18,185
===========
Reconciliation of Changes in Net Operations to Net Cash Used
by Operating Activities:
Loss from operations $ (17,235)
Adjustments to reconcile change in loss from operations
to
net cash provided (used) by operating activities:
Depreciation 335
Amortization 2,596
(Increase) decrease in operating assets
Inventory (70,003)
Notes receivable (71,030)
Prior period adjustment (2,640)
Deferred tax benefit (31,926)
Increase (decrease) in operating liabilities
Accounts payable 33,827
-----------
Net Cash Provided (Used) by Operating Activities $(156,076)
===========
DESERT HEALTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Desert Health Products,
Inc. (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations
of the Company's management who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principals and have been consistently applied in the preparation
of the financial statements.
Nature of Operations
The Company was incorporated in the state of Arizona on July 21, 1991 to
develop dietary supplement products from natural plant extracts. The Company
is focusing its development efforts on certain plants and plant extracts that
are widely used throughout the United States and Europe to treat a variety of
diseases and physical conditions. The Company identifies and quantifies the
properties within plant resources that are believed to provide therapeutic or
other health benefits and to produce dietary supplements.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the company considers all short-
term debt securities purchased with a maturity of three months or less to be
cash equivalents.
Inventories
Inventories consist primarily of health food supplements and vitamin products
and are stated at the lower of cost (first-in, first-out) or market value.
Depreciation
Depreciation is computed by using the straight-line method for financial
reporting purposes and the accelerated cost recovery method for federal
income tax purposes.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of certain assets and
liabilities for financial and tax reporting. The deferred taxes represent
the future tax return consequences of those differences, which will either be
taxable when the assets and liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclose of
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.
DESERT HEALTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1999
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged against operations. /renewals and betterments that
materially extend the life of the assets are capitalized.
Property and equipment are summarized by major classifications as follows:
1998 1999
Equipment $ 2,862 $ 10,830
Less: Accumulated Depreciation (590) (882)
----------------- ----------------
$ 2,272 $ 9,948
================ =================
NOTE C -LONG TERM DEBT
Long term notes payable at December 31, 1998 and June 30, 1999, consisted of
the following:
1998 1999
Demand notes payable to various
individuals bearing Interest rates of
10% to 25% secured by major assets of
the company and personally guaranteed
by the major shareholder of the
corporation. Due and payable on
demand.
$ 182,188 $ 200,954
NOTE D - INCOME TAXES
The Company has loss carryforwards totaling $106,647 that may be offset
against future taxable income. If not used, the carryforwards will expire as
follows:
Year 18 $ 3,377
Year 19 86,270
Year 20 17,000
-------------
$ 106,647
==============
DESERT HEALTH PRODUCTS. INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1999
NOTE D - INCOME TAXES, cont..
Deferred tax assets consist of the following:
1999 1998
Current $31,926 $39,187
NOTE E - STOCKHOLDER'S EQUITY
On August 16, 1996, the number of authorized shares of common stock and
preferred stock was increased to 25,000,000 and 10,000,000, respectively. At
December 31, 1998 and June 30, 1999 there were 4,309,900 and 5, 000 shares
issued and 5,736,121 and 10,000 respectively, of common and non-cumulative
preferred stock. The par value of the stock is $.001 for December 31, 1998
and June 30, 1999.
NOTE F - RELATED PARTY TRANSACTIONS
The Company is affiliated with another corporation to whom they sell product,
advance money for operating expenses and sublease their operating facilities
on a month-to-month basis. These two companies have a common majority
shareholder. For the year December 31, 1998 and the six months ended June
30, 1999, a total of $40,830 and $56,237, respectively, have been advanced to
the related entity.
NOTE H - GOING CONCERN
As indicated in the accompanying financial statements, the Company's gross
revenue is not sufficient to meet its operating expenses for the year ended
December 31, 1998. Additionally, as of that date the Company's current
liabilities exceeded its current assets by $62,478. Those factors create an
uncertainty regarding the Company's ability to continue as a going concern.
Management of the Company has developed the following plan to reduce its
liabilities and increase its gross revenues as follows. A registered 504(d)
public offering of $995,000 and the acquisition of Essential Support, LLC a
line of dietary/nutritional supplements and vitamins for women. A stock
exchange agreement was executed between the Company and Essential Support,
LLC on July 1, 1999. The ability of the Company to continue as a going
concern is dependent upon the aforementioned public offering. The financial
statements do not include any adjustments that might be necessary were the
Company unable to continue as a going concern.
NOTE I - CONCENTRATIONS
For the year ended December 31, 1998, a significant volume of sales were
concentrated with one vendor. Of the total revenue for the year, 62% or
$83,857 was received from that single source.