SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/AOMB APPROVAL
OMB Number:    3235-0420
Expires:       March 31, 2007
Estimated average burden
Hours per response1646  (Mark One)  SANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2006  £TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from ______________ to________________  Commission file number 0-32123   DESERT MINING, INC. (Name of small business issuer in its charter)  Nevada87-0664962(State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification No.)   4328 Hwy. 66, Longmont, CO80504(Address of principal executive offices)(Zip Code)   Issuers telephone number (970) 535-6213   Securities registered under Section 12(b) of the Exchange Act: None  Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par Value   Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  £  Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.  SEC 2337 (12-05) Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.   Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes  S  No £  Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B 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.    £  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                    Yes  £  No S  State issuers revenues for its most recent fiscal year:  $114,266  State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)  The aggregate market value of the issuers common stock held by non-affiliates at March 27, 2007 is deemed to be $3,519,254.  Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.  (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)  Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes £     No £  (APPLICABLE ONLY TO CORPORATE REGISTRANTS)  State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date.   At March 27, 2007 there were 14,162,647 shares of common stock of the registrant outstanding, par value $.001.  DOCUMENTS INCORPORATED BY REFERENCE  If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (Securities Act). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).  Transitional Small Business Disclosure Format (Check one): Yes £   No S  2   PART I  Item 1. Description of Business.  FORWARD-LOOKING STATEMENT NOTICE  When used in this report, the words may, will, expect, anticipate, continue, estimate, project, intend, and similar expressions are intended to identify 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 regarding events, conditions, and financial trends that may affect the Companys future plans of operations, business strategy, operating results, and financial position.  Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors.  Such factors are discussed under the headings Item 1.  Description of Business, and Item 6.  Managements Discussion and Analysis of Financial Condition and Results of Operations, and also include general economic factors and conditions that may directly or indirectly impact the Companys financial condition or results of operations.  History and Organization  Desert Mining, Inc. was originally incorporated on June 6, 1979 as Holidays of America, Inc. pursuant to the Nevada Business Corporation Act.  Its original Articles of Incorporation provided for authorized capital of 2,500 shares of common stock with a $0.25 par value.  Our Company was formed with the stated purpose of conducting any lawful business activity.  However, no business was undertaken until 1988.  In 1988 we raised $11,625 through private sales of its stock, all of which was expended in the evaluation of a joint venture with Controlled Environment Leaching Systems in the development of certain placer mining claims located in Kern County, California.  After review of all reports and subsequent field examinations, it was determined that we did not have the resources to pursue the project and all attempts to engage in business ended in 1990, and we again became dormant.  On November 3, 2000, the shareholders amended the articles of incorporation, changing our name to Desert Mining, Inc., and increasing the authorized capital to 100,000,000 shares of common stock with a par value of $0.001 per share.   The shareholders also authorized a 200 to 1 forward split of the outstanding shares.  The amended articles were filed with the State of Nevada on November 28, 2000.  Management then began seeking potential operating businesses and business opportunities with the intent to acquire or merge with such businesses.  In June of 2003, there was a change in control of our Company.  Following the change in control, we cancelled 1,594,000 common shares and effected a ten for one forward split of its issued and outstanding stock for shareholders of record as of July 15, 2003.  As a result of the change in control, we moved our operations and business location to 1135 Lincoln Avenue, Suite 1, Loveland, Colorado 80537.  On November 1, 2004 we moved our operations again to 4328 Hwy. 66, Longmont, CO 80504. Our telephone number is (970) 535-6213.  Management is currently focused on expanding its activities in the mining industry and has continued to actively seek oil and gas leases.  Our Business  Desert Mining is in the exploration stage and is engaged in the activity of seeking developmental mineral properties.  In particular Desert is focusing on the oil and gas industry and is actively pursuing oil and gas leases along with joint ventures or acquisitions to complement the intended business operation.   3   In 2005 we drilled the Smith 3-12 located in Campbell County Wyoming. The well was drilled to test the potential of the Spotted Horse prospect and we encountered gas during the drilling process. In the second quarter of 2006, the Company acquired two additional wells in the prospect and began installing gas gathering and water handling facilities. The facilities were completed in July and we achieved our first production on July 31.  From that date through February 28, 2007 we averaged 181 mcf per day in sales.  This is significant because most coal bed methane wells do not produce any gas until there has been an extensive dewatering period.  Our wells are producing without the benefit of any dewatering.  We drilled and completed a water disposal well in the first quarter of 2007 and have just received approval from the Wyoming Department of Environmental Quality to start using it.  We expect to begin injecting produced water into the well on a full time basis in April.  As a result of this dewatering, we expect our sales to increase significantly. We have contracted Baker Energy from Sheridan Wyoming to prepare the Plan of Development for an additional 14 wells on our Federal acreage adjacent to our current wells and expect to have the plan ready for submission in the second quarter of 2007. Separately, we have received two approved well permits for our Dripping Rock project and are currently evaluating development alternatives.  As a part of our planned operations, Desert is actively seeking to develop joint ventures or acquire businesses with current operations in the oil and gas production areas.  Item 2. Description of Property.  We have 19,799 Federal acres, 11,451 State acres and 1,484 private acres of oil and gas leases.  In addition to our leases, we have minimal office equipment, vehicles and no other assets.  We are obligated to a two year office lease of $2,375 per month which expired September 30, 2006.  The lease also includes two one year extension options and we exercised the first year option.  We have approximately 4,500 square feet of office space and believe this will be sufficient to support our operations.  Item 3. Legal Proceedings.  Our subsidiary, 44 Mag Production, Inc., has been named in Civil Action No. 25781 filed in Campbell County, Wyoming.  44 Mag Production, Inc. was named in the action because it has an overriding royalty interest in the disputed mineral lease.  This suit was settled by the litigants with no impact on 44 Mag Production, Inc.  Item 4. Submission of Matters to a Vote of Security Holders  None.   4   PART II  Item 5. Market for Common Equity and Related Stockholder Matters.  Our common stock is listed on the Over the Counter Bulletin Board ("OTCBB"), under the symbol "DSRM".  As of March 28, 2007, we had 76 shareholders holding 14,162,647 shares of common stock.  Of the issued and outstanding common stock, 6,962,647 are free trading, the balance are restricted stock as that term is used in Rule 144.  CLOSING BIDCLOSING ASK2006HighLowHighLowFirst Quarter1.30.251.85.50Second Quarter.62.251.01.29Third Quarter.70.18.83.20Fourth Quarter.55.20.80.322005HighLowHighLowFirst Quarter1.351.011.501.05Second Quarter1.10.651.30.95Third Quarter1.20.601.35.95Fourth Quarter1.801.052.001.20  The above quotations, as provided by Pink Sheets, LLC, represent prices between dealers and do not include retail markup, markdown or commission.  In addition, these quotations do not represent actual transactions.  Item 6. Managements Discussion and Analysis or Plan of Operation.  Results of Operations for the Years Ended December 31, 2006 and 2005  During the year ended December 31, 2006, we had revenue of $114,266 from natural gas sales with operating costs of $21,362 and Severance & Production Taxes of $13,606 for a gross profit of $79,298.  Our expenses were $1,449,184 consisting of $27,477 in annual lease payments, $296,492 in depreciation, depletion and amortization and $821,279 in administrative expenses.  For the year ended December 31, 2006, we recognized a net loss from operations of $1,065,950.  Other expenses included a gain from sale of oil and gas lease of $1,120,563, amortization of warrant premium of $93,458, amortization of conversion premium of $116,936 and interest expense of $93,452 leaving us with a net loss of $249,323.  During the year ended December 31, 2005 we sold a lease for a profit which is included in Other Expenses for an amount of $91,190.  Expenses for the year ending December 31, 2005 were $1,707,311 consisting of dry hole costs, lease rentals, depreciation and amortization and administrative expenses in the amount of $1,212,687, interest expense of $44,625, amortization of warrant premium of $199,999 and amortization of conversion premium of $250,000.  This resulted in a net loss for the year of $1,616,121.  5   Results of Operations for the Years Ended December 31, 2005 and 2004  Desert had revenue of $-0- and $-0- for the years ended December 31, 2005 and 2004 respectively.  In June 2005, we sold a lease for a profit which is included in Other Expenses for an amount of $91,190.  Expenses for the year ending December 31, 2005 were $1,707,311 consisting of dry hole costs, lease rentals, depreciation and amortization and administrative expenses in the amount of $1,212,687, interest expense of $44,625, amortization of warrant premium of $199,999 and amortization of conversion premium of $250,000.  This resulted in a net loss for the year of $1,616,121.  For the year ending December 31, 2004, we had expenses of $949,599 consisting of lease rentals, depreciation and amortization, goodwill expense and administrative expenses in the amount of $800,707 and other expenses of loss of LLC of $50,000, amortization of warrant premium of $39,786, amortization of conversion premium of $49,731 and interest expense of $9,375, resulting in a loss of $949,599.  The Company received $750,000 under a note payable dated October 19, 2004 which was due June 19, 2006 (subsequently extended) including interest at 6%.  The terms of the note include warrants to purchase 500,000 common shares of the Company at $1.50 per share, at the option of the note holder, at any time before April 19, 2007 and include a cashless exercise provision. Using the Black-Scholes valuation model, we estimate the value of the warrants on the date of issuance was approximately $600,000.  Therefore the proceeds of the note payable are allocated using the relative fair value of the warrants ($600,000) and the note payable ($750,000) resulting in $333,333 being allocated to the warrants and recorded as capital in excess of par value.  The discount of $333,333 on the note payable will be amortized over the life of the note.   As of December 31, 2006 the full amount has been recorded.  The note payable contains a provision that allows the note holder to convert to restricted stock at a conversion price of $1.30 per share.  Assuming full conversion, the note could be exchanged for 576,923 shares.  The intrinsic value of the conversion option exceeds the remaining value of the note payable ($416,667).  Therefore the carrying value of the note payable is reduced to zero and the $416,667 recorded as capital in excess of par value.  This amount is amortized over the life of the note and the full amount has been recorded at December 31, 2006.  Additionally, the note provides for the interest rate to be increased to 18% after the initial term.  The Company is currently negotiating with the note holder and believes the final interest rate will be lower than this but we have accrued at the full rate.  The significant increase in expenses for the year ended December 31, 2005 are attributed to depreciation and amortization, annual lease rentals, premium amortization and dry hole costs.  Depreciation and amortization increased by 401% while annual lease rentals increased 562% over the prior year. Warrant and conversion premium amortization increased 503% and there was also a 17% increase in administrative costs. There were no dry hole costs in prior years.  Liquidity and Capital Resources  Total assets at December 31, 2006 were $2,044,936 and consisted of $109,757 in cash and $35,377 accounts receivable, $28,002 in furniture and equipment (net of depreciation), $688,627 in oil and gas leases (undeveloped), $1,071,727 in proved producing properties, $23,915 in unevaluated drilling costs and $87,531 in deposits.  Our liabilities consisted of $832,356 in a note payable with accrued interest and accounts payable of $25,211 for total liabilities of $857,567.   6   The Company received $750,000 under a note payable dated October 19, 2004 which was due June 19, 2006 (subsequently extended) including interest at 6%.  The terms of the note includes warrants to purchase 500,000 common shares of the Company at $1.50 per share, at the option of the note holder, at any time before April 19, 2007 and includes a cashless exercise provision. At December 31, 2006, $82,356 interest payable was accrued.  During 2003, 2004, 2005 and 2006 the Company purchased 32,734 net acres of oil and gas leases consisting of 19,799 acres from the State of Wyoming, 11,451 acres from the BLM and 1,484 net acres from private individuals.  The terms of the BLM leases are for ten years and require yearly payments of $17,177 starting one year after the issuance of the leases. The terms of the State of Wyoming leases are for five years with yearly payments of $19,799 starting one year after the date of issuance of the leases.  The private leases vary from 19 months to 52 months and do not require any annual payments.  The initial payments for the leases are being amortized over the remaining life of the leases.  The required yearly payments are expensed as paid.  During 2004 the Company sold 240 net acres of State leases retaining an overriding royalty of 4.34% and reducing annual payments by $240.  In June 2005, the Company sold 2,103 net BLM acres retaining a 2.5% overriding royalty and reducing annual payments by $3,155.  In March 2006 the Company sold 640 State acres reducing annual payments by $640 and in December 2006 the Company sold an additional 640 State acres retaining a 3.33% overriding royalty and reducing annual payments by $640.  Continuation of the Company in its planned activity is dependent upon obtaining additional working capital and Management has developed a strategy which it believes will accomplish this objective through additional equity funding, long term financing and reallocation of certain assets which will enable the Company to be successful in its efforts.  Item 7. Financial Statements.  The financial statements of the Company appear at Page F-1.  Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.  None.  Item 8A. Controls and Procedures.  (a) Evaluation of Disclosure Controls and Procedures.  The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the Company's "disclosure, controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15-d-15(e) as of the end of the period covered by this annual report (the "Evaluation Date").  Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company's disclosure, controls and procedures are effective.   7   (b) Changes in Internal Control over Financial Reporting.  There were no changes in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.  Item 8B. Other Information  There are no further disclosures. No information was required to be disclosed in a Form 8-K during the fourth quarter 2006.  Subsequent to the date of this report on March 26, 2007, the Company entered into an agreement with Cedar Ridge, LLC whereby Cedar Ridge will acquire a 33.3333% working interest in the Companys Spotted Horse project.  The parties agreed to an Area of Mutual Interest covering nine townships whereby the parties agree to share any projects on the same terms.  Consideration to be paid by Cedar Ridge is $1,000,000 at close of the transaction and $500,000 to be paid at time of future drilling and development.  An additional $250,000 will be paid to the Company if the parties acquire additional interests.  Closing of the transaction is anticipated to be on or before May 1, 2007 pending completion of due diligence.  PART III  Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.  The following table sets forth the name, age, position and office term of each executive officer and director of the Company.  NameAgePositionsSincePeter K. Nelson63President, Secretary, Treasurer, CFO and DirectorJune 2003Randall B. Anderson56Chief Executive Officer and DirectorNov. 2004Gabriel Holt30DirectorJuly 2003Craig E. Gunter72DirectorMay 2006  Peter K. Nelson brings many years of entrepreneurial and management experience to the Company.  Since 1966, Mr. Nelson has operated a variety of business including general contractor, trucking and asphalt maintenance companies.  He was Honorably discharged from the U.S. Air Force in 1966.  From 1985 to 1992, Mr. Nelson worked for the Federal Aviation Administration installing ILS systems at major airports.  Currently, Mr. Nelson is a consultant in the petroleum industry.  Mr. Anderson brings extensive managerial experience with a strong background in finance as well as more than 20 years experience in the oil and gas industry.  Since 2000 Mr. Anderson has been an officer of Wolverine Energy, LLC, holding such positions as Vice President  Finance, Chief Financial Officer and Vice President  Business Development.  Prior to Wolverine Energy, from 1997 to 2000, Mr. Anderson was employed by Paxton Resources, LLC as Controller.   From 1987 to 1996, Mr. Anderson was employed by Kerr-McGee Corporation where he held various positions in Finance and Administration.  During his time with Kerr-McGee, Mr. Anderson spent two years in Beijing, China where he was responsible for the operational accounting and treasury functions.  Mr. Anderson holds a Bachelor of Commerce (Honors) degree from the University of Manitoba and is a Certified Management Accountant.  8    Gabriel Holt is the owner and proprietor of Drifters Inn located in Baggs, Wyoming, for the past six years.  Mr. Holt brings hands on experience to Desert Mining in the oil and natural gas exploration and production areas.  For over fifteen years Mr. Holt has acted as an independent consultant and employee to various oil and gas companies.  His experience includes excavation of leased ground, gas well drilling, pipeline and location construction, delivery systems, production and equipment.  Craig E. Gunter is an Energy Executive with significant managerial experience and technical expertise including a strong background in the energy industry with many years developing prospects in the Rocky Mountain states, Kansas and Oklahoma.  From 1980 to 2004, Mr. Gunter was the owner of Gunter Oil Company based in Denver, Colorado where he consulted for multiple independent oil and gas companies on developing prospects.  Since 2004, Mr. Gunter has consulted for Desert Mining, Inc. and is responsible for identifying prospects and evaluating the oil and gas potential from a geological standpoint.  Mr. Gunter holds a Master of Science and Bachelor of Science, both in Geology from the University of Oklahoma.  He is a member of the American Association of Petroleum Geologists and a member of the Society of Exploration Geophysicists.  The Company has no audit committee financial expert, as defined under Section 228.401, serving on its audit committee because it has no audit committee and is not required to have an audit committee because it is not a listed security as defined in Section 240.10A-3.  Compliance with Section 16  Section 16(a) of the Securities Exchange Act of 1934 requires officers and directors of the Company and persons who own more than ten percent of a registered class of its equity securities to file reports of ownership and changes in their ownership on Forms 3, 4, and 5 with the Securities and Exchange Commission, and forward copies of such filings to the Company. Based on the copies of filings received by the Company during the most recent fiscal year the directors, officers, and beneficial owners of more than ten percent of the equity securities of the Company registered pursuant to Section 12 of the Exchange Act have filed on a timely basis all required Forms 3, 4, and 5 and any amendments thereto.  Mr. Gunter, a director of the Company, neglected to file a Form 3, Initial Statement of Beneficial Ownership upon receiving shares in the Company and intends to correct the deficiency immediately.   9   Item 10. Executive Compensation.  SUMMARY COMPENSATION TABLE  Name and principal positionYearSalary ($)Bonus ($)Stock
Awards
($) (4)Option
Awards
($) (4)Non-
Equity
Incentive
Plan
Compen-
sation
($)Nonquali-
fied
Deferred
Compen-
sation
Earnings
($)All Other
Compen-
sation ($)Total ($)Peter K. Nelson (1)
President, Secretary, Treasurer,
CFO, Director2006
2005
200460,000
60,000
60,00050,000
-0-
-0--0-
-0-
-0--0-
-0-
-0--0-
-0-
-0--0-
-0-
-0--0-
-0-
-0-110,000
60,000
60,000Randall B. Anderson (2)
CEO, Director2006
2005
200490,000
90,000
30,000-0-
-0-
-0--0-
-0-
-0--0-
-0-
-0--0-
-0-
-0--0-
-0-
-0--0-
-0-
-0-90,000
90,000
30,000Gabriel Holt (3), Field Operations
Manager, Director2006
2005
200420,000
-0-
-0--0-
-0-
-0-15,000
-0-
-0--0-
-0-
-0--0-
-0-
-0--0-
-0-
-0--0-
-0-
-0-35,000
-0-
-0-Craig E. Gunter (4), Exploration
Manager, Director200612,000-0-30,000-0--0--0--0-42,000  (1)  Mr. Nelson received compensation as a consultant to the Company.  (2)  Mr. Anderson received compensation as a consultant to the Company.  (3)  Mr. Holt received $20,000 for field work which was paid to GDH Roustabouts, a company owned and controlled by Mr. Holt.  Mr. Holt also received 100,000 shares of common stock valued at $0.15 per share for his services on the board of directors.   10   (4)  Mr. Gunter received $12,000 for consulting work for the Company and received 200,000 shares of common stock valued at $0.15 per share for his services on the board of directors.  Compensation Plans  We do not currently have any written compensation plans for any of our employees.  We have not instituted a Bonus Plan, Stock Purchase Plan or Stock Option Plan for our employees or executives.  Compensation of Board Members  Although we do not have a written compensation plan, Board members generally do not receive any remuneration for service on the Board.  However, in May 2006 we issued 200,000 restricted common shares of our stock to Craig E. Gunter and 100,000 restricted common shares to Gabriel Holt as compensation for their services as directors of the Company.  Code of Ethics  We have recently adopted a Code of Ethics and Business Conduct authorizing the establishment of a committee to ensure that our disclosure controls and procedures remain effective.  Our Code also defines the standard of conduct expected by our officers, directors and employees.  The Code was filed as an exhibit to our Form 10-KSB for the fiscal year end 2003 and is incorporated herein by reference.  Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.  The following table sets forth as of March 28, 2007, the number and percentage of the 14,162,647 shares of outstanding common stock which, according to the information supplied to the Company, were beneficially owned by (i) each person who is currently a director of the Company, (ii) each executive officer, (iii) all current directors and executive officers of the Company as a group and (iv) each person who, to the knowledge of the Company, is the beneficial owner of more than 5% of the outstanding common stock.  Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.  11    Name and AddressAmountPercentagePeter K. Nelson
4328 Highway 66,
Longmont, CO  805041,200,0008.47%Randall B. Anderson
4328 Highway 66
Longmont, CO  80504500,0003.53%Gabriel Holt
4328 Highway 66
Longmont, CO  80504310,0002.19%Craig E. Gunter
4328 Highway 66
Longmont, CO 80504310,0002.19%Ted Cooper
152 Twin Oaks Road
Los Gatos, CA 850321,118,0007.89%All Officers and Directors
as a Group (4 people)2,320,00016.38%  Item 12. Certain Relationships and Related Transactions.  GDH Roustabouts, a company owned by Gabriel D. Holt, a director of the Company, performed general labor and roustabout services for the Company on the Spotted Horse project and was paid $12,000 for the services.  The Company acquired two gas wells from Toon Energy, Inc., a company owned and controlled by Dianna Anderson, the wife of Randall Anderson, our CEO for 150,000 shares of restricted common stock of the Company and $150,000 cash for a total value of $229.350.  The Company paid $174,581 to a shareholder for consulting fees in 2006  The Company paid $65,308 to a shareholder for consulting fees in 2006.   12   Item 13. Exhibits.  Exhibit NumberTitleLocation3(i)

3(ii)

10

14

31.1


31.2


32.1



32.1Articles of Incorporation

Bylaws

Cedar Ridge Agreement

Code of Ethics**

Certification of the Principal Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of the Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of the Principal Executive Officer
pursuant to U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002***

Certification of the Principal Financial Officer pursuant
to U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002****

*

Attached

**

Attached


Attached


Attached



Attached  * Incorporated by reference. Filed as exhibit to Form 10SB12G filed December 1, 2000.  **Incorporated by reference. Filed as exhibit to Form 10-KSB filed April 5, 2004.  ***The Exhibit attached to this Form 10-KSB shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. Item 14.  Principal Accountant Fees and Services.  Audit Fee  The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of Desert Minings annual financial statement and review of financial statements included in Desert Minings10-QSB reports and services normally provided by the accountant in connection with statutory and regulatory filings or engagements were $11,235 for fiscal year ended 2006 and $9,495 for fiscal year ended 2005.  Audit-Related Fees  The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of Desert Minings financial statements that are not reported above were $-0- for fiscal years ended 2006 and 2005.   13   Tax Fees  The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were approximately $450 for fiscal year ended 2005 and consisted of tax compliance services and $450 for fiscal year ended 2006 and consisted of tax compliance services.  All Other Fees  There were no other aggregate fees billed in either of the last two fiscal years for products and services provided by the principal accountant, other than the services reported above.  We do not have an audit committee currently serving and as a result our board of directors performs the duties of an audit committee.  Our board of directors will evaluate and approve in advance, the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.  We do not rely on pre-approval policies and procedures.  SIGNATURES  In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  DESERT MINING, INC.   Date: May 21, 2007 By: /s/ Randall B. Anderson Randall B. Anderson Chief Executive Officer   Date: May 21, 2007 By: /s/ Peter K Nelson Peter K. Nelson Chief Financial Officer   14   In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   Date: May 21, 2007 By: /s/ Peter K Nelson Peter K. Nelson Director   Date: May 21, 2007 By: /s/ Randall B. Anderson Randall B. Anderson Director   Date: May 21, 2007 By: /s/ Gabriel Holt Gabriel Holt Director   Date: May 21, 2007 By: /s/ Craig E. Gunter Craig E. Gunter Director   15


MADSEN & ASSOCIATES, CPAS INC. 684 East Vine Street, Suite 3 Certified Public Accountants and Business Consultants Murray, Utah  84107 Telephone 801-268-2632 Fax 801-262-3978   Board of Directors Desert Mining, Inc. and Subsidiary Salt Lake City, Utah   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  We have audited the accompanying consolidated balance sheet of Desert Mining, Inc. and subsidiary (exploration stage company) at December 31, 2006 and the related consolidated statement of operations, stockholders equity and cash flows for the years ended December 31, 2006 and 2005 and the period June 6, 1979 (date of inception) to December 31, 2006.  These financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted out audit in accordance with the 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 audit provides a reasonable basis for our opinion.  In ouropinion, the financial statements referred to above present fairly, in all material respects, the financial position of Desert Mining, Inc. and subsidiary at December 31, 2006 and the results of operations and cash flows for the years ended December 31, 2006 and 2005 and the period June 6, 1979 to December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.  The financial statements have been restated to include the value of certain warrants and conversion rights attached to a note payable that were omitted from previous reports in error.  The consolidated Statement of Operations and the Consolidated Statement of Cash Flows have also been restated to show reclassifications of certain items (see Note 10).  The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  The Company will need additional capital to service its debt and for its planned activity, which raises substantial doubt about its ability to continue as a going concern.  Managements plans in regard to these matters are described in the notes to the financial statements.  These financial statements do not include any adjustments that might result from the outcome of this uncertainty.   /s/ Madsen & Associates, CPAs Inc.  Salt Lake City, Utah March 28, 2007  F-1   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) CONSOLIDATED BALANCE SHEET- REVISED December 31, 2006  ========================================================================= ASSETSCURRENT ASSETSCash$109,757Accounts receivable35,377Total Current Assets145,134FURNITURE & EQUIPMENT  net of depreciation28,002OTHER ASSETSUndeveloped oil & gas leases1,220,309Less accumulated amortization and valuation allowance(531,682)Proved producing properties1,088,399Less accumulated depletion(16,672)Unevaluated drilling cost23,915Deposits87,5311,871,800$2,044,936LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable$25,211Note payable750,000Accrued interest payable82,356Total Current Liabilities857,567STOCKHOLDERS EQUITYCommon stock100,000,000 shares authorized at $0.001 per value14,082,647 shares issued and outstanding14,083Capital in excess of par value4,237,272Deficit accumulated during exploration stage(3,063,986)Total Stockholders Equity1,187,369$2,044,936   The accompanying notes are an integral part of these financial statements.  F-2   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) CONSOLIDATED STATEMENT OF OPERATIONS- REVISED For the Years Ended December 31, 2006 and 2005 and the Period June 6, 1979 (Date of Inception) to December 31, 2006  ========================================================================= Dec 31,Dec 31,Jun 6, 1979 to20062005Dec 31, 2006REVENUENatural Gas Sales$114,266$-$114,266Compression & Operating Cost(21,362)-(21,362)Severance & Production Taxes(13,606)-(13,606)Gross Profit79,298-79,298EXPENSESExploration-59,17554,225Annual lease payments27,47745,16679,783Depreciation, Depletion & Amortization296,492447,264856,972Goodwill expensed--100,000Administrative821,279661,0822,316,6001,145,2481,212,6873,407,580NET LOSS FROM OPERATIONS(1,065,950)(1,212,687)(3,328,282)OTHER EXPENSESGain from sale of oil & gas lease1,120,56391,1901,211,748Loss of LLC--(50,000)Amortization of warrant premium(93,548)(199,999)(333,333)Amortization of conversion premium(116,936)(250,000)(416,667)Interest expense(93,452)(44,625)(147,452)NET INCOME/(LOSS)$(249,323)$(1,616,121)$(3,063,986)NET INCOME/(LOSS) PER COMMON SHAREBasic and diluted$(0.018)$(0.123)AVERAGE OUTSTANDING SHARES 
(stated in 1,000s)Basic13,87013,123Diluted14,37013,623  The accompanying notes are an integral part of these financial statements.  F-3   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) STATEMENT OF CHANGES IN STOCKHOLDER EQUITY- REVISED For the Period June 6, 1979 (Date of Inception) to December 31, 2006  ========================================================================= Capital inCommon StockExcess ofAccumulatedSharesAmountPar ValueDeficitBalance June 6, 1979 (date of inception)-$-$-$-Issuance of common stock for cashat $0.0025  19883,400,0003,4005,100-Net operating loss for the year endedDecember 31, 1988---(8,500)Issuance of common stock for cashat $0.0025  19891,250,0001,2501,875-Net operating loss for the year endedDecember 31, 1989---(3,125)Issuance of common stock for cashat $0.0025  related partiesNovember 28, 20003,200,0003,2004,800-Contributions to capital  expenses--373-Net operating loss for the year endedDecember 31, 2000---(9,324)Contributions to capital  expenses--4,234-Net operating loss for the year endedDecember 31, 2001---(3,284)Contributions to capital  expenses--3,405-Net operating loss for the year endedDecember 31, 2002---(3,405)Contributions to capital  expenses--2,457-Common stock returned and cancelledJune 25, 2003(1,594,000)(1,594)1,594-Issuance of common stock for servicesat $0.015  June 26, 20031,844,0001,84425,816-Issuance of common stock for cash at $1.20 -net of issuance costs  Jun  Aug 2003618,000618685,952-Issuance of common stock for cash at $1.20 -December 31, 2003310,000310371,690-Net operating loss for the year endedDecember 31, 2003---(221,305)Balance December 31, 20039,028,0009,0281,107,296(248,943)  The accompanying notes are an integral part of these financial statements.  F-4   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) STATEMENT OF CHANGES IN STOCKHOLDER EQUITY- REVISED For the Period June 6, 1979 (Date of Inception) to December 31, 2006  ========================================================================= Capital inCommon StockExcess ofAccumulatedSharesAmountPar ValueDeficitIssuance of common stock for cash220,000220318,780-at $1.45  March 2004Issuance of common stock for cash650,000650929,350-at $1.43  April 2004Issuance of common stock for all2,500,0002,500297,500-stock of 44 Mag Production, Inc.Valuation allocation 500,000Warrants @ $1.50333,333Valuation allocation note payable416,667Net operating loss for the year ended---(949,599)December 31, 2004Balance December 31, 200412,398,00012,3983,402,926(1,198,542)Issuance of common stock for cashat $1.00  January - March 2005210,000210209,790-Issuance of common stock for services March 2005600,00060089,400-Issuance of common stock for paymentof debt  June 200599,1249988,492-Issuance of common stock for expensesat $0.75  August 200546,8014735,053-Issuance of common stock for paymentof debt  October 200518,7221914,021-Issuance of common stock for cashat $1.00  November 2005200,000200199,800-Net operating loss for the year endedDecember 31, 2005---(1,616,121)Balance December 31, 200513,572,64713,5734,039,482(2,814,663)Issuance of common stock for wellsat $0.53  May 2006150,00015079,350-Issuance of common stock for servicesat $0.33  June 2006360,000360118,440-Net operating loss for the year endedDecember 31, 2006---(249,323)Balance December 31, 200614,082,647$14,083$4,237,272$(3,063,986)  The accompanying notes are an integral part of these financial statements.  F-5   (Exploration Stage Company) CONSOLIDATED STATEMENT OF CASH FLOWS For the Years Ended December 31, 2006 and 2005 and the Period June 6, 1979 (Date of Inception) to December 31, 2006  ========================================================================= Dec 31,Dec 31,Jun 6, 1979 to20062005Dec 31, 2006CASH FLOWS FROMOPERATING ACTIVITIESNet income/(loss)$(249,318)$(1,616,121)$(3,063,986)Adjustments to reconcile net loss tonet cash provided by operatingactivitiesGood will expensed--100,000Loss of LLC--50,000Depreciation, depletion & amortization263,832447,264824,318Note valuation amortization210,484449,999750,000Changes in accounts receivable(30,377)1,497(35,377)Changes in deposits(60,750)(24,250)(87,531)Changes in notes and accounts payable33,215133,109161,871Contributions to capital  expenses--10,469Issuance of capital stock for expenses118,800125,100206,761Net Decrease in Cash From Operations285,886(483,402)(1,083,475)CASH FLOWS FROM INVESTINGACTIVITIESPurchase of office equipment-(22,269)(82,320)Proceeds from sale of oil & gas leases1,838,400210,0002,066,730Cost of oil & gas leases sold(717,837)(118,810)(701,638)Purchase of oil & gas leases(1,326,491)21,614(3,526,734)Purchase of interest in LLC--(50,000)(205,928)51,041(2,293,962)CASH FLOWS FROM FINANCINGACTIVITIESProceeds from note payable--750,000Proceeds from issuance of common stock-410,0002,737,194Net Increase in Cash79,95817,133109,757Cash at Beginning of Period29,79912,666-Cash at End of Period$109,757$29,799$109,757NON CASH FLOWS FROM OPERATINGACTIVITIESContributions to capital  expenses  2000-2003$10,469Issuance of 2,490,801 common shares for services  2003-2005152,761Issuance of 360,000 common shares for services - 200654,000  The accompanying notes are an integral part of these financial statements.  F-6   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) NOTES TO FINANCIAL STATEMENT- REVISED December 31, 2006  ___________________________________________________________________________________  1. ORGANIZATION  The Company was incorporated under the laws of the state of Nevada on June 6, 1979 with the name Holidays of America, Inc. with authorized common stock of 2,500 shares at no par value.  On November 28, 2000 the name was changed to Desert Mining, Inc. and the authorized common stock was increased to 100,000,000 shares with a par value of $0.001 in connection with a forward stock split of two hundred shares for each outstanding share.  This report has been prepared showing after stock split shares from inception with a par value of $0.001.  The Company is in the exploration stage and is engaged in the activity of acquiring and exploring oil and gas leases.  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Accounting Methods  The Company recognizes income and expenses based on the accrual method of accounting.  Dividend Policy  The Company has not yet adopted a policy regarding payment of dividends.  Income Taxes  The Company utilizes the liability method of accounting for income taxes.  Under the liability method deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect, when the differences are expected to reverse.  An allowance against deferred tax assets is recorded, when it is more likely than not, that such tax benefits will not be realized.  On December 31, 2006, the Company had a net operating loss available for carry forward of $2,287,427. The tax benefit of approximately $686,000 from the loss carry forward has been fully offset by a valuation reserve because the use of the future tax benefit is doubtful since the Company has limited operations.  The net operating loss will expire starting in 2008 through 2027.  Financial and Concentrations Risk  The Company does not have any concentration or related financial credit risks except the Company maintains bank accounts over the insured amount of $100,000. However, they are maintained in banks with high quality.   F-7   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS- REVISED (Continued) December 31, 2006    2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued  Basic and Diluted Net Income (Loss) Per Share  Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of any common share rights unless the exercise becomes antidilutive and then only the basic per share amounts are shown in the report.  Statement of Cash Flows  For the purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.  Revenue Recognition  The Company is in the business of exploring for, developing, producing and selling crude oil and natural gas.  Crude oil revenue is recognized when the product is taken from the storage tanks on the lease and delivered to the purchaser.  Natural gas revenues are recognized when the product is delivered into a third party pipeline downstream of the lease.  Occasionally the Company may sell specific leases and the gain or loss associated with those transactions will be shown separately from the profit or loss from normal ongoing operations.  Advertising and Market Development  The company expenses advertising and market development costs as incurred.  Estimates and Assumptions  Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles.  Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  Actual results could vary from the estimates that were assumed in preparing these financial statements.  Financial Instruments  The carrying amounts of financial instruments are considered by management to be their estimated fair values due to their short term maturities.  F-8   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS - REVISED (Continued) December 31, 2006    2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued  Principles of Consolidation  The accompanying consolidated financial statements include the accounts of the Company and its subsidiary from its inception.  All significant intercompany accounts and balances have been eliminated in consolidation.  Recent Accounting Pronouncements  The Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.  3. OIL & GAS LEASES  During 2003, 2004, 2005 and 2006 the Company purchased 32,734 net acres of oil and gas leases consisting of 19,799 acres from the State of Wyoming, 11,451 acres from the BLM and 1,484 net acres from private individuals.  The terms of the BLM leases are for ten years and require yearly payments of $17,177 starting one year after the issuance of the leases. The terms of the State of Wyoming leases are for five years with yearly payments of $19,799 starting one year after the date of issuance of the leases.  The private leases vary from 19 months to 52 months and do not require any annual payments.  The initial payments for the leases are being amortized over the remaining life of the leases.  The required yearly payments are expensed as paid.  During 2004 the Company sold 240 net acres of State leases retaining an overriding royalty of 4.34% and reducing annual payments by $240.  In June 2005, the Company sold 2,103 net BLM acres retaining a 2.5% overriding royalty and reducing annual payments by $3,155.  In March 2006 the Company sold 640 State acres reducing annual payments by $640 and in December 2006 the Company sold an additional 640 State acres retaining a 3.33% overriding royalty and reducing annual payments by $640.  The Company intends to drill for oil and natural gas on their leases.  Drilling costs will be treated as work in progress until such time as the well has been finished and its commercial potential evaluated.  In 2004, the Company drilled the Smith 3-12 located in Campbell County, Wyoming.  This well was drilled to test the potential of the Spotted Horse prospect and encountered gas during the drilling process.  In the second quarter of 2006, the Company acquired two additional wells in this prospect and began installing gas gathering and water handling facilities.  First production from the prospect occurred on July 31, 2006 and the wells have produced continuously since.  Expenditures for well permits and related work on other prospects are included in the work in progress category at year end.  The Company follows the successful efforts method of accounting and will capitalize successful wells and related leasehold costs.  These costs will be amortized using the unit of production method.  Dry hole and related leasehold costs will be expensed.  F-9   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS - REVISED (Continued) December 31, 2006    4. NOTE PAYABLE  The Company received $750,000 under a note payable dated October 19, 2004 which was due June 19, 2006 (subsequently extended) including interest at 6%.  The terms of the note include warrants to purchase 500,000 common shares of the Company at $1.50 per share, at the option of the note holder, at any time before April 19, 2007 and include a cashless exercise provision. Using the Black-Scholes valuation model, we estimate the value of the warrants on the date of issuance was approximately $600,000.  Therefore the proceeds of the note payable are allocated using the relative fair value of the warrants ($600,000) and the note payable ($750,000) resulting in $333,333 being allocated to the warrants and recorded as capital in excess of par value.  The discount of $333,333 on the note payable will be amortized over the life of the note.   As of December 31, 2006 the full amount has been recorded.  The note payable contains a provision that allows the note holder to convert to restricted stock at a conversion price of $1.30 per share.  Assuming full conversion, the note could be exchanged for 576,923 shares.  The intrinsic value of the conversion option exceeds the remaining value of the note payable ($416,667).  Therefore the carrying value of the note payable is reduced to zero and the $416,667 recorded as capital in excess of par value.  This amount is amortized over the life of the note and the full amount has been recorded at December 31, 2006.  Additionally, the note provides for the interest rate to be increased to 18% after the initial term.  The Company is currently negotiating with the note holder and believes the final interest rate will be lower than this but we have accrued at the full rate.  5. CAPITAL STOCK  During 2006 the Company issued 150,000 common shares for the purchase of natural gas wells for $79,500 and 360,000 common shares for services for $118,800.  Of these, 200,000 were issued to Craig E. Gunter as consideration for his serving on the Board of Directors, this is consistent with the number of shares issued to our other independent Director; 100,000 shares were issued to Gabriel D. Holt as consideration for his serving as Project Manager for the Spotted Horse project; and 60,000 were issued to Toni D. Soliday, Office Manager.  The Company has warrants outstanding to purchase 500,000 common shares of the Company, as outlined in note 4.  On November 16, 2004, Desert Mining, Inc. (parent) acquired of all of the outstanding stock of 44 Mag Production, Inc. (subsidiary) by a stock for stock exchange in which the stockholders of   the subsidiary received 2,500,000 common shares of the parent, representing 20% of the outstanding stock of the parent after the acquisition, which was reported as a purchase.  On the date of the exchange the fair value of the parent company stock issued was considered to be $300,000 and the fair value of the subsidiary stock received in exchange was $200,000, resulting in good will of $100,000. The Company uses the discounted cash flows approach to value good will and since the subsidiary has no operations the good will has been expensed.  F-10   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS - REVISED (Continued) December 31, 2006    5. CAPITAL STOCK continued  44 Mag Production, Inc. was organized on September 22, 2004 in the state of Nevada.  A summary of the assets and liabilities of 44 Mag on November 16, 2004 is shown in the following.  Book ValueFair ValueCash$76,275$76,275Oil & gas leases29,386127,386Accounts payable(3,661)(3,661)Total$102,000$200,000  The fair value of the leases over the book value is being amortized over three years.  6. DESPOSITS  The Company has placed deposits with the US Department of the Interior  Bureau of Land Management ($10,000) and State of Wyoming Oil and Gas Conservation Commission ($75,000).  State and Federal regulations require all oil and gas well operators to have on deposit with the appropriate regulatory agency, an amount sufficient to reclaim any wells the Operator is responsible for.  7. RELATED PARTY TRANSACTIONS  Officers-directors and a Company manager have acquired 16% of the common capital stock issued.  The Company acquired two gas wells from a related party at the predecessor cost by the issuance of 150,000 shares of common stock and cash of $150,000.  GDH Roustabouts, a company owned by Gabriel D. Holt, a Director of the Company, performed general labor and roustabout services on the Spotted Horse project.  8. CONTINUING LIABILITIES  The Company is obligated under a two year office lease of $2,375 per month which expired September 30, 2006.  The lease also includes two one year extension options and the Company has exercised the first year option.  9. GOING CONCERN  On the balance sheet date the Company did not have sufficient working capital to service its debt and for its planned activity for the coming year.  Continuation of the Company in its planned activity is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through seeking additional equity funding, and long term financing, which will enable the Company to be successful in its efforts.   F-11   DESERT MINING, INC. AND SUBSIDIARY (Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS - REVISED (Continued) December 31, 2006    10. CORRECTION OF ERRORS  The financial statements have been restated to include the value of certain warrants and conversion rights attached to a note payable that were omitted from previous reports in error (Note 4).  The Consolidated Statement of Cash Flows has been restated to show an expansion of the changes in the oil and gas leases to show separately the proceeds from the sale and it cost and new purchases.  The Consolidated Statement of Operations has been restated to show a reclassification of the sale of oil and gas leases from operations to other income and expenses and a reclassification of the good will expenses under other income/expenses to expenses from operations.  F-12