| |                                                                       |                                                                                                             
| | --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------
| | SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB | OMB 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, 2005



£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)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 87-0664962                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)





|                                         |  |           
|---------------------------------------- |  | ----------
|4328 Hwy. 66, Longmont, CO               |  | 80504     
|(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.



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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.                      S



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:  $238,330



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, 2006 is deemed to be $5,761,323.





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, 2006 there were 13,572,647 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



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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.  Subsequent to March 31, 2005, 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.  During the first quarter we commenced test drilling.





3



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During the quarter ended March 31, 2005 we drilled the Smith 3-12 located in Campbell County, Wyoming.  This well was drilled to test the potential of the Spotted Horse prospect and we encountered coal-bed methane gas during the drilling process.  Upon funding, we anticipate pursuing the completion program necessary to extract the methane gas.   We believe that there is room to drill two additional wells at this site and we anticipate that the drilling will be completed by the end of the year.



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.



During the second quarter of 2005, we drilled the Maverick well.  We encountered the expected oil reservoirs; however, there was less than 3% porosity in the reservoir.  Due to the high cost of extracting oil under these circumstances, the well has been plugged and abandoned.



Item 2.

Description of Property.



We have acquired oil and gas leases to 30,214 net acres of land consisting of 19,559 acres from the state of Wyoming and 9,348 acres from the BLM and 1,306 net acres from individuals.  In addition to our leases, we have minimal office equipment, vehicles and no other assets.



We are obligated to a two year office lease which expires September 30, 2006 with an option of two one year extensions.  We pay $2,375 per month.   We have approximately 4,500 square feet of office space and believe this will be sufficient to support our operations.



Item 3.

Legal Proceedings.



Subsequent to the date of this report, on January 6, 2006, a complaint was filed against Desert Mining, Inc. in the Ninth Judicial District court of Wyoming by JMG Exploration, Inc. and JED Oil, Inc., file number 2006-6809.  The complaint alleges breach of contract by Desert Mining, Inc. regarding State of Wyoming lease number 04-00524.  The Plaintiffs are claiming specific performance or refund of $2,310,000.  On February 21, 2006 Desert Mining filed a counter claim for rescission.  While the outcome cannot be stated for certain, Desert Mining will vigorously defend this action.  Should the courts rule against us, this may have a material negative effect on the Company.



Our subsidiary, 44 Mag, Inc., has been named in Civil Action No. 25781 filed in Campbell County, Wyoming.  44 Mag, Inc. was named in the action because it has an overriding royalty interest in the disputed mineral lease.  The Company cannot predict the outcome of the litigation.  However, due to the minute size of our investment, management feels there will be no material affect on the Company regardless of the outcome.



Item 4.

Submission of Matters to a Vote of Security Holders



None.





4



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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, 2006, we had 77 shareholders holding 13,572,647 shares of common stock.  Of the issued and outstanding common stock, 6,650,000 are free trading, the balance are restricted stock as that term is used in Rule 144



|               |             |             |          |     
|-------------- | ----------- | ----------- | -------- | ----
|               | CLOSING BID | CLOSING ASK
|               |             |             |          |     
|2004           | High        | Low         | High     | Low 
|               |             |             |          |     
|First Quarter  | 3.15        | 1.60        | 3.24     | 1.90
|Second Quarter | 2.30        | 1.15        | 2.85     | 1.30
|Third Quarter  | 1.60        | 0.70        | 1.75     | 0.95
|Fourth Quarter | 2.10        | 1.10        | 2.30     | 1.28
|               |             |             |          |     
|2005           | High        | Low         | High Low |     
|               |             |             |          |     
|First Quarter  | 1.35        | 1.01        | 1.50     | 1.05
|Second Quarter | 1.10        | 0.65        | 1.30     | 0.95
|Third Quarter  | 1.20        | 0.60        | 1.35     | 0.95
|Fourth Quarter | 1.80        | 1.05        | 2.00     | 1.20



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, 2005 and 2004



Desert had revenue of $238,330 and $-0- for the years ended December 31, 2005 and 2004 respectively.  Expenses for the year ending December 31, 2005 were $1,126,628 consisting of dry hole costs, lease rentals, depreciation and amortization and administrative expenses in the amount of $1,191,523 plus interest expense of $44,625.  This resulted in a net loss for the year of $1,126,628.  For the year ending December 31, 2004, we had expenses of $860,082 consisting of lease rentals, depreciation and amortization and administrative expenses in the amount of $700,707 and other expenses of goodwill, loss of LLC and interest expense of $159,375, resulting in a loss of $860,082.

The significant increase in expenses for the year ended December 31, 2005 are attributed to depreciation and amortization, annual lease rentals and dry hole costs.  Depreciation and amortization increased by 401% while annual lease rentals increased 562% over the prior year.  There were no dry hole costs in prior years.  There was also a 17% increase in administrative costs.



Results of Operations for the Years Ended December 31, 2004 and 2003



Desert did not generate any revenue for the years ended December 31, 2004 and 2003.  Expenses for the year ended December 31, 2004 were $860,082 consisting of lease payment, depreciation and amortization and administration expenses in the amount of $700,707 and other expenses of goodwill expenses, loss of LLC and interest expense totaling $159,375.  This resulted in a net loss for the year ended December 31, 2004 of $860,082.  For the year ended December 31, 2003, we had expenses of $221,305 which consisted of depreciation and amortization and administrative costs, resulting in a net loss of $221,305.





5



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The significant increase in expenses for the year ended December 31, 2004 are attributed to good will expensed, the write off of Roustabout LLC and interest expense which are expenses we did not have in 2003.  Also, in 2003 we did not have any lease payments.  Our depreciation and amortization increased by approximately 6,993% and our administrative costs increased by approximately 164% compared to year end 2003.  The increase for 2004 is due to obtaining our oil and gas leases and the costs associated with maintaining the leases.



Liquidity and Capital Resources



Total assets at December 31, 2005 were $1,891,754 and consisted of $34,799 in cash and accounts receivable, $54,700 in furniture and equipment (net of depreciation), $26,781 in deposits and $1,775,474 in oil and gas leases (net of amortization).  During the year we issued 1,174,647 shares of restricted common stock for gross proceeds of $637,731.  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, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis.



(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 2005.



6



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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.



|                    |     |                                                   |          
|------------------- | --- | ------------------------------------------------- | ---------
|Name                | Age | Positions                                         | Since    
|                    |     |                                                   |          
|Peter K. Nelson     | 62  | President, Secretary, Treasurer, CFO and Director | June 2003
|                    |     |                                                   |          
|Randall B. Anderson | 55  | Chief Executive Officer and Director              | Nov. 2004
|                    |     |                                                   |          
|Gabriel Holt        | 29  | Director                                          | July 2003



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.



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.



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.





7



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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.



Item 10. Executive Compensation.



SUMMARY COMPENSATION TABLE



|                                                                                    |                            |                                 |                             |                                         |                  |             |             |                    
|----------------------------------------------------------------------------------- | -------------------------- | ------------------------------- | --------------------------- | --------------------------------------- | ---------------- | ----------- | ----------- | -------------------
|Name and
Principal Position                                                         | Year
Ended                 | Annual Compensation             | Long Term Compensation      | All Other Compen-
sation
($)           
|Awards                                                                              | Payouts                   
|Salary
($)                                                                          | Bonus
($)                  | Other Annual
Compen-
sation ($) | Restricted Stock Awards
($) | Securities Underlying Options/
SARs (#) | LTIP Payouts ($)
|                                                                                    |                            |                                 |                             |                                         |                  |             |             |                    
|Peter K. Nelson, President, Secretary, Treasurer, Chief Financial Officer, Director | 12/31/05
12/31/04
12/31/03 | -0-
-0-
-0-                     | -0-
-0-
-0-                 | -0-
-0-
-0-                             | -0-
-0-
$18,000  | -0-
-0-
-0- | -0-
-0-
-0- | $60,000
$60,000
-0-
|                                                                                    |                            |                                 |                             |                                         |                  |             |             |                    
|Randall B. Anderson,
Chief Executive Officer, Director                              | 12/31/05
12/31/04          | -0-
-0-                         | -0-
-0-                     | -0-
-0-                                 | -0-
-0-          | -0-
-0-     | -0-
-0-     | $90,000
$30,000    
|                                                                                    |                            |                                 |                             |                                         |                  |             |             |                    
|Gabriel Holt, Oil Field Operations Manager, Director                                | 12/31/05
12/31/04
12/31/03 | -0-
-0-
-0-                     | -0-
-0-
-0-                 | -0-
-0-
-0-                             | -0-
-0-
$3,000   | -0-
-0-
-0- | -0-
-0-
-0- | -0-
-0-
-0-        
|                                                                                    |                            |                                 |                             |                                         |                  |             |             |                    



Mr. Nelson and Mr. Anderson received compensation in the form of consulting fees for 2005 and 2004.



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 July 29, 2003 we issued 200,000 restricted common shares of our stock to Gabriel Holt as compensation for his services as Oil Field Operations Manager and as an inducement to sit on our board of directors.





8



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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, 2006, the number and percentage of the 13,572,647 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.



|                                                        |           |            |  | 
|------------------------------------------------------- | --------- | ---------- |  | 
|Name and Address                                        | Amount    | Percentage
|                                                        |           |           
|Peter K. Nelson
4328 Highway 66,
Longmont, CO  80504    | 1,200,000 | 8.84%     
|                                                        |           |           
|Randall B. Anderson
4328 Highway 66
Longmont, CO  80504 | 500,000   | 3.68%     
|                                                        |           |           
|Gabriel Holt
4328 Highway 66
Longmont, CO  80504        | 200,000   | 1.47%     
|                                                        |           |           
|Ted Cooper
152 Twin Oaks Road
Los Gatos, CA 85032       | 1,118,000 | 8.23%     
|                                                        |           |           
|All Officers and Directors as a Group (3 people)        | 1,900,000 | 14%       



Item 12. Certain Relationships and Related Transactions.



The Company owes Randall Anderson $7,500 for consulting fees plus $417.08 in expenses at December 31, 2005.  Additionally the Company owes Peter Nelson $5,000 for consulting fees at year end.





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Item 13.  Exhibits.



|                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                      
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------
|Exhibit Number                               | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Location                                             
|3(i)

3(ii)

14

31.1



31.2


32.1



32.1 | Articles of Incorporation

Bylaws

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



* 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 account 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 $10,835 for fiscal year ended 2004 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 2004 and 2005.



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



10



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and consisted of tax compliance services and $450 for fiscal year ended 2004 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: March 30, 2006

By: /s/ Randall B. Anderson

Randall B. Anderson

Chief Executive Officer





Date: March 30, 2006

By: /s/ Peter K. Nelson

Peter K. Nelson

Chief Financial Officer



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: March 30, 2006

By: /s/ Peter K. Nelson

Peter K. Nelson

Director





Date: March 30, 2006

By:/s/ Randall B. Anderson

Randall B. Anderson

Director





Date: March 30, 2006

By: /s/ Gabriel Holt

Gabriel Holt

Director



11



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MADSEN & ASSOCIATES, CPAs  INC.   684 East Vine St.  Suite 3

Certified Public Accountants and Business ConsultantsMurray, 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, 2005  and the related consolidated statement of operations, stockholders' equity, and cash flows for the  years ended December 31, 2005 and 2004 and the period June 6, 1979 (date of inception)  to December 31, 2005.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audit in accordance with the standards of 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 financial statements referred to above present fairly, in all material respects, the financial position of  Desert Mining, Inc. and subsidiary at December 31, 2005 and the results of  operations, and  cash flows for the  years ended December 31, 2005 and 2004 and the period June 6, 1979  to December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company will need additional working capital for its planned activity and to service its debt 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 27, 2006



F-1



---

DESERT MINING, INC. AND SUBSIDIARY

(Exploration Stage Company)

CONSOLIDATED BALANCE SHEET

December 31, 2005



=========================================================================



|                                            |                                                  |                                                   |           |          
|------------------------------------------- | ------------------------------------------------ | ------------------------------------------------- | --------- | ---------
|ASSETS                                     
|CURRENT ASSETS                             
|                                            |                                                  |                                                   |           |          
|                                            | Cash                                             | $                                                 | 29,799   
|                                            | Accounts receiveable                             | 5,000                                            
|                                            |                                                  | Total Current Assets                              | 34,799   
|                                            |                                                  |                                                   |           |          
|FURNITURE & EQUIPMENT - net of depreciation | 54,700                                          
|                                            |                                                  |                                                   |           |          
|OTHER ASSETS                               
|                                            |                                                  |                                                   |           |          
|                                            | Oil & gas leases - net of amortization           | 1,775,474                                        
|                                            | Deposits                                         | 26,781                                           
|                                            |                                                  |                                                   |           | 1,802,255
|                                            |                                                  |                                                   |           |          
|                                            |                                                  |                                                   | $         | 1,891,754
|                                            |                                                  |                                                   |           |          
|                                            |                                                  |                                                   |           |          
|LIABILITIES AND STOCKHOLDERS' EQUITY       
|CURRENT LIABILITIES                        
|                                            |                                                  |                                                   |           |          
|                                            | Note and accrued interest payable                | $                                                 | 804,000  
|                                            | Accounts payable - related parties               | 12,917                                           
|                                            | Accounts payable                                 | 7,435                                            
|                                            |                                                  | Total Current Liabilities                         | 824,352  
|                                            |                                                  |                                                   |           |          
|STOCKHOLDERS' EQUITY                       
|                                            |                                                  |                                                   |           |          
|                                            | Common stock                                    
|                                            |                                                  | 100,000,000 shares authorized at $0.001 par value
|                                            |                                                  | 13,572,647 shares issued and outstanding          | 13,573   
|                                            | Capital in excess of par value                   | 3,289,482                                        
|                                            | Deficit accumulated during the exploration stage | (2,235,653)                                      
|                                            |                                                  | Total Stockholders' Equity                        | 1,067,402
|                                            |                                                  |                                                   |           |          
|                                            |                                                  |                                                   | $         | 1,891,754









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

For the Years Ended December 31, 2005 and 2004 and the

Period June 6, 1979 (Date of Inception) to December 31, 2005



=========================================================================





|                                                  |                               |             |           |           |             |             |               
|------------------------------------------------- | ----------------------------- | ----------- | --------- | --------- | ----------- | ----------- | --------------
|                                                  |                               |             | Dec 31,   |           | Dec 31,     |             | Jun 6, 1979 to
|                                                  |                               |             | 2005      |           | 2004        |             | Dec 31, 2005  
|                                                  |                               |             |           |           |             |             |               
|                                                  |                               |             |           |           |             |             |               
|REVENUES                                          | $                             | 228,330     | $         | -         | $           | 228,330    
|                                                  |                               |             |           |           |             |             |               
|COST OF SALES                                     | 118,810                       |             | -         |           | 118,810    
|                                                  |                               |             |           |           |             |             |               
|                                                  | Gross Profit                  | 109,520     |           | -         |             | 109,520    
|                                                  |                               |             |           |           |             |             |               
|EXPENSES                                         
|                                                  |                               |             |           |           |             |             |               
|                                                  | Exploration                   | 24,714      |           | -         |             | 24,714     
|                                                  | Annual lease payments         | 40,128      |           | 7,140     |             | 47,268     
|                                                  | Depreciation and amortization | 447,264     |           | 111,648   |             | 560,486    
|                                                  | Administrative                | 679,417     |           | 581,919   |             | 1,508,705  
|                                                  |                               |             | 1,191,523 |           | 700,707     |             | 2,141,173     
|                                                  |                               |             |           |           |             |             |               
|NET LOSS FROM OPERATIONS                          | (1,082,003)                   |             | (700,707) |           | (2,031,653)
|                                                  |                               |             |           |           |             |             |               
|OTHER EXPENSES                                   
|                                                  |                               |             |           |           |             |             |               
|                                                  | Good will expensed            | -           |           | (100,000) |             | (100,000)  
|                                                  | Loss of LLC                   | -           |           | (50,000)  |             | (50,000)   
|                                                  | Interest expense              | (44,625)    |           | (9,375)   |             | (54,000)   
|                                                  |                               |             |           |           |             |             |               
|NET LOSS                                          | $                             | (1,126,628) | $         | (860,082) | $           | (2,235,653)
|                                                  |                               |             |           |           |             |             |               
|                                                  |                               |             |           |           |             |             |               
|NET LOSS PER COMMON SHARE                        
|                                                  |                               |             |           |           |             |             |               
|                                                  | Basic and diluted             | $           | (0.09)    | $         | (0.09)      |             |               
|                                                  |                               |             |           |           |             |             |               
|AVERAGE OUTSTANDING SHARES  - (stated in 1,000's)
|                                                  |                               |             |           |           |             |             |               
|                                                  | Basic                         | 13,123      |           | 9,680     |             |            
|                                                  | Diluted                       | 13,623      |           | 10,180    |             |            







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

For the Period June 6, 1979 (Date of Inception) to December 31, 2005



=========================================================================



|                                             |             |              |         |           |           |             |           |        
|-------------------------------------------- | ----------- | ------------ | ------- | --------- | --------- | ----------- | --------- | -------
|                                             |             |              |         |           |           | Capital in  |           |        
|                                             |             | Common Stock |         | Excess of |           | Accumulated
|                                             |             | Shares       |         | Amount    |           | Par Value   |           | Deficit
|                                             |             |              |         |           |           |             |           |        
|Balance June 6, 1979 (date of inception)     | -           | $            | -       | $         | -         | $           | -        
|                                             |             |              |         |           |           |             |           |        
|Issuance of common stock for cash           
|at $0.0025 - 1988                            | 3,400,000   |              | 3,400   |           | 5,100     |             | -        
|Net operating loss for the year ended       
|December 31, 1988                            | -           |              | -       |           | -         |             | (8,500)  
|Issuance of common stock for cash           
|at $0.0025 - 1989                            | 1,250,000   |              | 1,250   |           | 1,875     |             | -        
|Net operating loss for the year ended       
|December 31, 1989                            | -           |              | -       |           | -         |             | (3,125)  
|Issuance of common stock for cash           
|at $0.0025 - related parties -              
|November 28, 2000                            | 3,200,000   |              | 3,200   |           | 4,800     |             | -        
|Contributions to capital - expenses          | -           |              | -       |           | 373       |             | -        
|Net operating loss for the year ended       
|December 31, 2000                            | -           |              | -       |           | -         |             | (9,324)  
|Contributions to capital - expenses          | -           |              | -       |           | 4,234     |             | -        
|Net operating loss for the year ended       
|December 31, 2001                            | -           |              | -       |           | -         |             | (3,284)  
|Contributions to capital - expenses          | -           |              | -       |           | 3,405     |             | -        
|Net operating loss for the year ended       
|December 31, 2002                            | -           |              | -       |           | -         |             | (3,405)  
|Contributions to capital - expenses          | -           |              | -       |           | 2,457     |             | -        
|Common stock returned and cancelled         
|June 25, 2003                                | (1,594,000) |              | (1,594) |           | 1,594     |             | -        
|Issuance of common stock for services       
|at $0.015 - June 26, 2003                    | 1,844,000   |              | 1,844   |           | 25,816    |             | -        
|Issuance of common stock for cash at $1.20 -
|net of issuance costs - Jun - Aug 2003       | 618,000     |              | 618     |           | 685,952   |             | -        
|Issuance of common stock for cash at $1.20 - |            
|December 31, 2003                            | 310,000     |              | 310     |           | 371,690   |             | -        
|Net operating loss for the year ended       
|December 31, 2003                            | -           |              | -       |           | -         |             | (221,305)
|                                             |             |              |         |           |           |             |           |        
|Balance Decebmer 31, 2003                    | 9,028,000   |              | 9,028   |           | 1,107,296 |             | (248,943)









F-4



---

DESERT MINING, INC. AND SUBSIDIARY

(Exploration Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDER EQUITY

For the Period June 6, 1979 (Date of Inception) to December 31, 2005



=========================================================================



|                                      |            |              |        |           |           |             |             |        
|------------------------------------- | ---------- | ------------ | ------ | --------- | --------- | ----------- | ----------- | -------
|                                      |            |              |        |           |           | Capital in  |             |        
|                                      |            | Common Stock |        | Excess of |           | Accumulated
|                                      |            | Shares       |        | Amount    |           | Par Value   |             | Deficit
|                                      |            |              |        |           |           |             |             |        
|Issuance of common stock for cash    
|at $1.45 - March 2004                 | 220,000    |              | 220    |           | 318,780   |             | -          
|Issuance of common stock for cash    
|at $1.43 - April 2004                 | 650,000    |              | 650    |           | 929,350   |             | -          
|Issuance of common stock for all     
|stock of 44 Mag Production, Inc.      | 2,500,000  |              | 2,500  |           | 297,500   |             | -          
|Net operating loss for the year      
|ended December 31, 2004               | -          |              | -      |           | -         |             | (860,082)  
|                                      |            |              |        |           |           |             |             |        
|Balance December 31, 2004             | 12,398,000 |              | 12,398 |           | 2,652,926 |             | (1,109,025)
|                                      |            |              |        |           |           |             |             |        
|Issuance of common stock for cash    
|at $1.00 - January - March 2005       | 210,000    |              | 210    |           | 209,790   |             | -          
|Issuance of common stock for services
|- March 2005                          | 600,000    |              | 600    |           | 89,400    |             | -          
|Issuance of common stock for payment 
|of debt - June 2005                   | 99,124     |              | 99     |           | 88,472    |             | -          
|Issuance of common stock for expenses
|at $0.75 - August 2005                | 46,801     |              | 47     |           | 35,053    |             | -          
|Issuance of common stock for payment 
|of debt - October 2005                | 18,722     |              | 19     |           | 14,021    |             | -          
|Issuance of common stock for cash    
|at $1.00 - November 2005              | 200,000    |              | 200    |           | 199,800   |             | -          
|Net operating loss for the year      
|ended December 31, 2005               | -          |              | -      |           | -         |             | (1,126,628)
|                                      |            |              |        |           |           |             |             |        
|Balance December 31, 2005             | 13,572,647 | $            | 13,573 | $         | 3,289,462 | $           | (2,235,653)





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







F-5



---

DESERT MINING, INC. AND SUBSIDIARY

(Exploration Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Years Ended December 31, 2005 and 2004 and the

Period June 6, 1979 (Date of Inception) to December 31, 2005



=========================================================================

|                                         |                                                                |                                              |                                      |           |             |           |             |             |            
|---------------------------------------- | -------------------------------------------------------------- | -------------------------------------------- | ------------------------------------ | --------- | ----------- | --------- | ----------- | ----------- | -----------
|                                         |                                                                |                                              |                                      |           |             |           |             |             | Jun 6,     
|                                         |                                                                |                                              |                                      |           |             |           |             |             | 1978 to    
|                                         |                                                                |                                              |                                      |           | Dec 31,     |           | Dec 31,     |             | Dec 31,    
|                                         |                                                                |                                              |                                      |           | 2005        |           | 2004        |             | 2005       
|                                         |                                                                |                                              |                                      |           |             |           |             |             |            
|CASH FLOWS FROM                         
|                                         | OPERATING ACTIVITIES                                          
|                                         |                                                                |                                              |                                      |           |             |           |             |             |            
|                                         | Net loss                                                       | $                                            | (1,126,628)                          | $         | (860,082)   | $         | (2,235,653)
|                                         | Adjustments to reconcile net loss to                          
|                                         | net cash provided by operating                                
|                                         | activities                                                    
|                                         |                                                                | Good will expensed-                          | 100,000                              |           | 100,000     |           |            
|                                         |                                                                | Loss of LLC-                                 | 50,000                               |           | 50,000      |           |            
|                                         |                                                                | Depreciation and amortization                | 447,264                              |           | 111,648     |           | 560,486    
|                                         |                                                                | Changes in accounts receiveable              | 1,497                                |           | (6,497)     |           | (5,000)    
|                                         |                                                                | Changes in deposits                          | (24,250)                             |           | (2,531)     |           | (26,781)   
|                                         |                                                                | Changes in notes and accounts payable        | 133,109                              |           | 39,379      |           | 176,984    
|                                         |                                                                | Contributions to capital - expenses-- 10,469 |                                      |           |             |           |            
|                                         |                                                                | Issuance of capital stock for expenses       | 125,100                              | -         |             | 152,761  
|                                         |                                                                |                                              | Net Decrease in Cash From Operations | (443,908) |             | (568,083) |             | (1,216,734)
|                                         |                                                                |                                              |                                      |           |             |           |             |             |            
|CASH FLOWS FROM INVESTING               
|                                         | ACTIVITIES                                                    
|                                         |                                                                | Purchase of office equipment                 | (22,269)                             |           | (57,465)    |           | (82,320)   
|                                         |                                                                | Net purchase and sale of oil and gas leases  | 73,310                               |           | (1,698,630) |           | (2,108,341)
|                                         |                                                                | Purchase of interest in LLC-- (50,000)       |                                      |           |             |           |            
|                                         |                                                                |                                              |                                      |           | 51,041      |           | (1,756,095) |             | (2,240,661)
|                                         |                                                                |                                              |                                      |           |             |           |             |             |            
|CASH FLOWS FROM FINANCING               
|                                         | ACTIVITIES                                                    
|                                         |                                                                | Proceeds from note payable-                  | 750,000                              |           | 750,000     |           |            
|                                         |                                                                | Proceeds from issuance of common stock       | 410,000                              |           | 1,320,000   |           | 2,737,194  
|                                         |                                                                |                                              |                                      |           |             |           |             |             |            
|                                         | Net Increase in Cash                                           | 17,133                                       |                                      | (254,178) |             | 29,799   
|                                         | Cash at beginning of Period                                    | 12,666                                       |                                      | 266,844   | -          
|                                         | Cash at End of Period                                          | $                                            | 29,799.00                            | $         | 12,666.00   | $         | 29,799.00  
|                                         |                                                                |                                              |                                      |           |             |           |             |             |            
|NON CASH FLOWS FROM OPERATING ACTIVITIES
|                                         | Contributions to capital - expenses - 2000 - 2003$ 10,469      |                                              |                                     
|                                         | Issuance of 2,490,801 common shares for services - 2003 - 2005 | 152,761                                     



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

December 31, 2005



___________________________________________________________________________________



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, 2005, the Company had a net operating loss available for carry forward of $2,200,265. The tax benefit of approximately $660,000 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 no operations.  The net operating loss will expire starting in 2005 through 2026.



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 STATEMENT (Continued)

December 31, 2005



______________________________________________________________________________



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



Revenue is recognized on the sale and delivery of a product or the completion of a service provided.



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 STATEMENT (Continued)

December 31, 2005



______________________________________________________________________________



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 and 2005 the Company purchased 32,628 net acres of oil and gas leases consisting of 19,799 acres from the State of Wyoming, 11,451 acres from the BLM and 1,378 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.  Additional expenditures such as landman, geological and geophysical services to validate the leases are also capitalized and 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.



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.  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.  The Company intends to move ahead with additional development in the second quarter of 2006.  Expenditures for additional well permits and related work 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.   In 2005 the Company drilled the Frank State 15-36 which was subsequently plugged and abandoned.  These costs were expensed in 2005.



F-9



---

DESERT MINING, INC. AND SUBSIDIARY

(Exploration Stage Company)

NOTES TO FINANCIAL STATEMENT (Continued)

December 31, 2005



______________________________________________________________________________



4.  NOTE PAYABLE



The Company received $750,000 under a note payable dated October 19, 2004 which is due June 19, 2006 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.



On December 31, 2005 $54,000 interest payable was accrued.



5.  CAPITAL STOCK



During 2005 the Company issued 410,000 common shares in a private placement for $410,000, 646,801 common shares for services of $125,000 and 117,846 common shares for payment of debt of $102,631.



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.



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 Value |         | Fair Value
|                 |         |            |         |           
|Cash             | $76,275 |            | $76,275
|Oil & gas leases | 29,386  |            | 127,386
|Accounts 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.











F-10



---

DESERT MINING, INC. AND SUBSIDIARY

(Exploration Stage Company)

NOTES TO FINANCIAL STATEMENT (Continued)

December 31, 2005



______________________________________________________________________________



6.  INVESTMENT IN LLC



During August 2003 the Company purchased a 20% interest in GDH Roustabouts L.L.C. for $50,000. Roustabouts L.L.C. is in the business of the maintenance of oil field equipment.  During the first quarter 2004 the interest in Roustabouts L.L.C. was considered to be of no value and has been expensed.



7.  RELATED PARTY TRANSACTIONS



Officers-directors and a Company manager have acquired 22 % of the common capital stock issued and have accounts payable due them of $12,917.



8.  CONTINUING LIABILITIES



The Company is obligated under a two year office lease of $2,375 per month which expires September 30, 2006.  The lease also includes two one year extension options.



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