**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**










**FORM
      10-KSB**







**Annual
      Report Pursuant to Section 13 or 15(d)** **of
      the Securities Exchange Act of 1934**





**For
              the annual period ended:**
            **December
                31, 2005****Commission
              File Number:**
            **000-22373**




**DIVERSIFIED
                FINANCIAL RESOURCES CORPORATION**
              **(Exact
                name of registrant as specified in its charter.)**




**Delaware**
              **(State
                of other jurisdiction ofincorporation
                or organization)**
            **58-2027283**
                **(I.R.S.
                  Employer**
                **Identification
                  No.)****8765
                  Aero Drive, Suite 221, San Diego, CA**
                **(Address
                  of principal executive offices)**
            **92123**
                **(Zip
                  Code)****858-560-8321
(Registrant's
                telephone numberIncluding
                area code)**







Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





YES
                [**X**]
            NO
                [   ]





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock,


as
      of the
      latest practical date:


Common
                Stock, no Par Value - 2,381,323 shares as of March 9,
                2006





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B not contained in this form, and no disclosure will be contained,
      to the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB [ **X** ].





The
      issuer had no total consolidated revenues for the year ended December 31, 2005. The
      aggregate market value of the registrant's common stock, no par value (the
      only
      class of voting stock), held by non-affiliates was approximately $180,000 based
      on the average closing bid and asked prices for the Common Stock on March 9,
      2006 of $0.0975per share.














**TABLE
      OF CONTENTS**





**Part
      I**


ITEM
                  1.
              DESCRIPTION
                  OF BUSINESS
              3ITEM
                  2.
              DESCRIPTION
                  OF PROPERTY
              8ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              8ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO VOTE OF SECURITY
                  HOLDERS
              9ITEM
                  5.
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS
              9ITEM
                  6.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATION
              13ITEM
                  7.
              FINANCIAL
                  STATEMENTS
              17ITEM
                  8
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE
              39ITEM
                  8A.
              CONTROLS
                  AND PROCEDURES
              39ITEM
                  9.
              DIRECTORS
                  AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                  ACT
              40ITEM
                  10
              EXECUTIVE
                  COMPENSATION
              42ITEM
                  11.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT
              43ITEM
                  12.
              CERTAIN
                  RELATIONSHIPS AND RELATED
                  TRANSACTIONS
              43ITEM
                  13.
              EXHIBITS,
                  LIST AND REPORTS ON FORM 8-K
              46ITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              47SIGNATURES
              48




2
 *Table
          of Contents*




**PART
      I.**


**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**





**Forward-looking
      Statements**




*The
      matters discussed in this Annual Report on Form 10-KSB contain forward-looking
      statements that involve risks and uncertainties, including primarily our ability
      to fund future operations and investment opportunities until such time that
      our
      cash flows from operations are sufficient for these purposes., changing market
      conditions and the other risks and uncertainties described under “Risk Factors”
and throughout this Annual Report on Form 10-KSB.  Actual results may
      differ materially from those projected.  These forward-looking statements
      represent our judgment as of the date of the filing of this Annual Report on
      Form 10-KSB.  We disclaim any intent or obligation to update these
      forward-looking statements.*





**Overview**





As
      used
      herein the terms the "Company," "DFRC," the "Registrant," or the "Issuer" refers
      to Diversified Financial Resources Corporation, its subsidiaries and
      predecessors, unless indicated otherwise. DFRC was incorporated in the State
      of
      Delaware on January 6, 1993, as Vaxcel, Inc. On December 19, 2000, DFRC changed
      its name to eLocity Networks Corporation. On August 6, 2002, DFRC changed its
      name to Diversified Financial Resources Corporation.





**For
      the year ended December 31, 2005**





In
      2005
      we committed to selling all of our real estate properties and discontinued
      the
      operations of all of our subsidiaries. As of December 31, 2005 all but one
      of
      our real estate properties had been sold. Net proceeds from the sales of the
      real estate properties were used to acquire a small interest in an oil and
      gas
      operations in Texas, and to pay operating expenses. As of March 15, 2006, we
      sold our remaining real estate property.





We
      are
      simplifying the corporate structure to help reduce expenses in future periods.
      We no longer consider ourselves a holding company.





**For
      the year ended December 31, 2004 and prior**





In
      1999
      we sold all the rights to our technologies for cash and discontinued all of
      our
      operations. We continue to hold rights to develop and commercialize a certain
      cancer antigen under a license agreement from University College London, but
      no
      longer have any employees or other ability to develop the technology without
      assistance.





In
      April
      of 2002, we implemented a plan of reorganization, which resulted in a change
      in
      management and the direction of DFRC. Pursuant to the plan of reorganization,
      we
      acquired operations in the real estate investment sector and contemplated
      entering the land and natural resources sector.





As
      part
      of the plan of reorganization, we transferred ownership and control of a
      subsidiary, Value Plus Marketing, to our other subsidiary, eLocity, Inc. We
      also
      announced a "spin-off" to our shareholders of eLocity, Inc. stock through a
      stock dividend. The spin-off should have resulted in our shareholders acquiring
      direct ownership of eLocity, Inc.'s common stock.





Shareholders
      of record, as of April 30, 2002, were to receive one-share of eLocity, Inc.'s
      common stock for each share of our common stock owned on that date. Through
      the
      date of this filing, only Thomas Clay and Mark Schellenberger, former officers
      of DFRC, have received their shares in the form of restricted common stock
      equal
      to approximately 65% of the common stock of eLocity, Inc. Those shareholders
      of
      record as of April 30, 2002 that have not yet received their shares are still
      entitled to their pro rata portion of the eLocity, Inc. registered shares.
      eLocity, Inc. is still holding those shares in escrow for the shareholders
      of
      record as of April 30, 2002. The delivery date for those shares has not been
      disclosed to us at this time.




3
 *Table
          of Contents*





On
      March
      24, 2003, we entered into a Stock Purchase Agreement with John Chapman, Norman
      Mullins and Dennis Thompson, shareholders of MT & C Diversified Land and
      Natural Resources Corporation (“MT&C”) wherein we agreed to purchase Six
      Million (6,000,000) shares or 100% of the total issued and outstanding shares
      of
      MT & C in exchange for Six Million (6,000,000) shares of our newly issued
      common shares. MT & C was a development stage company incorporated in the
      State of Nevada, whose sole asset was a Coal Slurry Impoundment, Plant Site
      and
      Mine Waste Lease Agreement. MT&C is now called International Natural
      Resources Corp., and after the subsequent 1 for 1,000 and 1 for 2,000 reverse
      splits, the number of shares issued pursuant to the agreement totals 3
      shares.





On
      June
      30, 2003, we entered into a Stock Purchase Agreement with Nexia Holdings, Inc.
      (“Nexia”), Wichita Development Corporation (“Wichita”), and Diversified Holdings
      I, Inc. to acquire not less than an 83% ownership interest in Wichita. Wichita
      either directly, or through its ownership of a subsidiary, owned one commercial
      building located in Kansas and two commercial buildings located in Utah. The
      agreement provided that Nexia transfer to us 100% of all shares that Nexia
      held
      in Wichita (86,795,794) in exchange for a promissory note in the sum of $150,000
      and 1,148,251 (less than 1 share post 1 for 1,000 reverse split and 1 for 2,000
      reverse split) restricted shares of our common stock, with a guaranteed resale
      value of $1.00 per share, whereby, within 36 months of the sale, we are bound
      to
      issue sufficient additional shares such that the total value at liquidation
      of
      the shares will equal $1,000,000.





**Our
      Business**





We
      currently have a small investment in an oil and gas operation in Texas, which
      is
      discussed further in Item 2 - Properties. The oil and gas investment produced
      no
      revenue in 2005. We have one residential real estate property that is held
      for
      sale at December 31, 2005. We plan to continue to build our portfolio of oil
      and
      gas investments, and to analyze other business opportunities as they
      arise.





**Real
      Estate Investments**





As
      of
      December 31, 2005, we had sold or otherwise disposed of all but one of our
      real
      estate properties. The remaining property, a residential house in Utah, is
      held
      for sale, and was sold in the first quarter of 2006. All operations related
      to
      real estate were discontinued in 2005. Following is a historical discussion
      of
      the real estate properties. For information on the sale or disposal of our
      real
      estate properties, see Note 16 to the Consolidated Financial
      Statements.





Prior
      to
      discontinuing the real estate operations, our real estate operations primarily
      involved the acquisition, management, lease and sale of real estate through
      our
      subsidiaries, Wichita Development Corporation (Wichita) and Diversified Holdings
      XIX, Inc. (DHX). During the last quarter of 2002, we acquired DHX which owned
      4
      residential properties located in Utah. In the second quarter of 2003, we
      acquired Wichita which owned one commercial building located in Kansas and
      two
      commercial buildings located in Utah. In October of 2003, one of the buildings
      in Utah was sold at a public auction through a trustee's sale, and we maintained
      title to four of the condominium units located in that building that were not
      subject to the trustee's sale.





**Land
      and Natural Resources**





In
      2003,
      we attempted to enter the coal reclamation business, and as noted above,
      acquired MT & C, now called International Natural Resources Corp.. MT &
C was a development stage company incorporated in the State of Nevada, whose
      sole asset was a Coal Slurry Impoundment, Plant Site and Mine Waste Lease
      Agreement. Our wholly owned subsidiary, MT&C Diversified Land & Natural
      Resources Corp., was not able to close on the purchase of these assets and
      carry
      out the requirements of the lease agreement with Headwaters, Inc. This
      failure prevented us from entering into the coal reclamation business.




4
 *Table
          of Contents*





In
      2004,
      we signed letters of intent to acquire and operate gold mining interests located
      in the Sierra Madre mountain range in Mexico. These interests are more fully
      set
      forth and described in our 10-KSB report for the fiscal year ended December
      31,
      2004, filed on April 20, 2005. Our option to acquire the mining interests
      expired during the first quarter of 2005, and we are no longer pursuing the
      acquisition of these mining interests in Mexico.





In
      2005,
      we entered into an Investment Agreement with Sigma Energy and Exploration,
      whereby the Company invested $39,000 in an interest in Shannon GG Lease Wells
      2
& 3. Pursuant to this Agreement, after certain exploration activities, Sigma
      will assign us an undivided 5.3333/32nds (11.359% net) interest in the wells,
      which includes a 68% net revenue interest in the property. No assignments will
      be given for dry holes.





We
      are
      currently analyzing other gold and silver mining opportunities, as well as
      oil
      and gas opportunities.





**Competition**





We
      will
      be involved in intense competition with other business entities, many of which
      will have a competitive edge over us by virtue of their stronger financial
      resources and prior experience in business. There is no assurance that we will
      be successful with our current business opportunities.





**Governmental
      Regulation**





We
      anticipate being subject to federal, state and local regulations which may
      have
      a material impact upon our operations.





**Employees**





As
      of
      March 15, 2006, we have one full time employee and one part-time
      employee.





**Risk
      Factors**





This
      Annual Report on Form 10-KSB includes forward-looking statements about our
      business and results of operations that are subject to risks and uncertainties.
      See “Forward-Looking Statements” above. Factors that could cause or contribute
      to such differences include those discussed below. In addition to the risk
      factors discussed below, we are also subject to additional risks and
      uncertainties not presently known to us or that we currently deem immaterial.
      If
      any of these known or unknown risks or uncertainties actually occur, our
      business could be harmed substantially.





Our
      auditor's report on our financial statements includes an explanatory paragraph
      with respect to substantial doubt existing about our ability to continue as
      a
      going concern.





For
      the
      years ended December 31, 2005 and 2004, we incurred net losses from continuing
      operations of $903,000 and $5.0 million, respectively. As of December 31, 2005,
      we had an accumulated deficit of $21.0 million. As a result, our financial
      statements include a note stating that these conditions raise substantial doubt
      about our ability to continue as a going concern, but the financial statements
      do not include any adjustments that might result from this
      uncertainty.





We
      are
      subject to compliance with securities law, which exposes us to potential
      liabilities, including potential rescission rights .





We
      have
      periodically offered and sold our common stock to investors pursuant to certain
      exemptions from the registration requirements of the Securities Act of 1933,
      as
      well as those of various state securities laws. The basis for relying on such
      exemptions is factual; that is, the applicability of such exemptions depends
      upon our conduct and that of those persons contacting prospective investors
      and
      making the offering. We have not received a legal opinion to the effect that
      any
      of our prior offerings were exempt from registration under any federal or state
      law. Instead, we have relied upon the operative facts as the basis for such
      exemptions, including information provided by investors themselves.




5
 *Table
          of Contents*





If
      any
      prior offering did not qualify for such exemption, an investor would have the
      right to rescind its purchase of the securities if it so desired. It is possible
      that if an investor should seek rescission, such investor would succeed. A
      similar situation prevails under state law in those states where the securities
      may be offered without registration in reliance on the partial preemption from
      the registration or qualification provisions of such state statutes under the
      National Securities Markets Improvement Act of 1996. If investors were
      successful in seeking rescission, we would face severe financial demands that
      could adversely affect our business and operations. Additionally, if we did
      not
      in fact qualify for the exemptions upon which we have relied, we may become
      subject to significant fines and penalties imposed by the SEC and state
      securities agencies.





Additional
      capital is necessary to implement our business plan.





We
      do not
      have sufficient cash on hand to acquire additional assets or to create an
      operating revenue stream sufficient to cover operating expenses. We will require
      significant new capital in order to execute our strategic plan and believe
      that
      this capital will only be available through the sale of debt or equity
      securities. Our success in raising this capital will depend upon our ability
      to
      access equity capital markets and we may not be able to do so or to do so on
      acceptable terms. If we fail to obtain funds on acceptable terms, we will not
      be
      able to execute our strategic plan and would have to delay or abandon some
      or
      all of our plans for growth. If we are able to obtain financing, we believe
      that
      the terms of such arrangements will result in an offering that is highly
      dilutive to existing shareholders because of the price at which we would have
      to
      issue those shares and the large number of shares we would have to issue at
      those prices.





There
      is no established, stable market for our common stock .





Our
      common stock is quoted on the Over-the-Counter Electronic Bulletin Board
      ("OTCBB") and is traded sporadically. A large number of shares of outstanding
      common stock are restricted and are not freely-tradeable. An established public
      trading market for our common stock may never develop or, if developed, it
      may
      not be able to be sustained. The OTCBB is an unorganized, inter-dealer,
      over-the-counter market that provides significantly less liquidity than other
      markets. Purchasers of our common stock may therefore have difficulty selling
      their shares should they desire to do so.





Our
      stock price is volatile.





The
      trading price of our common stock has been subject to significant fluctuations
      in the past, and this may continue in the future. In addition, the stock market
      in general has experienced extreme price and volume fluctuations that have
      affected the market price for many companies in industries similar to or related
      to ours and which have been unrelated to the operating performance of these
      companies. These market fluctuations may adversely affect the market price
      of
      our common stock.





Penny
      stock regulations may impair our shareholders' ability to sell their
      stock .





Our
      common stock may be deemed a "penny stock." Penny stocks generally are equity
      securities with a price of less than $5.00 per share, other than securities
      registered on certain national securities exchanges. Penny stocks are subject
      to
      rules and regulations that impose additional sales practice requirements on
      broker-dealers who sell the securities to persons other than established
      customers and accredited investors, and these additional requirements may
      restrict the ability of broker-dealers to sell a penny stock.




6
 *Table
          of Contents*





Any
      acquisitions that we undertake could be difficult to integrate, disrupt our
      business, dilute shareholder value and significantly harm our operating
      results.





We
      expect
      to review opportunities to buy other business or technologies that would
      complement our current business, expand the breadth of our markets, or that
      may
      otherwise offer growth opportunities. If we make any future acquisitions, we
      could issue stock that would dilute existing shareholders' percentage ownership,
      incur substantial debt or assume contingent liabilities. Potential acquisitions
      also involve numerous risks, including:




problems
      assimilating the purchased operations, technologies or products;


unanticipated
      costs associated with the acquisition;


diversion
      of management's attention from our core business;


adverse
      effects on existing business relationships with suppliers and
      customers;


risks
      associated with entering markets in which we have no or limited prior
      experience; and


potential
      loss of the purchased organization's or our own key employees.




We
        cannot
        provide any assurance that we would be successful in overcoming problems
        encountered in connection with such acquisitions and our inability to do
        so
        could significantly harm our business.


We
      are
      subject to various risks connected to the ownership of real
      property.





Our
      real
      estate investments are subject to varying degrees of risk generally incident
      to
      the ownership of real property. Real estate values may be adversely affected
      by:
      changes in national or local economic conditions and neighborhood
      characteristics; changes in interest rates and in the availability, cost and
      terms of mortgage funds; the impact of present or future environmental
      legislation and compliance with environmental laws; changes in governmental
      rules and fiscal policies; civil unrest; acts of God, including earthquakes
      and
      other natural disasters which may result in uninsured losses; acts of war;
      adverse changes in zoning laws; and other factors which are beyond our
      control.





In
      addition, real estate investments are relatively illiquid. Our ability to vary
      our ownership of real estate property in response to changes in economic and
      other conditions is limited. If we must sell a real estate property, there
      can
      be no assurance that we will be able to dispose of it in the time period we
      desire or that the sales price of any real estate property will recoup the
      amount of our investment.





Our
      real
      property is also subject to real property taxes. The real property taxes on
      the
      real property may increase or decrease as property tax rates change and as
      the
      property is assessed or reassessed by taxing authorities. If property taxes
      increase, our operations could be adversely affected.





**Reports
      to Security Holders**





We
      are
      not required to deliver an annual report to security holders and will not
      voluntarily deliver a copy of the annual report to the security holders. If
      we
      should choose to create an annual report, it will contain audited financial
      statements. We intend to file all of our required information with the SEC.
      We
      plan to file our 10-KSB, 10-QSBs and all other forms that are or may become
      applicable with the SEC.




The
      public may read and copy any materials that we file with the SEC at the SEC's
      Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The
      Public may obtain information on the operation of the Public Reference Room
      by
      calling the SEC at 1-800-SEC-0330. The statements and forms we file
      electronically with the SEC are available for viewing or copy on the SEC
      maintained Internet site that contains reports, proxy and information
      statements, and other information regarding issuers that file electronically
      with the SEC. The internet address for this site can by found at www.sec.gov.




7
 *Table
          of Contents*





**ITEM
      2. DESCRIPTION OF PROPERTY**





On
      September 30, 2005, we entered into an Investment Agreement with Sigma Energy
      and Exploration, whereby we invested $39,000 in an interest in Shannon GG Lease
      Wells 2 & 3. Pursuant to this Agreement, after certain exploration
      activities, Sigma will assign us an undivided 5.3333/32nds (11.359% net)
      interest in the wells, which includes a 68% net revenue interest in the
      property. No assignments will be given for dry holes.





**Residential
      property held for sale**


As
      of the
      December 31, 2005, we own one residential property located at 315 East 920
      South, Layton, Utah 84041. The 3,500 square foot, two-story residence has 5
      bedrooms and the estimated value as of December 31, 2005 was $195,000. The
      line-of-credit due on the property as of December 31, 2005 totaled approximately
      $152,000. We sold this property in the first quarter of 2006.





**Office
      Location**


As
      of
      April 1, 2005, we moved our headquarters to 8765 Aero Drive, Suite 221, San
      Diego, California 92123. We entered into a 13 month lease agreement for
      approximately 1,391 square feet, and pre-paid the entire amount due under the
      lease which totaled approximately $30,000. As of the date of this report, we
      had
      not renewed this lease.





**ITEM
      3. LEGAL PROCEEDINGS**


The
        Company and its former president were named as respondents in a complaint
        filed
        by the Securities and Exchange Commission ("SEC"). The civil suit, SEC v.
        Wolfson, et. al., case number 2:03 CV 0914K, was filed in the United States
        District Court for the District of Utah. The complaint alleged that the Company
        and its president failed to accurately and fully disclose the nature of our
        relationship with the Sukumo Group, Inc. and to timely disclose the execution
        of
        the Offshore Purchase Agreement. The complaint further alleged that our
        president took actions in 2003 to manipulate the price of our stock in the
        marketplace. The proposed settlement orders our former president, John chapman,
        to pay a civil penalty of $120,000 in installments over a one year term and
        prohibits him from serving as an officer or director of any publicly held
        company and from participating in the issuance of any penny stock. The proposed
        settlement agreement has not been accepted by the U.S. District Court as
        of the
        date of this filing.


Mr.
      Chapman, our former president, was named as a respondent in a complaint filed
      by
      the SEC. The civil suit, SEC v. Allen Z. Wolfson, et. al., case number 2:02
      CV
      1086 (TC), was filed in the United States District Court for the District of
      Utah. The complaint alleged that Mr. Chapman, while the Company's president,
      took actions in 2003 to manipulate the price of our stock in the marketplace.
      The proposed settlement held Mr. Chapman liable for disgorgement of $64,714,
      representing profits gained as a result of the conduct alleged in the complaint,
      plus interest in the amount of $16,785 and a civil penalty of $120,000, payable
      in installments over a one year term. Additionally, the proposed settlement
      barred Mr. Chapman from participating in the issuance of any penny
      stock.





Mr.
      Chapman, while serving as president, executed the proposed settlement agreement
      for case number 2:02 CV 1086 (TC) and submitted it to the SEC for approval.
      The
      proposed settlement agreement was accepted and filed with the U.S. District
      Court on April 18, 2005. As required by the final agreement, Mr. Chapman
      resigned from the Board of Directors and from his positions as President and
      Chief Executive Officer effective May 6, 2005. Dennis Thompson, a member of
      the
      Board of Directors, was named as President and Chief Executive Officer to
      replace Mr. Chapman. We filed a Form 8-K dated May 6, 2005 to report these
      events.




8
 *Table
          of Contents*





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





None.





**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





Our
      common stock is quoted on the Electronic Bulletin Board under the symbol,
      DVFN.OB (formerly DFRL.OB, DFRC.OB and ELOC.OB). Trading in the common stock
      in
      the over-the-counter market has been limited and sporadic and the quotations
      set
      forth below are not necessarily indicative of actual market conditions. Further,
      these prices reflect inter-dealer prices without retail mark-up, mark-down,
      or
      commission, and may not necessarily reflect actual transactions. The following
      tables set forth the high and low sale prices for our common stock as reported
      on the Electronic Bulletin Board for the periods indicated.





BID
                PRICESPERIOD
            
            HIGH
            
            LOW2005First
                Quarter
            
            $
            0.0005
            
            $
            0.0001Second
                Quarter
            
            
            0.0001
            
            
            0.0001Third
                Quarter - pre reverse split (1)
            
            
            0.0001
            
            
            0.0001Third
                Quarter - post reverse split (1)
            
            
            0.06
            
            
            0.019Fourth
                Quarter
            
            
            0.06
            
            
            0.0152004
                (1)First
                Quarter
            
            $
            0.17
            
            $
            0.005Second
                Quarter
            
            
            0.0089
            
            
            0.0007Third
                Quarter
            
            
            0.0015
            
            
            0.0001Fourth
                Quarter - pre reverse split (2)
            
            
            0.0002
            
            
            0.0001Fourth
                Quarter - post reverse split (2)
            
            
            0.03
            
            
            0.0002





(1)
      Our
      Board of Directors authorized a 1 for 2,000 reverse split of our common stock
      on
      July 11, 2005 which became effective August 25, 2005. The high and low prices
      for the Third Quarter are divided into pre and post reverse split periods,
      the
      prior prices were not adjusted to reflect the effects of the reverse split.
      The
      2004 high and low bid prices were not adjusted for this reverse
      split.





(2)
      Our
      Board of Directors authorized a 1 for 1,000 reverse split of our common stock
      on
      November 1, 2004. The high and low prices for the Fourth Quarter are divided
      into pre and post reverse split periods, the prior prices were not adjusted
      to
      reflect the effects of the reverse split.





Such
      quotations reflect inter-dealer prices, without retail mark-up, mark-down or
      commission. Such quotes are not necessarily representative of actual
      transactions or of the value of our common stock, and are in all likelihood
      not
      based upon any recognized criteria of securities valuation as used in the
      investment banking community.




9
 *Table
          of Contents*





**Shareholders**





As
      of
      March 15, 2006, there were an estimated 358 holders of record of our common
      stock. Certain of the shares of common stock are held in street name and may,
      therefore, be held by several beneficial owners.





**Dividends**





Since
      the
      year end December 31, 2003, we have not declared any cash
      dividends.





On
      April
      30, 2002, shareholders of record on that date became entitled to receive a
      stock
      dividend of one share of eLocity, Inc., for every share of our stock they held..
      The spin-off shares are being held in escrow with eLocity, Inc., and will not
      be
      distributed until eLocity, Inc. completes a registration statement.





We
      have
      never paid a cash dividend on our common stock. The payment of dividends may
      be
      made at the discretion of our Board of Directors, and will depend upon, among
      other things, our operations, capital requirements, and overall financial
      condition.





**Description
      of Securities**





As
      of
      March 15, 2006, there were 2,381,323 shares of common stock, no par value,
      issued and outstanding. Of those shares at least 360,008 shares are restricted
      securities of DFRC within the meaning of Rule 144(a)(3) promulgated under the
      Securities Act of 1933, as amended, because such shares were issued and sold
      by
      us in private transactions not involving a public offering. Our affiliates
      hold
      321,769 of the restricted securities which may only be sold pursuant to a
      registration statement or pursuant to Rule 144.





In
      general, under Rule 144, as currently in effect, subject to the satisfaction
      of
      certain other conditions, a person, including an affiliate of ours (in general,
      a person who has a control relationship with us) who has owned restricted
      securities of common stock beneficially for at least one year is entitled to
      sell, within any three-month period, that number of shares of a class of
      securities that does not exceed the greater of (i) one percent (1%) of the
      shares of that class then outstanding or, if the common stock is quoted on
      NASDAQ, (ii) the average weekly trading volume of that class during the four
      calendar weeks preceding such sale. A person who has not been an affiliate
      of
      ours for at least the three months immediately preceding the sale and has
      beneficially owned shares of common stock for at least two (2) years is entitled
      to sell such shares under Rule 144 without regard to any of the limitations
      described above.





No
      prediction can be made as to the effect, if any, that future sales of shares
      of
      common stock or the availability of common stock for future sale will have
      on
      the market price of the common stock prevailing from time-to-time. Sales of
      substantial amounts of common stock on the public market could adversely affect
      the prevailing market price of the common stock.




10
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          of Contents*





On
      February 24, 2004, the Board of Directors approved an amendment to the
      Certificate of Incorporation of the Company to increase the number of authorized
      common shares from 200,000,000 to 10,000,000,000. The increase was approved
      by a
      holder of the majority of the issued and outstanding shares of common stock,
      notice of the increase was provided to all shareholders of record and a
      Certificate of Amendment was filed with the State of Delaware.





**1
      for 2,000 Reverse Split**





Effective
      August 25, 2005, we completed a 1 for 2,000 reverse split of our common stock.
      We filed an Information Statement to disclose the reverse stock split and
      reflected the approval of our Board of Directors. All fractional shares will
      be
      rounded up to the nearest whole shares. As a result of the reverse split, our
      common shares began trading on the OTC Bulletin Board under the symbol
      "DVFN.OB".





**1
      for 1,000 Reverse Split**





On
      November 1, 2004, we completed a 1 for 1,000 reverse split of our common stock.
      We filed an Information Statement to disclose the reverse stock split and
      reflected the approval of our Board of Directors. All fractional shares will
      be
      rounded up to the nearest whole shares. As a result of the reverse split, our
      common shares began trading on the OTC Bulletin Board under the symbol
      "DFLR.OB".





**1
      for 200 Reverse Split**





On
      February 7, 2003, we attempted to effect a 1 for 200 reverse split of our common
      stock, but failed to give proper notice to our shareholders. To rectify this,
      we
      furnished an information statement dated May 29, 2003 to all holders of our
      common stock. The information statement disclosed that our Board of Directors
      had authorized the reverse stock split and that shareholders holding in excess
      of 50% of our outstanding common stock had provided a written consent, approving
      the reverse stock split for all shareholders of record on May 29, 2003, with
      fractional shares being rounded up to the next whole share. The reverse stock
      split was accordingly effected as of July 7, 2003. All fractional shares have
      been rounded up to the nearest whole share. Our common stock then began trading
      on the OTC Bulletin Board under the symbol "DFRC.OB".





**Preferred
      Stock**





On
      September 16, 2004, the Company filed with the Delaware Secretary of State
      a Certificate of Designation of the Rights and Preferences of Preferred Stock
      of
      Diversified Financial Resources Corporation. This designation created
      200,000,000 shares, no stated par value, of Series B Convertible Preferred
      Stock, out of the 200,000,000 authorized shares of preferred stock of the
      Company.




11
 *Table
          of Contents*





The
      Series A Convertible Preferred Stock has the following rights and
      privileges:


1.
            The
                shares are convertible at the option of the holder at any time into
                common
                shares, at a conversion rate of one share of Series A Convertible
                Preferred Stock for 100 shares of common stock for a period of 10
                years
                from the issuance date.


2.
            Requires
                two-thirds voting majority to authorize changes to
                equity.


3.
            Redemption
                provision at option of directors for $10 per share plus the greater
                of $3
                per share or 50% of market capitalization divided by
                2,000,000.


4.
            The
                holders of the shares are entitled to one hundred (100) votes for
                each
                share held.


5.
            Upon
                the liquidation of the Company, the holders of the shares will be
                entitled
                to receive $10 per share plus redemption provision before assets
                distributed to other shareholders.


6.
            The
                holders of the shares are entitled to dividends equal to common share
                dividends.





The
      Series B Convertible Preferred Stock has the following rights and
      privileges:


1.
            The
                shares are not convertible into any other class or series of
                stock.




2.
            The
                holders of the shares are entitled to five hundred (500) votes for
                each
                share held. Voting rights are not subject to adjustment for splits
                that
                increase or decrease the common shares
                outstanding.




3.
            Upon
                the liquidation of the Company, the holders of the shares will be
                entitled
                to receive $.001 per share plus redemption provision before assets
                distributed to other shareholders.




4.
            The
                holders of the shares are entitled to dividends equal to common share
                dividends.




5.
            Once
                any shares of Series B Convertible Preferred Stock are outstanding,
                at
                least two-thirds of the total number of shares of Series B Convertible
                Preferred Stock outstanding must approve the following
                transactions:




a)
            Alter
                or change the rights, preferences or privileges of the Series B Preferred
                Stock.




b)
            Create
                any new class of stock having preferences over the Series B Preferred
                Stock.




c)
            Repurchase
                any of the Company's common stock.




d)
            Merge
                or consolidate with any other Company, except wholly-owned subsidiaries
                of
                the Company.




e)
            Sell,
                convey or otherwise dispose of , or create or incur any mortgage,
                lien, or
                charge or encumbrance or security interest in or pledge of, or sell
                and
                leaseback, in all or substantially all of the property or business
                of the
                Company.




f)
            Incur,
                assume or guarantee any indebtedness maturing more than 18 months
                after
                the date on which it is incurred, assumed or guaranteed by the Company,
                except for operating leases and obligations assumed as part of the
                purchase price of property.




12
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          of Contents*





**Recent
      Sales of Unregistered Securities**





There
      are
      no recent sales of unregistered securities by DFRC during the period covered
      by
      this report, which have not been previously disclosed in Form 10-QSB filings
      or
      Form 8-K filings.





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





**General**


We
        began
        2005 operating as a holding company. Our primary objectives involved creating
        and managing a diverse and comprehensive portfolio of companies operating
        in key
        industry sectors. We did not meet our primary objectives in 2005. As a result,
        during 2005 we placed all of our real estate properties for sale, and
        discontinued the operations of all of our subsidiaries. Our operations from
        continuing activities in 2005 and going forward in 2006 consist of activities
        related to our investment in an oil and gas property in
        Texas.


**RESULTS
      OF CONTINUING OPERATIONS**





**Revenues**





We
      had no
      revenues in 2005 compared to $10,000 of revenue in 2004. We are attempting
      to
      establish sources of revenue for future periods by maximizing our investment
      and
      return on our oil and gas investment in Texas. We sold or disposed of all but
      one of our real estate holdings by year end, and the results of discontinued
      operations are discussed below.





**Expenses**





General
      and administrative expenses decreased from $5.0 million in 2004 to $881,000
      in
      2005, a decrease of $4.1 million, or 82%. The decrease in general and
      administrative expense results from the following:





During
      2004, we issued 30 million (15 shares post 1 for 1,000 and 1 for 2,000 reverse
      splits) restricted common shares to Mr. Chapman, the Chairman of the Board,
      CEO,
      and President at that time, and recorded $2.4 million in expense. The shares
      were issued as compensation for Mr. Chapman’s continuing efforts to identify
      business opportunities for us. In 2005, we did not issue Mr. Chapman’s any
      shares related to efforts to identify business opportunities.




During
        2004, we hired seven additional employees and consultants in order to move
        forward with the bottled water business opportunity and the Mexican mining
        business opportunity identified by Mr. Chapman, and recorded $732,000 of
        expense. By December 2004, many of the employees and consultants were no
        longer
        with the Company because we did not acquire the bottled water business, and
        we
        do not expect expenses for employees and consultants to continue at this
        level
        in the future. During 2005, we recorded $216,000 of expense for services
        of our
        employees and consultants, for a decrease of $516,000 in general and
        administrative expense.


The
      Company and Mr. Chapman were named as respondents in legal proceedings initiated
      by the Securities and Exchange Commission in October 2003. See Item 3. Legal
      Proceedings and Note 7 to the audited financial statements for further
      discussion on these legal proceedings. Proposed settlement agreements were
      submitted in 2004, and the Company recorded $305,000 of expense related to
      the
      settlement agreements. The Company did not record any expense related to the
      settlement agreements in 2005. The Company does not anticipate future penal
      actions.




13
 *Table
          of Contents*





Mr.
      Chapman’s salary increased from $20,000 per month to $50,000 per month effective
      April 1, 2004. We recorded compensation expense for Mr. Chapman’s salary of
      $510,000 in 2004. Mr. Chapman resigned from his director and officer positions
      in May 2005, and we recorded $209,000 of compensation expense during 2005,
      for a
      decrease of $301,000 in general and administrative expenses.





During
      2004, we issued 500 million (750 shares post 1 for 1,000 and 1 for 2,000 reverse
      splits) restricted common shares each to the three members of the Board of
      Directors, and recorded expense of $300,000. During 2005, we issued 70 million
      (35,000 shares post 1 for 2,000 reverse split) restricted common shares each
      to
      the three members of the Board of Directors, and recorded expense of $21,000,
      for a decrease of $279,000 in general and administrative expense.





Year
      over
      year, we also had decreases in legal expenses ($66,000), bad debt ($60,000),
      rent ($27,000), and general corporate overhead ($150,000). Year over year our
      accounting and audit related fees increased by $48,000 due to our restatement
      of
      prior year filings.





**Liabilities**





Our
      current liabilities decreased from $3.3 million in 2004 to $2.0 million in
      2005,
      or $1.3 million. During 2005, we sold several of our properties that were
      held-for-sale on which we carried mortgages or lines of credit, and current
      liabilities decreased $1.1 million as a result of these dispositions. Our
      accrued liabilities decreased by $218,000 as a result of payments made or
      issuance of stock in satisfaction of the liabilities. The litigation settlement
      payable decreased by $176,000 because Mr. Chapman paid the liability on our
      behalf. We had an increase in accounts payable and accrued payroll and taxes
      of
      $218,000 which offset the foregoing decreases.





**Cash
      Flows**





Cash
      flows provided by operations totaled $189,000 in 2005 compared to cash flows
      used in operations $1.2 million in 2004. Cash flows provided by operations
      in
      2005 relate primarily to monies received from related parties which are included
      in changes in assets and liabilities. Cash flows used in operating activities
      for 2004 are primarily attributable to the operating expenses related to the
      investigation and due diligence review of the mining interests, property and
      real estate interests that DFRC acquired or investigated during
      2004.





Cash
      flows used in investing activities totaled $159,000 in 2005 compared to cash
      flows provided by investing activities of $9,000 in 2004. In 2005, we used
      funds
      to pay off notes payable that we issued in 2004, to acquire the mining interests
      in Texas, and to purchase a small amount of equipment. Offsetting these amounts
      in 2005, was the redemption of money funds that we purchased in
      2004.





Cash
      flows used by financing activities totaled $162,000 in 2005 compared to cash
      flows provided by financing activities in 2004 if $1.1 million. In 2004, we
      raised more capital through the issuance of stock than we did in
      2005.




14
 *Table
          of Contents*





**RESULTS
      OF DISCONTINUED OPERATIONS**





During
      2004, we operated all of our subsidiaries as continuing operations. During
      2005,
      we put all of our real estate properties up for sale, and we failed in our
      attempt to acquire certain mining interests in Mexico. As of December 31, 2005,
      we have discontinued the operations of all of our subsidiaries, and there is
      one
      residential property that we are holding for sale. Future operations for the
      discontinued entities should be limited to the sale of the remaining property
      and the dissolution of the companies.





Following
      is a discussion of the results of discontinued operations, which are detailed
      in
      Note 16 to the Consolidated Financial Statements.





Revenue,
      consisting primarily of rental revenue on the real estate properties, decreased
      from $51,000 in 2004 to $7,000 in 2005 as a result of our not leasing the
      properties while we were trying to sell them. General and administrative expense
      decreased from $156,000 in 2004 to $120,000 in 2005 because property management
      and related expenses were lower. Less effort was required to manage and operate
      the properties while they were not leased. Mining expenses, related to our
      attempted acquisition of certain mining interests in Mexico, decreased from
      $383,000 in 2004 to $197,000 in 2005. Once we were not able to acquire the
      mining interests in Mexico, the related expenditures ceased. We recorded an
      impairment loss in 2004 to write-down the value of our real estate properties,
      and had no such loss in 2005. Our interest expense decreased from $93,000 in
      2004 to $64,000 in 2005 because the debt associated with our real estate
      properties was either paid off or assumed during the sale
      transactions.





In
      2004,
      we recorded a $273,000 loss when we executed a deed in lieu of foreclosure
      on
      our property in Wichita, KS,. In 2005, we sold our Salt Lake Development
      Corporation subsidiary, and all but one of our real estate properties, resulting
      in a total gain of $903,000. The individual sale transactions are discussed
      in
      Note 16 to the Consolidated Financial Statements.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      December 31, 2005, we had current assets of $29,000 and current liabilities
      of
      $2.0 million. The purchase price payable of $1.0 million is to be satisfied
      through the issuance of common stock by June 2006, and the issuance of enough
      shares to satisfy this obligation would have a significant dilutive effect.
      Our
      accounts payable and accrued payroll and taxes total $631,000, and we have
      a
      line-of-credit totaling $152,000 on which we are often delinquent in making
      payments.





We
      will
      need to raise significant additional operating capital to finance our operations
      and to acquire sources of operating revenues. Our poor financial condition
      will
      make raising capital very difficult and expensive.





During
      2005 and 2004, our Board of Directors authorized the issuance of 1,855,000,000
      (pre reverse split) shares and 1,956,799,270 (pre reverse split(s)) shares
      of
      common stock as compensation to various individuals for services rendered to
      the
      Company. All the shares were issued pursuant to the S-8 Registration Statement
      of the Company. The shares were issued as compensation to employees,
      consultants, and advisors to the Company due to the lack of cash flow from
      the
      Company's operations and to retain the services and provide timely payment
      of
      obligations to those individuals.





**EVENTS
      SUBSEQUENT TO THE BALANCE SHEET DATE**




We
        sold
        our residential property in Layton, Utah in January 2006. The sales price
        was
        $195,000, and after paying off the line of credit and closing costs, we received
        $16,000.


15
 *Table
          of Contents*


On
          February 14, 2006, we executed a 16% note payable with Mr. Surber for $75,000.
          The note and accrued interest are due March 1, 2008. The note is
          convertible into common stock of the company at a conversion price of 70%
          of the
          closing bid price.
 On
        February 17, 2006, our legal representatives performed a cashless exercise
        of
        500,000 shares of common stock, resulting in our obligation to issue them
        291,667 shares of common stock. We have not issued the common stock as of
        the
        date of this report. The 291,667 shares represent over 12% of our outstanding
        common stock.
 
 On
        March
        17, 2006, Mr. Thompson resigned as our President and CEO, and Mr. Casey resigned
        from the Board of Directors. Also on March 17, 2006, we appointed Elson Soto
        Jr.
        as our President and to our Board of Directors.
 
 On
        March
        20, 2006, we executed an 8% note payable with Mr. Surber for $34,500. The
        note
        and accrued interest are due April 20, 2006. If the note and interest are
        not
        fully paid by April 20, 2006, the interest on any unpaid balance increases
        to
        15%.





**ABILITY
      TO CONTINUE AS A GOING CONCERN**





Our
      ability to continue as a going concern is in doubt. We currently have no sources
      of significant operating revenues. We have incurred losses from our operations
      in each of the last three years. Our financial condition and low stock price
      make raising capital difficult and expensive. In order to continue as a going
      concern, we need to substantially decrease operating expenses, increase
      operating income, and raise significant additional capital.





There
      is
      no assurance that we will be able to accomplish all or any of these items.
      In
      the event that these events do not take place, we will in all probability not
      be
      able to continue as a going concern in calendar year 2006.




16
 *Table
          of Contents*





**ITEM
      7.**  **FINANCIAL
      STATEMENTS**








DIVERSIFIED
      FINANCIAL RESOURCES CORPORATION





INDEX
      TO
      FINANCIAL STATEMENTS


PageIndependent
                  Auditors' Report
              18Consolidated
                  Balance Sheet
              19Consolidated
                  Statements of Operations
              20Consolidated
                  Statements of Stockholders'
                  Deficit
              21Consolidated
                  Statements of Cash Flows
              22Notes
                  to Consolidated Financial Statements
              23-38




17
 *Table
          of Contents*




**REPORT
        OF INDEPENDENT REGISTERED ACCOUNTING
        FIRM**


To
        the
        Board of Directors and Stockholders
 of
        Diversified Financial Resources Corporation,
 
 We
        have
        audited the accompanying consolidated balance sheets of Diversified Financial
        Resources Corporation (Company) and subsidiaries as of December 31, 2005
        and
        2004, and the related consolidated statements of income, stockholders’ equity
        (deficit), and cash flows for the years then ended. These consolidated 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
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the consolidated financial statements. An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement presentation.
        We believe that our audits provide a reasonable basis for our
        opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Diversified
        Financial Resources Corporation and subsidiaries as of December 31, 2005
        and
        2004, and the results of their operations and their cash flows for the years
        then ended in conformity with accounting principles generally accepted in
        the
        United States of America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern. As discussed further in Note 1,
        the
        Company has incurred significant losses. The Company’s viability is dependent
        upon its ability to obtain future financing and the success of its future
        operations. These factors raise substantial doubt about the Company’s ability to
        continue as a going concern. Management’s plan in regard to these matters is
        also described in Note 1. The consolidated financial statements do not include
        any adjustments that might result from the outcome of this
        uncertainty.
   **/s/
        Mendoza Berger & Company, LLP**
 Mendoza
        Berger & Company, LLP
 
 Irvine,
        California
 March
        27,
        2006





18
 *Table
          of Contents*





**DIVERSIFIED
                FINANCIAL RESOURCES CORPORATION****CONSOLIDATED
                BALANCE SHEET****December
                31, 2005**ASSETSCurrent
                assets:Cash
            
            $
            3,968Receivable
                - JR Chapman
            
            
            3,519Note
                receivable
            
            
            10,011Prepaid
                expenses
            
            
            11,901Total
                current assets
            
            
            29,399Property
                and equipment, net
            
            
            1,035Note
                receivable
            
            
            103,890Oil
                and gas investment
            
            
            39,000Assets
                held for sale
            
            
            111,255$
            284,579**December
                31, 2005**LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
                liabilities:Accounts
                payable
            
            $
            224,781Accrued
                payroll and taxes
            
            
            406,668Accrued
                expenses
            
            
            47,583Litigation
                settlement payable
            
            
            120,000Line-of-credit
            
            
            151,901Purchase
                price payable
            
            
            1,000,000Notes
                payable - related parties
            
            
            48,586Total
                current liabilities
            
            
            1,999,519Commitments
                and contingenciesStockholders'
                deficitPreferred
                stock; 200,000,000 shares authorized at December 31, 2005; designated
                as
                Series A and Series BSeries
                A; par value $.001; 1,000,000 shares authorized at December 31, 2005;
                13,150 shares issued and outstanding at December 31, 2005
            
            
            13Series
                B; no par value; 50,000,000 shares authorized at December 31, 2005;
                12,100,000 shares issued and outstanding at December 31,
                2005
            
            
            1,210Common
                stock; no par value; 10,000,000,000 shares authorized at December
                31,
                2005; 2,381,323 shares issued and outstanding at December 31,
                2005
            
            
            18,983,075Additional
                paid-in capital
            
            
            405,086Accumulated
                other comprehensive loss
            
            
            (65,001
            )Accumulated
                deficit
            
            
            (21,039,323
            )Total
                stockholders' deficit
            
            
            (1,714,940
            )$
            284,579See
                accompanying notes




19
 *Table
          of Contents*





**DIVERSIFIED
                FINANCIAL RESOURCES CORPORATION****STATEMENTS
                OF OPERATIONS****Years
                ended****December
                31,****2005**
            
            **2004**Revenue
            
            $
            -
            
            $
            9,640General
                and administrative expenses
            
            
            880,544
            
            
            4,958,796Loss
                from continuing operations
            
            
            (880,544
            )
            
            (4,949,156
            )Interest
                expense
            
            
            (52,286
            )
            
            (57,765
            )Gain
                on sale of note receivable
            
            
            30,000
            
            
            -Net
                loss before provision for income taxes on continuing operations and
                discontinued operations
            
            
            (902,830
            )
            
            (5,006,921
            )Provision
                for income taxes on continuing operations
            
            
            -
            
            
            -Net
                loss from continuing operations
            
            
            (902,830
            )
            
            (5,006,921
            )Income
                (loss) from discontinued operations, net of taxes
            
            
            528,878
            
            
            (921,048
            )Net
                loss
            
            $
            (373,952
            )
            $
            (5,927,969
            )Net
                loss per share - basic and diluted:From
                continuing operations
            
            $
            (0.42
            )
            $
            (100.17
            )From
                discontinued operations
            
            
            0.25
            
            
            (18.43
            )Net
                loss per share - basic and diluted
            
            $
            (0.17
            )
            $
            (118.60
            )Weighted
                average number of common shares outstanding - basic and
                diluted
            
            
            2,156,209
            
            
            49,985*See
                accompanying notes.*




20
 *Table
          of Contents*





**DIVERSIFIED
                FINANCIAL RESOURCES CORP.****STATEMENTS
                OF STOCKHOLDERS' DEFICIT****Years
                ended December 31, 2005 and 2004**Series
                A Preferred Stock
            
            Series
                B Preferred Stock
            
            Common
                Stock
            
            Additional
                paid-in capital
            
            Other
                Comprehensive Loss
            
            Accumulated
                Deficit
            
            TotalShares
            
            
            
            Amount
            
            Shares
            
            
            
            Amount
            
            Shares
            
            
            
            AmountBalances
                at December 31, 2003
            
            
            13,150
            
            
            
            
            $
            13
            
            
            -
            
            
            
            
            $
            -
            
            
            6
            
            
            
            
            $
            13,561,261
            
            $
            131,487
            
            $
            (45,453
            )
            $
            (14,737,402
            )
            $
            (1,090,094
            )Issuance
                of common stock for:Cash,
                compensation, and construction costs
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            126,223
            
            
            
            
            
            1,732,063
            
            
            -
            
            
            -
            
            
            -
            
            
            1,732,063Services
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            852,176
            
            
            
            
            
            3,062,587
            
            
            -
            
            
            -
            
            
            -
            
            
            3,062,587Other
                - accounts payable and MTC agreement
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            62,395
            
            
            
            
            
            134,164
            
            
            -
            
            
            -
            
            
            -
            
            
            134,164Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,927,969
            )
            
            (5,927,969
            )Other
                comprehensive loss on investments, available for sale
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            -
            
            
            (18,496
            )
            
            -
            
            
            (18,496
            )Balances
                at December 31, 2004
            
            
            13,150
            
            
            
            
            $
            13
            
            
            -
            
            
            
            
            $
            -
            
            
            1,040,800
            
            
            
            
            $
            18,490,075
            
            $
            131,487
            
            $
            (63,949
            )
            $
            (20,665,371
            )
            $
            (2,107,745
            )Issuance
                of preferred stock for:Accrued
                rent owed to JR Chapman
            
            
            
            
            
            
            
            
            
            
            
            4,000,000
            
            
            
            
            
            400
            
            
            
            
            
            
            
            
            
            
            
            97,100
            
            
            
            
            
            
            
            
            97,500Compensation
                to Dennis Thompson
            
            
            
            
            
            
            
            
            
            
            
            8,100,000
            
            
            
            
            
            810
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            810Issuance
                of common stock for:Cash,
                compensation, and construction costs
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,105,523
            
            
            
            
            
            446,000
            
            
            
            
            
            
            
            
            
            
            
            446,000Services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20,000
            
            
            
            
            
            4,000
            
            
            
            
            
            
            
            
            
            
            
            4,000Other
                - accrued salary owed to JR Chapman
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            215,000
            
            
            
            
            
            43,000
            
            
            
            
            
            
            
            
            
            
            
            43,000Liability
                to SEC paid by JR Chapman
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            176,499
            
            
            
            
            
            
            
            
            176,499Comprehensive
                loss:Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (373,952
            )
            
            (373,952
            )Other
                comprehensive loss on investments, available for sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,052
            )
            
            
            
            
            (1,052
            )Balances
                at December 31, 2005
            
            
            13,150
            
            
            
            
            $
            13
            
            
            12,100,000
            
            
            
            
            $
            1,210
            
            
            2,381,323
            
            
            
            
            $
            18,983,075
            
            $
            405,086
            
            $
            (65,001
            )
            $
            (21,039,323
            )
            $
            (1,714,940
            )*See
                accompanying notes.*




21
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          of Contents*




**DIVERSIFIED
                FINANCIAL RESOURCES CORPORATION****STATEMENTS
                OF CASH FLOWS****Years
                ended December 31,****2005**
            
            **2004**Cash
                flows from operating activities:Net
                loss
            
            $
            (373,952
            )
            $
            5,927,969
            )Adjustments
                to reconcile net loss to net cash usedin
                operating activities:Stock
                compensation expense
            
            
            98,985
            
            
            3,473,816Depreciation
            
            
            3,527
            
            
            621Uncollectible
                notes receivable
            
            
            -
            
            
            59,731Adjustments
                for discontinued operations
            
            
            400,156
            
            
            363,727Changes
                in assets and liabilities:Receivables
            
            
            177,936
            
            
            (4,634
            )Prepaid
                expenses
            
            
            (11,377
            )
            
            (524
            )Deposits
            
            
            -
            
            
            -Accounts
                payable
            
            
            104,991
            
            
            122,432Accrued
                payroll
            
            
            164,783
            
            
            284,885Accrued
                expenses
            
            
            (80,470
            )
            
            177,970Litigation
                settlement payable
            
            
            -
            
            
            296,499Related
                party payables
            
            
            130,000
            
            
            101,250Changes
                in assets and liabilities of discontinued operations
            
            
            (425,431
            )
            
            (196,342
            )Net
                cash provided by (used for) operating activities
            
            
            189,148
            
            
            (1,248,538
            )Cash
                flows from investing activitiesRedemption
                of money funds
            
            
            55,252
            
            
            (55,252
            )Proceeds
                from (payments on) notes
            
            
            (60,000
            )
            
            60,000Purchase
                of equipment
            
            
            (2,699
            )
            
            (2,484
            )Purchase
                of oil and gas interest
            
            
            (39,000
            )
            
            -Investing
                activities of discontinued operations
            
            
            (112,552
            )
            
            6,452Net
                cash provided by (used for) investing activities
            
            
            (158,999
            )
            
            8,716Cash
                flows from financing activitiesIncrease
                (decrease) in lines-of-credit
            
            
            -
            
            
            -Principal
                payments on notes payable
            
            
            -
            
            
            -Issuance
                of common stock
            
            
            344,250
            
            
            1,113,641Financing
                activities of discontinued operations
            
            
            (506,185
            )
            
            253,929Net
                cash provided by (used for) financing activities
            
            
            (161,935
            )
            
            1,367,570Net
                increase (decrease) in cash
            
            
            (131,786
            )
            
            127,748Cash
                at beginning of year
            
            
            135,754
            
            
            8,006Cash
                at end of year
            
            $
            3,968
            
            $
            135,754*See
                accompanying notes.*




22
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          of Contents*





**DIVERSIFIED
      FINANCIAL RESOURCES CORPORATION**


**NOTES
      TO FINANCIAL STATEMENTS**







Note
      1
      - Basis of Presentation, Current Operating Environment and Significant
      Accounting Policies





Organization





Diversified
      Financial Resources Corporation (“DFRC”) was organized under the laws of the
      State of Delaware on January 6, 1993. We have three subsidiaries: Diversified
      Holdings-XIX, Inc. (Diversified), a real-estate holding company; International
      Natural Resources Corp, a mining operation holding company; and Wichita
      Development Corporation (“Wichita”), a real estate holding company. Wichita has
      one subsidiary Wichita Properties Corporation, (“WPC”), and sold its majority
      interest in its other subsidiary, Salt Lake Development Corporation (“SLDC”) in
      2005.





As
      of
      December 31, 2005, the operations of our subsidiaries have been discontinued.
      As
      of December 31, 2005, we sold or otherwise disposed of all of our real estate
      holdings except for one residential house in Utah.





Going
      forward, our operating focus will be on acquiring oil and gas properties, or
      other mining interests.





Going
      Concern





For
      the
      years ended December 31, 2005 and 2004, we generated almost no revenues from
      continuing operations; and had net losses from continuing operations of $903,000
      and $5.0 million, respectively.





As
      of
      December 31, 2005, we had an accumulated deficit of $21.0 million and negative
      working capital of $2.0 million. At present, we have no sources of significant
      operating revenue, and we expect to continue to incur losses and negative cash
      flows from operating activities through the foreseeable future.





Our
      future cash resources, which may be limited to borrowings from related parties
      and sales of debt or equity securities, may not be sufficient to cover our
      future operating expenses. Our lack of a proven operating history and our low
      stock price make raising capital very difficult and expensive. As a result,
      payments to vendors, lenders, and employees have been delayed.





These
      factors, as well as the risk factors set out elsewhere in our Annual Report
      on
      Form 10-KSB, raise substantial doubt about our ability to continue as a going
      concern. The accompanying financial statements do not include any adjustments
      that might result from the outcome of this uncertainty. Management intends
      to
      fund operations through the issuance of additional equity or debt instruments.
      There can be no assurance that management’s plans will be
      successful.





Principles
      of Consolidation





The
      consolidated financial statements presented herein include the accounts of
      Diversified Financial Resources Corporation and its subsidiaries. All
      significant intercompany balances and transactions have been
      eliminated.





Use
      of
      Estimates





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




23
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          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**




Reclassifications





Certain
      previously reported amounts have been reclassified to conform to the current
      period presentation.





Property
      and Equipment





Property
      and equipment are stated at cost less accumulated depreciation. Depreciation
      is
      determined using the straight-line method over the estimated useful lives of
      the
      assets. Expenditures for maintenance and repairs are expensed when incurred
      and
      betterments are capitalized. Gains and losses on sale of property and equipment
      are reflected in operations.





Impairment
      of Long-Lived Assets





We
      evaluate our long-lived assets in accordance with SFAS No. 144, "Accounting
      for
      the Impairment of Long-Lived Assets". Long-lived assets are reviewed for
      impairment whenever events or changes in circumstances indicate that their
      net
      book value may not be recoverable. When such factors and circumstances exist,
      we
      compare the projected undiscounted future cash flows associated with the related
      asset or group of assets over their estimated useful lives against their
      respective carrying amounts. Impairment, if any, is based on the excess of
      the
      carrying amount over the fair value of those assets and is recorded in the
      period in which the determination was made.





Stock-Based
      Compensation


In
        December 2004, the FASB issued SFAS No. 123 (R), “Accounting for Stock-Based
        Compensation.” SFAS No. 123 (R) establishes standards for the accounting for
        transactions in which an entity exchanges its equity instruments for goods
        or
        services. SFAS No. 123 (R) focuses primarily on accounting for transactions
        in
        which an entity obtains employee services in share-based payment transactions.
        SFAS No. 123 (R) requires that the fair value of such equity instruments
        be
        recognized as expense in the historical financial statements as services
        are
        performed. Prior to SFAS No. 123 (R), only certain pro forma disclosures
        of fair
        value were required. SFAS No. 123 (R) shall be effective for all of our interim
        and annual reporting periods commencing on November 1, 2006 and is expected
        to
        have a material impact on our financial statements during the fiscal year
        2007
        and thereafter.





We
      have
      elected to follow Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      or APB
      25, and related interpretations in accounting for our stock-based compensation.
      Stock options issued to non-employees are recorded at their fair value as
      determined in accordance with FAS No. 123, *Accounting
      for Stock-based Compensation,* and
      Emerging Issues Task Force, or EITF, Issue No. 96-18, *Accounting
      for Equity Instruments that are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services.*




24
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**


Adjusted
      pro forma information regarding net income is required by SFAS 123, and has
      been
      determined as if we had accounted for our employee stock-based compensation
      under the fair value method of that Statement. The weighted average fair values
      of options granted during 2005 and 2004 were $.00015 and $.0005, respectively.
      The fair value for these options was estimated at the date of grant using the
      Black-Scholes method for option pricing with the following weighted-average
      assumptions for 2005 and 2004.





Years
                ended December 31,2005
            
            2004Risk-free
                interest rate
            
            
            2.715
            
            
            1.41Dividend
                yield
            
            
            -
            
            
            -Volatility
                factor
            
            
            1381
            %
            
            2027
            %Weighted-average
                expected option life
            
            
            7
                days
            
            
            7
                days





For
      purposes of adjusted pro forma disclosures, the estimated fair value of the
      stock-based compensation is amortized to expense over the vesting periods of
      the
      granted options.  Our adjusted pro forma information is as
      follows:





Years
                ended December 31,2005
            
            2004Net
                loss, as reported
            
            $
            (373,952
            )
            $
            (5,927,969
            )Pro
                forma FAS 123R compensation expense
            
            
            (279,000
            )
            
            (1,881,000
            )Adjusted
                pro-forma net loss
            
            $
            (652,952
            )
            $
            (7,808,969
            )Adjusted
                pro forma net loss
              per
                share (basic and diluted)
            
            $
            (0.30
            )
            $
            (156.23
            )





The
      pro
      forma effects on net income for 2005 and 2004 are not likely to be
      representative of the effects on reported net income or loss in future years.
      In
      management’s opinion, existing stock option valuation models do not provide a
      reliable single measure of the fair value of employee stock options that have
      vesting provisions and are not transferable. In addition, option valuation
      models require the input of highly subjective assumptions, including expected
      stock price volatility. Changes in such subjective input assumptions can
      materially affect the fair value estimate of employee stock
      options.





Revenue
      Recognition





Rental
      revenue is generally recognized at the time rents are invoiced and collection
      is
      reasonably assured. This policy meets the criteria of *Staff
      Accounting Bulletin 101* in
      that
      there is persuasive evidence of an existing contract or arrangement, services
      have been provided, the price is fixed and determinable and collection is
      reasonably assured.




Income
      Taxes





Deferred
      income taxes are provided in amounts sufficient to give effect to temporary
      differences between financial and tax reporting, principally related to net
      operating loss carryforwards.




25
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**




Comprehensive
      Loss





Under
      SFAS No. 130, *Reporting
      Comprehensive Income or Loss* ,
      the
      reporting and display of comprehensive loss and its components is required
      in
      the financial statements. For the periods presented in the accompanying
      consolidated financial statements, we classify unrealized holding gains and
      losses as a separate component of accumulated other comprehensive
      income.





Net
      Loss Per Share





The
      computation of basic net loss per common share is based on the weighted average
      number of shares outstanding during the year.





The
      computation of diluted net loss per common share is based on the weighted
      average number of shares outstanding during the year plus the common stock
      equivalents which would arise from the exercise of stock options and warrants
      outstanding using the treasury stock method and the average market price per
      share during the year.





Common
      stock equivalents are not included in the diluted net loss per share calculation
      because their effect is anti-dilutive.





Fair
      Value of Financial Instruments





Our
      financial instruments consist of cash, receivables, payables, lines-of-credit
      and notes payable. The carrying amount of cash, receivables and payables
      approximates fair value because of the short-term nature of these items. The
      carrying amount of the lines-of-credit and the notes payable approximates fair
      value as the instruments bear interest at market interest rates.





Note
      2
      - Investments





Investments,
      classified as available-for-sale, consist of the following:





December
                31, 2005Investments,
                at cost
            
            $
            65,001Unrealized
                holding loss
            
            
            (65,001
            )Investments,
                at fair value
            
            $
            -




26
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**




Changes
      in the unrealized holding loss on investment securities available-for-sale
      and
      reported as a separate component of accumulated other comprehensive income
      are
      as follows:





December
                31, 2005Balance
                at beginning of year
            
            $
            (63,949
            )Unrealized
                holding loss
            
            
            (1,052
            )Balance
                at end of year
            
            $
            (65,001
            )





Note
      3
      - Letter of Intent to acquire Mining Interests in Mexico





On
      October 30, 2004, we entered into a Letter of Intent with John Chapman
      ("Chapman") and Dennis Thompson ("Thompson"), as individuals, both of whom
      were
      officers and directors of the Company at the time, to acquire the maximum
      interest allowable under Mexican Law, but not less than a controlling interest,
      in Amermin S.A. de C.V. ("Amermin"). As consideration for the transfer of
      ownership in Amermin to us, Chapman and Thompson were to retain a collective
      27%
      royalty interest in the mining interests of Amermin, subject to certain
      limitations. The royalty interest was to be based on the net value of the
      minerals extracted and the net smelting revenues.





As
      a
      condition precedent to the transfer of ownership in Amermin from Chapman and
      Thompson to us, Chapman and Thompson needed to acquire the interest in Amermin
      from the current owners who were not related parties. The parties entered into
      a
      Letter of Intent for the transfer of ownership in Amermin on October 30, 2004.
      As consideration for the transfer of ownership in Amermin from the current
      owners to Chapman and Thompson, the current owners were to retain a collective
      10% royalty interest in the mining interests of Amermin, subject to certain
      limitations. The royalty interest was to be based on the net value of the
      minerals extracted and the net smelting revenues.





As
      a
      condition precedent to the transfer of ownership in Amermin from its current
      owners to Chapman and Thompson, certain mining interests owned by Minera Tres
      de
      Mayo S.A. de C.V. ("Minera) were to be acquired by Amermin. Minera, the current
      owners of Amermin, Chapman and Thompson entered into a Mining, Exploration
      and
      Purchase Option Agreement ("Purchase Agreement") for the transfer of certain
      mining interests and assets in Mexico to Amermin.





The
      Purchase Agreement provided a four-month exclusive option to the current owners
      of Amermin to acquire the mining interests and assets in Mexico. The option
      period began December 16, 2004. Consideration for the exclusive option was
      $300,000, and we paid this amount in December 2004. These funds were
      non-refundable, and were used to establish the existence of proven reserves
      at
      the mine. We incurred expenses of $82,789 in 2004 related to establishing the
      existence of proven reserves at the mine.





The
      Purchase Agreement provided for a purchase price of USD $1.2 million, $500,000
      of which was due upon exercise of the option and payment of the remaining
      $700,000 was to be made monthly beginning four months after the option exercise,
      and in amounts ranging from USD $50,000 to USD $100,000. The option period
      expired April 16, 2005, and we did not make payment of the $500,000 to exercise
      the option.





We
      were
      not able to complete this transaction, and all efforts related to the agreements
      have ceased. We made payments under the agreements and incurred expenses related
      to the agreements totaling $197,000.




27
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**




Note
      4
      - Note Receivable





In
      connection with the sale of our majority interest in SLDC in 2005 as discussed
      in Note 14 , we retained the right to all proceeds and rights of a promissory
      note in the amount of $116,977 made payable to SLDC or its assignees, arising
      from the sale or transfer of four condominium units located in Ogden,
      Utah.





The
      note
      is payable in regular monthly installments of $817.92 or more, continuing each
      month until the principal balance has been paid in full, together with interest
      on the unpaid principal balance at the rate of 7.5 % per annum, with such
      interest to be paid on the installment due dates and in addition to said
      installment. The note and all accrued interest is due August 10,
      2007.





The
      amount of the note receivable classified as current represents 12 monthly
      payments plus unpaid interest as of December 31, 2005.





Note
      5
      - Property and Equipment





Property
      and equipment consists of computer equipment that is being depreciated over
      an
      estimated useful life of three years.





Note
      6
      - Oil and gas investment





On
      September 30, 2005, we entered into an Investment Agreement with Sigma Energy
      and Exploration, whereby we invested $39,000 in an interest in Shannon GG Lease
      Wells 2 & 3. Pursuant to this Agreement, after certain exploration
      activities, Sigma will assign us an undivided 5.3333/32nds (11.359% net)
      interest in the wells, which includes a 68% net revenue interest in the
      property. No assignments will be given for dry holes.





Note
      7
      - Litigation Settlement Payable





The
      Company and its former president were named as respondents in a complaint filed
      by the Securities and Exchange Commission ("SEC"). The civil suit, SEC v.
      Wolfson, et. al., case number 2:03 CV 0914K, was filed in the United States
      District Court for the District of Utah. The complaint alleged that the Company
      and its president failed to accurately and fully disclose the nature of our
      relationship with the Sukumo Group, Inc. and to timely disclose the execution
      of
      the Offshore Purchase Agreement. The complaint further alleged that our
      president took actions in 2003 to manipulate the price of our stock in the
      marketplace. The proposed settlement orders our president to pay a civil penalty
      of $120,000 in installments over a one year term and prohibits him from serving
      as an officer or director of any publicly held company and from participating
      in
      the issuance of any penny stock. The proposed settlement agreement has not
      been
      accepted by the U.S. District Court as of the date of this filing. We recorded
      a
      liability of $120,000 for the proposed settlement amount in 2004.





Mr.
      Chapman, our former president, was named as a respondent in a complaint filed
      by
      the SEC. The civil suit, SEC v. Allen Z. Wolfson, et. al., case number 2:02
      CV
      1086 (TC), was filed in the United States District Court for the District of
      Utah. The complaint alleged that Mr. Chapman, while the Company's president,
      took actions in 2003 to manipulate the price of our stock in the marketplace.
      The proposed settlement held Mr. Chapman liable for disgorgement of $64,714,
      representing profits gained as a result of the conduct alleged in the complaint,
      plus interest in the amount of $16,785 and a civil penalty of $120,000, payable
      in installments over a one year term. Additionally, the proposed settlement
      barred Mr. Chapman from participating in the issuance of any penny
      stock.




28
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          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**




Mr.
      Chapman, while serving as president, executed the proposed settlement agreement
      for case number 2:02 CV 1086 (TC) and submitted it to the SEC for approval.
      The
      proposed settlement agreement was accepted and filed with the U.S. District
      Court on April 18, 2005. As required by the final agreement, Mr. Chapman
      resigned from the Board of Directors and from his positions as President and
      Chief Executive Officer effective May 6, 2005. Dennis Thompson, a member of
      the
      Board of Directors, was named as President and Chief Executive Officer to
      replace Mr. Chapman. We filed a Form 8-K dated May 6, 2005 to report these
      events.





The
      amount due under the final agreement totaled $201,499. In 2004, we paid $25,000
      and recorded a liability of $176,499 for the remainder. As of the date of this
      filing, Mr. Chapman made all of the required payments under the final agreement,
      and is not seeking reimbursement from us. Accordingly, we recorded the $176,499
      as a capital contribution in 2005.





Note
      8
      - Line-of-Credit





Our
      line
      of credit, secured by real estate, bearing interest at an annual rate of 12.75%,
      has been cancelled. We must continue to make monthly payments on the
      line-of-credit until the balance and interest are fully paid. We classified
      the
      line-of-credit as a current liability because of our inability to make timely
      payments in the prior periods. We paid off the line of credit in the first
      quarter of 2006 after we sold the property securing the debt.





Note
      9- Purchase Price Payable





As
      part
      of the acquisition of Wichita Development Corporation in June 2003, we issued
      1,148,251 (1 share post 1 for 1,000 and 1 for 2,000 reverse splits) shares
      of
      common stock, and guaranteed the resale value, such that within 36 months of
      the
      acquisition, we would issue sufficient additional shares so that the total
      value
      at liquidation of all shares issued would be $1,000,000. As of December 31,
      2005, none of the shares had been liquidated, the value of the issued shares
      is
      negligible, and we are obligated to issue shares with a guaranteed value of
      $1,000,000 by June 30, 2006.





Note
      10 - Preferred Stock





We
      are
      authorized to issue 200,000,000 shares of preferred stock with a par value
      of
      $.001. We have established two series of preferred shares, designated as Series
      A Convertible Preferred Stock, consisting of 1,000,000 shares, and Series B
      Convertible Preferred Stock, consisting of 50,000,000 shares.





The
      Series A Convertible Preferred Stock has the following rights and
      privileges:


*
            The
                shares are convertible at the option of the holder at any time into
                common
                shares, at a conversion rate of one share of Series A Convertible
                Preferred Stock for 100 shares of common stock for a period of 10
                years
                from the issuance date.


*
            Requires
                two-thirds voting majority to authorize changes to
                equity.




*
            Redemption
                provision at option of directors for $10 per share plus the greater
                of $3
                per share or 50% of market capitalization divided by
                2,000,000.




*
            The
                holders of the shares are entitled to one hundred (100) votes for
                each
                share held.




*
            Upon
                the liquidation of the Company, the holders of the shares will be
                entitled
                to receive $10 per share plus redemption provision before assets
                distributed to other shareholders.




*
            The
                holders of the shares are entitled to dividends equal to common share
                dividends.




29
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          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**


The
      Series B Convertible Preferred Stock has the following rights and
      privileges:


*
            The
                shares are not convertible into any other class or series of
                stock.




*
            The
                holders of the shares are entitled to five hundred (500) votes for
                each
                share held. Voting rights are not subject to adjustment for splits
                that
                increase or decrease the common shares
                outstanding.




*
            Upon
                the liquidation of the Company, the holders of the shares will be
                entitled
                to receive $.001 per share plus redemption provision before assets
                distributed to other shareholders.




*
            The
                holders of the shares are entitled to dividends equal to common share
                dividends.




*
            Once
                any shares of Series B Convertible Preferred Stock are outstanding,
                at
                least two-thirds of the total number of shares of Series B Convertible
                Preferred Stock outstanding must approve the following
                transactions:




*
            Alter
                or change the rights, preferences or privileges of the Series B Preferred
                Stock.




*
            Create
                any new class of stock having preferences over the Series B Preferred
                Stock.




*
            Repurchase
                any of the Company's common stock.




*
            Merge
                or consolidate with any other Company, except wholly-owned subsidiaries
                of
                the Company.




*
            Sell,
                convey or otherwise dispose of , or create or incur any mortgage,
                lien, or
                charge or encumbrance or security interest in or pledge of, or sell
                and
                leaseback, in all or substantially all of the property or business
                of the
                Company.




*
            Incur,
                assume or guarantee any indebtedness maturing more than 18 months
                after
                the date on which it is incurred, assumed or guaranteed by the Company,
                except for operating leases and obligations assumed as part of the
                purchase price of property.







Note
      11 - Common Stock





On
      February 23, 2004, our Board of Directors approved an increase in the number
      of
      authorized common shares from 200,000,000 to 10,000,000,000, and changed the
      par
      value from $.001 per share to no stated par value per share.





On
      October 12, 2004, our Board of Directors approved a 1-for-1,000 reverse common
      stock split. All common stock amounts and per share information have been
      retroactively adjusted to reflect this reverse common stock split in the
      accompanying consolidated financial statements.





On
      August
      25, 2005, our Board of Directors approved a 1-for-2,000 reverse common stock
      split. All common stock amounts and per share information have been
      retroactively adjusted to reflect this reverse common stock split in the
      accompanying consolidated financial statements.




30
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          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**


As
      discussed in Note 9, we are obligated to issue common shares with an aggregate
      value of $1,000,000 by June 30, 2006.. As of December 31, 2005, the number
      of
      common shares required for issuance to satisfy the remainder of the $1,000,000
      aggregate value totaled approximately 33.3 million.





On
      November 17, 2005, we entered into an Investment Agreement (the "Agreement")
      with Dutchess Private Equities Fund, LP (the "Investor"). This Agreement
      provides that, following notice to the Investor, we may put to the Investor
      up
      to $10,000,000 of our common stock for a purchase price equal to 95% of the
      lowest closing bid price of our common stock during the five day period
      following that notice. The number of shares that we are permitted to put
      pursuant to the Agreement is up to $100,000 per put. In connection with this
      Agreement, we agreed to register the shares issuable pursuant to the
      Agreement.





Note
      12 - Common Stock Options





On
      January 29, 2004, we adopted the 2004 Benefit Plan of Diversified Financial
      Resources Corporation. Through October 11, 2004, the plan authorized the grant
      of stock options to eligible employees, directors, and other individuals to
      purchase up to an aggregate of 4,050,000,000 (pre reverse split(s) shares of
      stock. Options granted under the plan have an exercise price and term
      established by the Board of Directors at the date of grant. The plan is intended
      to advance our interests by attracting and helping to ensure the retention
      of
      competent directors, employees, and consultants, and to provide incentives
      to
      those individuals to devote their utmost efforts to the advancement of the
      Company.





On
      January 4, 2005, we adopted the 2005 Benefit Plan of Diversified Financial
      Resources Corporation. The plan authorizes the grant of stock options to
      eligible employees, directors, and other individuals to purchase up to an
      aggregate of 2,000,000,000 (pre-reverse split) shares of stock. Options granted
      under the plan have an exercise price and term established by the Board of
      Directors at the date of grant. The plan is intended to advance our interests
      by
      attracting and ensuring the retention of competent directors, employees, and
      consultants, and to provide incentives to those individuals to devote their
      utmost efforts to the advancement of the Company.




On
        June
        13, 2005, we granted an option to purchase 1,000,000 shares at $.05 per share
        to
        our legal representatives for their services. The option is exercisable
        immediately, and expires December 31, 2010. The option is not subject to
        dilution based on any reverse split of our stock. As of December 31, 2005,
        this
        option had not been exercised.
 
 A
        summary
        of option activity is presented below, as adjusted for the 1 for 1,000 reverse
        split that was effective November 1, 2004 and for the 1 for 2,000 reverse
        stock
        split that was effective August 25, 2005:


Shares
            
            Weighted
                Average Exercise PriceOutstanding
                as of December 31. 2003
            
            
            -
            
            $
            -Granted
            
            
            852,177
            
            $
            2.10Exercised
            
            
            (852,177
            )
            $
            2.10Cancelled
            
            
            -
            
            $
            -Outstanding
                as of December 31, 2004
            
            
            -
            
            
            n/aGranted
            
            
            1,927,500
            
            $
            0.2200Exercised
            
            
            (927,500
            )
            $
            0.4000Cancelled
            
            
            -
            
            $
            -Outstanding
                as of December 31, 2005
            
            
            1,000,000
            
            
            n/a




31
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**




Note
      13 - Income Taxes





The
      difference between income taxes at statutory rates and the amount presented
      in
      the financial statements is a result of the following:


Year
                ended December 31,2005
            
            2004Income
                tax benefit at statutory rate
            
            $
            (1,696,000
            )
            $
            (1,549,000
            )Change
                in valuation allowance
            
            
            1,696,000
            
            
            1,549,000$
            -
            
            $
            -





Deferred
      tax assets are as follows at December 31, 2005:





Year
                ended December 31,2005
            
            2004Net
                operating loss carryforwards
            
            $
            2,052,000
            
            $
            1,905,000Valuation
                allowance
            
            
            (2,052,000
            )
            
            (1,905,000
            )$
            -
            
            $
            -





We
      have
      net operating loss carryforwards of approximately $6,500,000 which begins to
      expire in the year 2022. The amount of net operating loss carryforwards that
      can
      be used in any one year will be limited by significant changes in the ownership
      of the Company and by the applicable tax laws which are in effect at the time
      such carryforwards can be utilized.





Note
      14 - Related Party Transactions





*Stock
      issuances to the Board of Directors*





During
      the year ended December 31, 2005, we issued 210,000,000 (105,000 shares post
      1
      for 2,000 reverse split) shares of restricted common stock to Board of Director
      members and recorded $21,000 as expense.





During
      the year ended December 31, 2004, we issued 1,500,000,000 (750 shares post
      1 for
      1,000 reserve split and 1 for 2,000 reverse split) shares of restricted common
      stock to Board of Director members and recorded $300,000 as
      expense.




32
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          of Contents*


**DIVERSIFIED
          FINANCIAL RESOURCES CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**


*Transactions
      with J. R. Chapman*





During
      2005, we issued 4,000,000 Series B preferred shares to Mr. Chapman, then
      President and currently one of our consultants, as payment for accrued office
      rent from January 2004 to March 2005 totaling $97,500. The Series B preferred
      shares were valued at $400, and resulting in a benefit on the settlement of
      this
      liability totaling $97,100, which was credited to additional paid-in
      capital.





During
      2005, we issued 430,000,000 shares (215,000 shares post 1 for 2,000 reverse
      split) of restricted common stock to Mr. Chapman, for payment of $43,000 of
      accrued salary owed to him. The issuance was carried out pursuant to Section
      4
      (2) of the Securities Act of 1933.





From
      January 2004 to May 2005, we leased approximately 1600 sq. ft. of office space
      located at Mr. Chapman’s residence. The term of the lease ran from May 2002
      through May 2005. We recorded rent expense under this lease agreement totaling
      $32,500 and $78,000 during 2005 and 2004, respectively.





During
      2004, we executed a Letter of Intent with Mr. Chapman and Mr. Thompson, both
      of
      whom were officers and directors of the Company at the time, to acquire certain
      mining interests in Mexico. See Note 3.





During
      2004, we issued 30,000,000 shares (15 shares post 1 for 1,000 reserve split
      and
      1 for 2,000 reverse split) of restricted stock to Mr. Chapman for
      acquisition-related services, and recorded $2.4 million as expense; and we
      issued 2,000,000,000 shares (1,000 shares post 1 for 1,000 reverse split and
      1
      for 2,000 reverse split) of restricted common stock to Mr. Chapman to satisfy
      accrued salary of $100,000.





Mr.
      Chapman's monthly salary was increased from $20,000 per month to $50,000 per
      month in April, 2004, and remained at $50,000 per month until his resignation
      in
      May 2005. We entered into a consulting agreement with Mr. Chapman in May 2005
      that provides for monthly payments of $4,500 per month. As of December 31,
      2005,
      we owed Mr. Chapman accrued salary totaling $147,000. We recorded compensation
      expense, either in the form of salary or consulting fees, totaling $243,000
      and
      $510,000 in 2005 and 2004, respectively.





From
      time
      to time, we borrow money from Mr. Chapman to cover immediate expenses, or
      advance him money for the same purpose. As of December 31, 2005, the receivable
      balance from Mr. Chapman was $3,500 and the payable to Mr. Chapman was
      $41,000.





*Issuance
      of Stock to Dennis Thompson*





During
      2005, we issued 8,100,000 Series B preferred shares to Mr. Thompson as
      compensation for his acceptance to the position of President and for serving
      in
      that office for the following twelve months. The issuance was carried out
      pursuant to Section 4 (2) of the Securities Act of 1933. We recorded
      compensation expense of $810 related to the issuance of the shares.





During
      2004, we executed a Letter of Intent with Mr. Chapman and Mr. Thompson, both
      of
      whom were officers and directors of the Company at the time, to acquire certain
      mining interests in Mexico. See Note 3.




33
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          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**




*Transactions
      with companies controlled by Richard Surber*





On
      April
      1, 2005, we issued a $30,000 note bearing interest at 11.5% to Nexia Holdings,
      Inc. (“Nexia”) for cash. The note and accrued interest were due April 22, 2005.
      On May 11, 2005, we issued a $230,000 note bearing interest at 8% to West Jordan
      Real Estate Holdings, Inc (a subsidiary of Nexia Holdings, Inc.) in exchange
      for
      $100,000 in cash and the cancellation of two notes payable and accrued interest
      to Nexia Holdings, Inc., including the $30,000 note referenced above. The
      $230,000 note was forgiven on August 8, 2005 in connection with the SLDC sale
      and transaction, as set forth below.





On
      August
      8, 2005, we, and on behalf of our subsidiaries, entered into a Stock Purchase
      and Release Agreement, as amended (the "Agreement"), with Diversified Holdings
      I, Inc., a Nevada corporation, West Jordan Real Estate Holdings, Inc., a Utah
      corporation and Hudson Consulting Group, Inc., a Nevada corporation
      (collectively, the "Purchaser"), whereby Diversified Holdings I would acquire
      our interest in our majority-owned subsidiary, Salt Lake Development Corporation
      ("SLDC"). SLDC owns a two story building of 15,000 square feet located at 268
      West 400 South in Salt Lake City, Utah.





We
      had
      the building on the market for six months prior to the sale on August 8, 2005.
      Due to the building location and state of repair, we received very limited
      interest from prospective buyers, and we were unable to complete any sales
      transactions.





Once
      the
      Purchaser notified us of their interest in the building referenced above, we
      determined moving forward with the Agreement was in our best interest as we
      would be relieved of our mortgage payments while receiving fair
      consideration.





In
      exchange for the interest in SLDC, the Purchaser agreed to: (1) release us
      from
      principal and interest owed on promissory notes held by the Purchaser in the
      amounts of $230,000 and $150,000; (2) release us from debts owed to the
      Purchaser and its affiliates totaling $10,528; (3) in effect, assume the
      existing mortgage with First Bank of Beverly Hills of approximately $551,000;
      and (4) pay us $20,000 in cash. We also retained the right to all proceeds
      and
      rights of a promissory note in the amount of $116,977 made payable to SLDC
      or
      its assignees, arising from the sale or transfer of four condominium units
      located Ogden, Utah. The closing occurred on September 28, 2005.





During
      2004, we executed a note payable with Nexia for $100,000; and issued 1,148,251
      (1 share post 1 for 1,000 reverse split and 1 for 2,000 reverse split) shares
      to
      Nexia pursuant to the acquisition agreement for Wichita. See Note x - Purchase
      Price Payable.





During
      2004, we issued 101,786,230 (49,395 shares post 1 for 1,000 reverse split and
      1
      for 2,000 reverse split) shares of common stock to Mr. Surber of Hudson
      Consulting Group, Inc. ("Hudson") to satisfy obligations under a consulting
      agreement between the Company and Hudson that provided for monthly payments
      of
      $7,500.





On
      September 4, 2003, we entered into a loan agreement with Creative Marketing
      Group, Inc. Said agreement was secured by a promissory note in the amount of
      $58,691, bearing simple interest of 2% per month. The promissory note was due
      on
      September 4, 2004. We attempted to collect the promissory note through December
      31, 2004, but were unsuccessful. As of December 31, 2004, we reserved the full
      amount as uncollectible. We continued our collection efforts on the promissory
      note through the first half of 2005, and again were unsuccessful in our efforts.
      On July 13, 2005, we assigned the promissory note to Diversified Holdings I,
      Inc., a subsidiary of Nexia Holdings, for $30,000, and recorded this as a gain
      on the sale of the promissory note. Our inability to collect, combined with
      our
      cash flow requirements, necessitated the sale of the promissory note at the
      discounted value. To the best our knowledge, the promissory note remains
      uncollected.




34
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**


On
          February 14, 2006, we executed a 16% note payable with Mr. Surber for $75,000.
          The note and accrued interest are due March 1, 2008. The note is convertible
          into common stock of the company at a conversion price of 70% of the closing
          bid
          price.
 
 On
        March
        20, 2006, we executed an 8% note payable with Mr. Surber for $34,500. The
        note
        and accrued interest are due April 20, 2006. If the note and interest are
        not
        fully paid by April 20, 2006, the interest on any unpaid balance increases
        to
        15%.
  Note
        15 - Supplemental Cash Flow Information





For
      the
      years ended December 31, 2005 and 2004, we paid interest of approximately
      $53,000 and $59,000, respectively.





No
      amounts were paid for income taxes during the years ended December 31, 2005
      and
      2004.





During
      the year ended December 31, 2005:


*
            We
                issued 197,500 shares of common stock for services and recorded $45,000
                as
                expense related to the issuances.




*
            We
                recorded $53,000 of compensation expense related to the issuance
                and
                exercise of stock options.




*
            We
                issued 215,000 shares of common stock to satisfy accrued salary totaling
                $43,000.




*
            We
                issued stock for the prepayment of construction costs totaling
                $8,000.







During
      the year ended December 31, 2004:


*
            We
                issued 3.9 billion (1.95 million shares post 1 for 2,000 reverse
                split)
                shares of common stock for services and recorded $3.1 million as
                expense
                related to the issuances.




*
            We
                recorded $411,000 of compensation expense related to the issuance
                and
                exercise of stock options.




*
            We
                executed a deed in lieu of foreclosure on its property in Wichita,
                KS and
                recorded a loss of $273,000 on the transaction, recorded a reduction
                in
                the related mortgage liability of $268,000, and wrote-off a
                deposit.




*
            We
                issued 102 million (51,000 shares post 1 for 2,000 reverse split)
                shares
                of common stock to satisfy accounts payable totaling
                $126,000.




*
            We
                reserved or wrote-off receivables totaling
                $60,000.




*
            We
                issued stock for the prepayment of construction costs totaling
                $44,000.




35
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**




Note
      16 - Discontinued operations





During
      2005, we entered into purchase and sale agreements for all of our real estate
      properties, and we were not able to complete the acquisition of the mining
      interests in Mexico. We have discontinued the operations of all of our
      subsidiaries as of December 31, 2005.





We
      sold
      the following properties during 2005:





Sale
      of Salt Lake Development Corporation





As
      reported in our Form 8-K filing dated November 2, 2005, on August 8, 2005,
      we
      entered into a Stock Purchase and Release Agreement, as amended (the
      "Agreement"), with Diversified Holdings I, Inc., a Nevada corporation, West
      Jordan Real Estate Holdings, Inc., a Utah corporation and Hudson Consulting
      Group, Inc., a Nevada corporation (collectively, the "Purchaser"), whereby
      Diversified Holdings I would acquire our interest in our majority-owned
      subsidiary, Salt Lake Development Corporation ("SLDC"). SLDC owns a two story
      building of 15,000 square feet located at 268 West 400 South in Salt Lake City,
      Utah.





In
      exchange for the interest in SLDC, Purchaser agreed to (1) release us from
      principal and interest owed on promissory notes in the amounts of $230,000
      and
      $150,000, (2) release us owed to it and its affiliates in the amount of $10,528,
      and (3) pay us $20,000 cash. We also retained the right to all proceeds and
      rights of a promissory note in the amount of $117,000 made payable to SLDC
      or
      its assignees, arising from the sale or transfer of four condominium units
      located in the Ogden, Utah. We recorded a gain of $630,000.





Sale
      of residential duplex in Salt Lake City, UT





On
      September 29, 2005, through our subsidiary, Diversified Holdings XIX, Inc.,
      we
      sold a duplex located on South 565 East in Salt Lake City, UT to an unaffiliated
      purchaser. Proceeds from this sale after closing amounted to $89,000, and we
      recorded a gain of $54,000 on the sale of the property.





Sale
      of four condo units located in Ogden, UT





On
      May
      10, 2005, through our subsidiary, Salt Lake Development Corp., we sold our
      four
      condo units located in Ogden, UT for a purchase price of $140,000. These units
      were located in a building for mixed use, which included eighteen condo units
      on
      the second floor with vacant retail space on the first floor. Salt Lake
      Development Corp. lost the building to foreclosure to the former owner, Mr.
      Stacy, who in turn, sold the entire property (less the four condo units) to
      B.I.G. Investment LLC. The building's retail space on the first floor was in
      disrepair and we were unable to sell our four units privately until B.I.G.
      Investment LLC expressed an interest in obtaining the last four units in their
      building. Our inability to sell the four condos for over six months while on
      the
      market and B.I.G. Investment LLC's interest in the units made this transaction
      desirable for all parties.





There
      were no appraisals on the four condo properties and the purchase price was
      determined by the market analysis of the property along with the purchase price
      paid per unit by B.I.G. Investment LLC in purchase of the building from the
      other owner.




36
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**


From
      June
      30, 2003 up to the sale of date of August 8, 2005, we had extensive working
      knowledge of the building, its value and the current leasing rates in the area.
      These factors coupled with the limited interest in the properties along with
      our
      unwillingness to invest further capital into the four units including, obtaining
      appraisals that would ultimately concur with the fair market value already
      known
      to the Company. Therefore, we sold the units to B.I.G. Investment LLC. We
      believe that based on their knowledge selling the four Condo units is a positive
      move and beneficial to the Company.





We
      financed $117,000 of the purchase price at 7.5% interest per annum. The entire
      unpaid balance of principal and interest is due 24 months from the date of
      the
      note. The note is secured by a deed of trust and, if the buyer defaults on
      the
      note, the four properties will be returned to us. The carrying value of the
      condos was zero at the time of sale, and we recorded a gain of $117,000 on
      the
      sale of the properties. Since the sale of the property to B.I.G. Investment
      LLC,
      the promissory payments have been current.





Sale
      of residential property located in Murray, UT





On
      June
      28, 2005, through our subsidiary, Diversified Holdings XIX, Inc., we sold our
      residential property located in Murray, UT for a purchase price of $100,000.
      We
      received $94,000 after closing costs, and we recorded a gain of $37,000 on
      the
      sale of the property.





Sale
      of condo unit located in Salt Lake City, UT





On
      December 19, 2005, through our subsidiary, Diversified Holdings XIX, Inc.,
      we
      sold our condo unit located in Salt Lake City, UT for a purchase price of
      $128,000. We received $2,500 after closing costs and paying off the
      line-of-credit, and we recorded a gain of $56,000 on the sale of the
      property.





The
      following table details selected statement of operations information for the
      discontinued operations.





Years
                ended December 31,2005
            
            2004Revenue
            
            $
            6,528
            
            
            51,442General
                and administrative expenses
            
            
            119,537
            
            
            156,100Mining
                exploration expense
            
            
            197,161
            
            
            382,789Loss
                from discontinued operations
            
            
            (310,170
            )
            
            (487,447
            )Gain
                on sale of securities
            
            
            
            
            
            289Impairment
                loss
            
            
            
            
            
            (67,867
            )Interest
                expense
            
            
            (63,506
            )
            
            (93,057
            )Gain
                (Loss) on sale of property
            
            
            902,554
            
            
            (272,966
            )Net
                income (loss) from discontinued operations
            
            $
            528,878
            
            $
            (921,048
            )




37
 *Table
          of Contents*


**DIVERSIFIED
        FINANCIAL RESOURCES CORPORATION**
 **NOTES
        TO FINANCIAL STATEMENTS**


The
      assets and liabilities associated with the real estate operations are included
      in the Consolidated Balance Sheet. The following table details selected balance
      sheet information for the real estate operations.





December
                  31,2005
            
            2004Other
                assets
            
            $
            119,923
            
            $
            62,208Assets
                held for sale
            
            
            111,255
            
            
            716,483231,178
            
            
            778,691Other
                liabilities
            
            $
            37,362
            
            $
            124,421Lines
                of credit
            
            
            151,901
            
            
            269,692Notes
                payable
            
            
            -
            
            
            656,846$
            189,263
            
            $
            1,050,959





Note
      17 - Subsequent Events





We
      sold
      our residential property in Layton, Utah in January 2006. The sales price was
      $195,000, and after paying off the line of credit and closing costs, we received
      $16,000.





In
      February 2006, Mr. Surber provided $75,000 to us for working capital purposes.
      Paperwork related to the transaction was not complete as of the date of this
      filing, and we believe the amount will be treated as a short-term loan from
      Mr.
      Surber.





On
      February 17, 2006, our legal representatives performed a cashless exercise
      of
      500,000 shares of common stock, resulting in our obligation to issue them
      291,667 shares of common stock. We have not issued the common stock as of the
      date of this report. The 291,667 shares represent over 12% of our outstanding
      common stock.





On
      March
      17, 2006, Mr. Thompson resigned as our President and CEO, and Mr. Casey resigned
      from the Board of Directors. Also on March 17, 2006, we appointed Elson Soto
      Jr.
      as our President and to our Board of Directors.





On
      March
      20, 2006, we executed an 8% note payable with Mr. Surber for $34,500. The note
      and accrued interest are due April 20, 2006. If the note and interest are not
      fully paid by April 20, 2006, the interest on any unpaid balance increases
      to
      15%.




38
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          of Contents*





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




We
      had no
      disagreements with its independent accountants and made no changes during the
      year ended December 31, 2005.







**ITEM
      8A. CONTROLS AND PROCEDURES**





**Annual
      Evaluation of Controls**




As
        of the
        end of the period covered by this annual report on Form 10-KSB, the Company
        evaluated the effectiveness of the design and operation of our disclosure
        controls and procedures ("Disclosure Controls"). This evaluation ("Evaluation")
        was performed by Elson Soto Jr., our President, Chief Executive Officer and
        Acting Principal Accounting Officer, (“CEO"). In this section, we present the
        conclusions of our CEO based on and as of the date of the Evaluation, with
        respect to the effectiveness of our Disclosure Controls.


**CEO
      Certifications**





Attached
      to this annual report, as Exhibits 31.1 and 31.2, are certain certifications
      of
      the CEO, which are required in accordance with the Exchange Act and the
      Commission's rules implementing such section (the "Rule 13a-14(a)/15d-14(a)
      Certifications"). This section of the annual report contains the information
      concerning the Evaluation referred to in the Rule 13a-14(a)/15d-14(a)
      Certifications. This information should be read in conjunction with the Rule
      13a-14(a)/15d-14(a) Certifications for a more complete understanding of the
      topic presented.





**Disclosure
      Controls**





Disclosure
      Controls are procedures designed with the objective of ensuring that information
      required to be disclosed in our reports filed with the Commission under the
      Exchange Act, such as this annual report, is recorded, processed, summarized
      and
      reported within the time period specified in the Commission's rules and forms.
      Disclosure Controls are also designed with the objective of ensuring that
      material information relating to the Company is made known to the CEO by others,
      particularly during the period in which the applicable report is being prepared.





**Limitations
      on the Effectiveness of Disclosure Controls**





Our
      management does not expect that our Disclosure Controls will prevent all error
      and all fraud. A control system, no matter how well developed and operated,
      can
      provide only reasonable, but not absolute assurance that the objectives of
      the
      control system are met. Further, the design of the control system must reflect
      the fact that there are resource constraints, and the benefits of controls
      must
      be considered relative to their costs. Because of the inherent limitations
      in
      all control systems, no evaluation of controls can provide absolute assurance
      that all control issues and instances so of fraud, if any, within the Company
      have been detected. These inherent limitations include the realities that
      judgments in decision -making can be faulty, and that breakdowns can occur
      because of simple error or mistake. Additionally, controls can be circumvented
      by the individual acts of some persons, by collusion of two or more people,
      or
      by management override of the control. The design of a system of controls also
      is based in part upon certain assumptions about the likelihood of future events,
      and there can be no assurance that any design will succeed in achieving its
      stated objectives under all potential future conditions. Over time, control
      may
      become inadequate because of changes in conditions, or because the degree of
      compliance with the policies or procedures may deteriorate. Because of the
      inherent limitations in a cost-effective control system, misstatements due
      to
      error or fraud may occur and not be detected.




39
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          of Contents*





**Scope
      of the Evaluation**





The
      CEO’s
      evaluation of our Disclosure Controls included a review of the controls' (i)
      objectives, (ii) design, (iii) implementation, and (iv) the effect of the
      controls on the information generated for use in this annual report. In the
      course of the Evaluation, the CEO sought to identify data errors, control
      problems, acts of fraud, and they sought to confirm that appropriate corrective
      action, including process improvements, was being undertaken. This type of
      evaluation is done on a quarterly basis so that the conclusions concerning
      the
      effectiveness of our controls can be reported in our quarterly reports on Form
      10-QSB and annual reports on Form 10-KSB. The overall goals of these various
      evaluation activities are to monitor our Disclosure Controls, and to make
      modifications if and as necessary. Our intent in this regard is that the
      Disclosure Controls will be maintained as dynamic systems that change (including
      improvements and corrections) as conditions warrant.





**Conclusions**





Based
      upon the Evaluation, our disclosure controls and procedures are designed to
      provide reasonable assurance of achieving our objectives. Our CEO has concluded
      that our disclosure controls and procedures are effective at that reasonable
      assurance level to ensure that material information relating to the Company
      is
      made known to management, including the CEO, particularly during the period
      when
      our periodic reports are being prepared, and that our Internal Controls are
      effective at that assurance level to provide reasonable assurance that our
      financial statements are fairly presented inconformity with accounting
      principals generally accepted in the United States. Additionally, there has
      been
      no change in our Internal Controls that occurred during our most recent fiscal
      quarter that has materially affected, or is reasonably likely to affect, our
      Internal Controls.





**PART
      III**




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




**Directors,
      Executive Officers and Control Persons**


NAME
              AGE
              POSITIONElson
                  Soto Jr.
              33
              President,
                  DirectorDennis
                  Thompson
              52
              Director




***Elson
        Soto Jr., 33*** was
        appointed President and to our Board of Directors on March 17, 2006. Mr.
        Soto
        has over 10 years experience in business management. His experience includes
        cost management, corporate restructuring, human resources management, and
        capital improvement projects. Mr.
        Soto
        attended Bernard Baruch College in New York in 1994 where he majored in
        accounting and computer sciences.


40
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          of Contents*




***Dennis
      Thompson, 52*** was
      appointed President and to our Board of Directors on May 30, 2002. Mr. Thompson
      has been a consultant who provides expert advice concerning equipment,
      construction, and mining operations. He develops and implements construction
      plans for gold and coal mining operations. Prior to that time, Mr. Thompson
      was
      involved in manufacturing industry and construction field. He attended the
      Iron
      Workers Apprentice School in West Virginia from 1972-1975. He will serve as
      a
      director until the next annual shareholders meeting. Mr. Thompson resigned
      as
      our President and CEO effective March 17, 2006.




***John
      Casey, 32*** was
      appointed to our Board of Directors on October 30, 2002. Mr. Casey has over
      five
      years experience as a Site Manager supervising and directing numerous on-site
      craft and salaried personnel as well as various subcontractors. He also has
      4
      additional years of environmental remedial experience as a Site Safety Officer,
      Operations Foreman, and heavy equipment operator. He served as the Operations
      Foreman and Site Safety Officer for a crew of twelve on a 125 acre precious
      metal mining operations from 1996 through 1998. He served in the United States
      Air Force for four years assigned to a fire fighting/hazardous materials
      handling unit. He has worked on buried drum recovery projects as well as
      landfill construction barrier/ cut-off trench installations, low level
      radiological decommissioning and demolition projects, and the construction
      of
      landfill capping systems. Mr. Casey resigned from our Board of Directors on
      March 17, 2006.




**Involvement
      in Certain Legal Proceedings**




The
      Company and its former president were named as respondents in a complaint filed
      by the Securities and Exchange Commission ("SEC"). The civil suit, SEC v.
      Wolfson, et. al., case number 2:03 CV 0914K, was filed in the United States
      District Court for the District of Utah. The complaint alleged that the Company
      and its president failed to accurately and fully disclose the nature of our
      relationship with the Sukumo Group, Inc. and to timely disclose the execution
      of
      the Offshore Purchase Agreement. The complaint further alleged that our
      president took actions in 2003 to manipulate the price of our stock in the
      marketplace. The proposed settlement orders our president to pay a civil penalty
      of $120,000 in installments over a one year term and prohibits him from serving
      as an officer or director of any publicly held company and from participating
      in
      the issuance of any penny stock. The proposed settlement agreement has not
      been
      accepted by the U.S. District Court as of the date of this filing.





Mr.
      Chapman, our former president, was named as a respondent in a complaint filed
      by
      the SEC. The civil suit, SEC v. Allen Z. Wolfson, et. al., case number 2:02
      CV
      1086 (TC), was filed in the United States District Court for the District of
      Utah. The complaint alleged that Mr. Chapman, while the Company's president,
      took actions in 2003 to manipulate the price of our stock in the marketplace.
      The proposed settlement held Mr. Chapman liable for disgorgement of $64,714,
      representing profits gained as a result of the conduct alleged in the complaint,
      plus interest in the amount of $16,785 and a civil penalty of $120,000, payable
      in installments over a one year term. Additionally, the proposed settlement
      barred Mr. Chapman from participating in the issuance of any penny
      stock.





Mr.
      Chapman, while serving as president, executed the proposed settlement agreement
      for case number 2:02 CV 1086 (TC) and submitted it to the SEC for approval.
      The
      proposed settlement agreement was accepted and filed with the U.S. District
      Court on April 18, 2005. As required by the final agreement, Mr. Chapman
      resigned from the Board of Directors and from his positions as President and
      Chief Executive Officer effective May 6, 2005. Dennis Thompson, a member of
      the
      Board of Directors, was named as President and Chief Executive Officer to
      replace Mr. Chapman. We filed a Form 8-K dated May 6, 2005 to report these
      events.




41
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          of Contents*




**Compliance
      with Section 16(a) of the Exchange Act**




Based
      solely on a review of Forms 4 and 5 furnished to DFRC and filed with the
      Securities and Exchange Commission under Rule 16a-3(e) promulgated under the
      Securities Exchange Act of 1934, DFRC believes that all directors, officers
      and
      beneficial owners of more than 10% of any class of equity securities filed
      on a
      timely basis the reports required by Section 16(a) of the Exchange Act during
      the most recent fiscal year.




**Code
      of Ethics**




Due
      to
      the small group of employees and management, we have not adopted a code of
      ethics that apply to our officers and employees. The Board of Directors is
      in
      direct contact with management on a regular basis and believes that all conduct
      is under sufficient supervision to protect us and our shareholders from any
      unethical activity.




**ITEM
      10. EXECUTIVE COMPENSATION**




The following
      tables and notes present for the three years ended December 31, 2004 the
      compensation received by the DFRC's President and Vice President. No other
      executive officer of DFRC received compensation which exceeded $100,000 during
      any of the three years ended December 31, 2004.




**SUMMARY
                COMPENSATION TABLE**Long
                Term CompensationAnnual
                Compensation
            Awards
            PayoutsName
                and Principle Position
            Year
            Salary
                ($)
            Bonus
                ($)
            Other
                Annual Compensation ($)
            Restricted
                Stock Award(s) ($)
            Securities
                Underlying Options/SARs (#)
            LTIP
                Payouts ($)
            All
                Other Compensation ($)Dennis
                Thompson, President
            2005
            50,000
            -
            -
            -
            -
            -
            810
                (1)2004
            -
            -
            -
            -
            -
            -
            -2003
            -
            -
            -
            -
            -
            -
            -John
                Chapman, Former President
            2005
            210,000(2)
            -
            -
            -
            -
            -
            -2004
            510,000(2)
            -
            -
            2,400,0000
                (3)
            -
            -
            -2003
            80,000
                (2)
            -
            -
            -
            -
            -
            -




(1)
                Value of 8.1 million preferred shares issued to Mr. Thompson for
                accepting
                position of President for twelve months beginning May of
                2005.Mr.
                Thompson resigned as our President and CEO effective March 17,
                2006.(2)
                We entered into an employment dated June 5, 2003 with Mr. Chapman,
                pursuant to which he accepted the positions of
                President,CEO,
                and CFO. The agreement provided for a base salary of $20,000 per
                month,
                which was increased to $50,000 per month in April 2004.(3)
                Mr. Chapman received 30,000,000 (15 shares post 1 for 1,000 and 1
                for
                2,000 reverse splits) shares of restricted common stock for
                acquisitionrelated
                services, and we recorded $2.4 million as compensation related to
                the
                issuance.




42
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          of Contents*




**Compensation
      of Directors**




No
      payments have been made to directors of DFRC for their services as directors
      that have not been previously reported by the Company.




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**




The
      table
      below sets forth information with respect to the beneficial ownership of the
      Common Stock by (i) each of our directors, (ii) each person known by us to
      be
      the beneficial owner of five percent or more of the outstanding Common Stock,
      and (iii) all executive officers and directors as a group, as of March 10,
      2006.
      The total number of shares of common stock issued and outstanding on March
      10,
      2006 is 2,381,323. Unless otherwise indicated, we believe that the beneficial
      owner has sole voting and investment power over such shares.




NAME
                AND ADDRESS OF
              BENEFICIAL
                OWNER
            NUMBER
                OF SHARES BENEFICIALLY OWNED
            PERCENTAGE
                OF
              OWNERSHIPDennis
                Thompson, President and Director
              1771
                Wolviston Way.
              San
                Diego, CA 92154
            35,251
            1.48%John
                Casey, Director
              1771
                Wolviston Way.
              San
                Diego, CA 92154
            500,000
            21.00%John
                Chapman
              1771
                Wolviston Way.
              San
                Diego, CA 92154
            251,766
            10.57%Officers
                and Directors
              as
                a group (2 persons) as
                of March 10, 2006
            285,251
            11.98%







**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




*Stock
      issuances to the Board of Directors*





During
      the year ended December 31, 2005, we issued 210,000,000 (105,000 shares post
      1
      for 2,000 reverse split) shares of restricted common stock to Board of Director
      members and recorded $21,000 as expense.





During
      the year ended December 31, 2004, we issued 1,500,000,000 (750,000 shares post
      1
      for 2,000 reverse split) shares of restricted common stock to Board of Director
      members and recorded $300,000 as expense.




43
 *Table
          of Contents*





*Transactions
      with J. R. Chapman*





During
      2005, we issued 4,000,000 Series B preferred shares to Mr. Chapman, then
      President and currently one of our consultants, as payment for accrued office
      rent from January 2004 to March 2005 totaling $97,500. The Series B preferred
      shares were valued at $400, and resulting in a benefit on the settlement of
      this
      liability totaling $97,100, which was credited to additional paid-in
      capital.





During
      2005, we issued 430,000,000 shares (215,000 shares post 1 for 2,000 reverse
      split) of restricted common stock to Mr. Chapman, for payment of $43,000 of
      accrued salary owed to him. The issuance was carried out pursuant to Section
      4
      (2) of the Securities Act of 1933.





From
      January 2004 to May 2005, we leased approximately 1600 sq. ft. of office space
      located at Mr. Chapman’s residence. The term of the lease ran from May 2002
      through May 2005. We recorded rent expense under this lease agreement totaling
      $32,500 and $78,000 during 2005 and 2004, respectively.





During
      2004, we executed a Letter of Intent with Mr. Chapman and Mr. Thompson, both
      of
      whom were officers and directors of the Company at the time, to acquire certain
      mining interests in Mexico. See Note 3.





During
      2004, we issued 30,000,000 shares (15,000 shares post 1 for 2,000 reverse split)
      of restricted stock to Mr. Chapman for acquisition-related services, and
      recorded $2.4 million as expense; and we issued 2,000,000,000 shares (1,000,000
      shares post 1 for 2,000 reverse split) of restricted common stock to Mr. Chapman
      to satisfy accrued salary of $100,000.





Mr.
      Chapman's monthly salary was increased from $20,000 per month to $50,000 per
      month in April, 2004, and remained at $50,000 per month until his resignation
      in
      May 2005. We entered into a consulting agreement with Mr. Chapman in May 2005
      that provides for monthly payments of $4,500 per month. As of December 31,
      2005,
      we owed Mr. Chapman accrued salary totaling $147,000. We recorded compensation
      expense, either in the form of salary or consulting fees, totaling $243,000
      and
      $510,000 in 2005 and 2004, respectively.





From
      time
      to time, we borrow money from Mr. Chapman to cover immediate expenses, or
      advance him money for the same purpose. As of December 31, 2005, the receivable
      balance from Mr. Chapman was $3,500 and the payable to Mr. Chapman was
      $41,000.





*Issuance
      of Stock to Dennis Thompson*





During
      2005, we issued 8,100,000 Series B preferred shares to Mr. Thompson as
      compensation for his acceptance to the position of President and for serving
      in
      that office for the following twelve months. The issuance was carried out
      pursuant to Section 4 (2) of the Securities Act of 1933. We recorded
      compensation expense of $810 related to the issuance of the shares.





During
      2004, we executed a Letter of Intent with Mr. Chapman and Mr. Thompson, both
      of
      whom were officers and directors of the Company at the time, to acquire certain
      mining interests in Mexico. See Note 3.




44
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          of Contents*





*Transactions
      with companies controlled by Richard Surber*





On
      April
      1, 2005, we issued a $30,000 note bearing interest at 11.5% to Nexia Holdings,
      Inc. (“Nexia”) for cash. The note and accrued interest were due April 22, 2005.
      On May 11, 2005, we issued a $230,000 note bearing interest at 8% to West Jordan
      Real Estate Holdings, Inc (a subsidiary of Nexia Holdings, Inc.) in exchange
      for
      $100,000 in cash and the cancellation of two notes payable and accrued interest
      to Nexia Holdings, Inc., including the $30,000 note referenced above. The
      $230,000 note was forgiven on August 8, 2005 in connection with the SLDC sale
      and transaction, as set forth below.





On
      August
      8, 2005, we, and on behalf of our subsidiaries, entered into a Stock Purchase
      and Release Agreement, as amended (the "Agreement"), with Diversified Holdings
      I, Inc., a Nevada corporation, West Jordan Real Estate Holdings, Inc., a Utah
      corporation and Hudson Consulting Group, Inc., a Nevada corporation
      (collectively, the "Purchaser"), whereby Diversified Holdings I would acquire
      our interest in our majority-owned subsidiary, Salt Lake Development Corporation
      ("SLDC"). SLDC owns a two story building of 15,000 square feet located at 268
      West 400 South in Salt Lake City, Utah.





We
      had
      the building on the market for six months prior to the sale on August 8, 2005.
      Due to the building location and state of repair, we received very limited
      interest from prospective buyers, and we were unable to complete any sales
      transactions.





Once
      the
      Purchaser notified us of their interest in the building referenced above, we
      determined moving forward with the Agreement was in our best interest as we
      would be relieved of our mortgage payments while receiving fair
      consideration.





In
      exchange for the interest in SLDC, the Purchaser agreed to: (1) release the
      us
      from principal and interest owed on promissory notes held by the Purchaser
      in
      the amounts of $230,000 and $150,000; (2) release us from debts owed to the
      Purchaser and its affiliates totaling $10,528; (3) in effect, assume the
      existing mortgage with First Bank of Beverly Hills of approximately $551,000;
      and (4) pay us $20,000 in cash. We also retained the right to all proceeds
      and
      rights of a promissory note in the amount of $116,977 made payable to SLDC
      or
      its assignees, arising from the sale or transfer of four condominium units
      located Ogden, Utah. The closing occurred on September 28, 2005.





During
      2004, we executed a note payable with Nexia for $100,000; and issued 1,148,251
      (575 shares post 1 for 2,000 reverse split) shares to Nexia pursuant to the
      acquisition agreement for Wichita. See Note x - Purchase Price
      Payable.





During
      the year ended December 31, 2004, we issued 101,786,230 (50,894 shares post
      1
      for 2,000 reverse split) shares of common stock to Mr. Surber of Hudson
      Consulting Group, Inc. ("Hudson") to satisfy obligations under a consulting
      agreement between the Company and Hudson that provided for monthly payments
      of
      $7,500.




45
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          of Contents*





On
      September 4, 2003, we entered into a loan agreement with Creative Marketing
      Group, Inc. Said agreement was secured by a promissory note in the amount of
      $58,691, bearing simple interest of 2% per month. The promissory note was due
      on
      September 4, 2004. We attempted to collect the promissory note through December
      31, 2004, but were unsuccessful. As of December 31, 2004, we reserved the full
      amount as uncollectible. We continued our collection efforts on the promissory
      note through the first half of 2005, and again were unsuccessful in our efforts.
      On July 13, 2005, we assigned the promissory note to Diversified Holdings I,
      Inc., a subsidiary of Nexia Holdings, for $30,000, and recorded this as a gain
      on the sale of the promissory note. Our inability to collect, combined with
      our
      cash flow requirements, necessitated the sale of the promissory note at the
      discounted value. To the best our knowledge, the promissory note remains
      uncollected.




On
        February 14, 2006, we executed a 16% note payable with Mr. Surber for $75,000.
        The note and accrued interest are due March 1, 2008. The note is
        convertible into common stock of the company at a conversion price of 70%
        of the
        closing bid price.


On
      March
      20, 2006, we executed an 8% note payable with Mr. Surber for $34,500. The note
      and accrued interest are due April 20, 2006. If the note and interest are not
      fully paid by April 20, 2006, the interest on any unpaid balance increases
      to
      15%.





**ITEM
      13. EXHIBITS, LIST AND REPORTS ON FORM8-K**




Exhibits. Exhibits
        required to be attached by Item 601 of Regulation S-B are listed in the Index
        to
        Exhibits, which is incorporated herein by reference.
  3.1 Certificates
          of Incorporation are incorporated by reference to Exhibit No. 3.1
          of Form
          S-4
          as amended filed December 31, 1996.
 3.2 Bylaws
          are incorporated by reference to Exhibit No. 3.2 of Form S-4 as
          amended filed
          December 31, 1996.
 14.1  Code
          of Ethics *
 31  Rule
          13a-14(a)/15d-14(a) Certifications of Chief Executive Officerand
          ActingPrincipal
          Accounting Officer *
 32 Section
          1350 Certifications of Chief Executive Officer and Acting
          PrincipalAccounting
          Officer *
  *  Filed
          herewith




(b) Reports on Form 8-K.




1)
            On
                May 9, 2005, we filed an 8-K to report the following: (a) issuance
                of
                430,000,000,000 (corrected to 430,000,000 in an amended 8-K filed
                May 18,
                2005) restricted shares of common stock to Mr. Chapman in satisfaction
                of
                accrued salary owed to him totaling $43,000; (b) issuance of 4,000,000
                Series B preferred shares to Mr. Chapman as satisfaction of rental
                obligations owed to him totaling $97,500; (c) issuance of 8,100,000
                Series
                B preferred shares to Mr. Thompson as compensation for his acceptance
                to
                the position of President of the Registrant and for serving in that
                position for the following twelve months; and (d) resignation of
                Mr.
                Chapman from the Board of Directors and the office of President of
                the
                Registrant, and the appointment of Mr. Thompson to the office of
                President
                of the Registrant.




2)
            On
                November 2, 2005, we filed an 8-K report to disclose our execution
                of
                Stock Purchase and Release Agreement, as amended (the "Agreement"),
                with
                Diversified Holdings I, Inc., a Nevada corporation, West Jordan Real
                Estate Holdings, Inc., a Utah corporation and Hudson Consulting Group,
                Inc., a Nevada corporation (collectively, the "Purchaser"), whereby
                Diversified Holdings I would acquire the Company's interest in its
                majority-owned subsidiary, Salt Lake Development Corporation ("SLDC").
                SLDC owns a two story building of 15,000 square feet located at 268
                West
                400 South in Salt Lake City, Utah.





3)
            On
                November 2, 2005, we filed an 8-K to report our execution of an Investment
                Agreement with Sigma Energy and Exploration, whereby the Company
                invested
                $39,000 in an interest in Shannon GG Lease Wells 2 &
                3.





4)
            On
                November 21, 2005, we filed an 8-K to report our execution of an
                Investment Agreement (the "Agreement") with Dutchess Private Equities
                Fund, LP (the "Investor"). This Agreement provides that, following
                notice
                to the Investor, we may put to the Investor up to $10,000,000 of
                our
                common stock for a purchase price equal to 95% of the lowest closing
                bid
                price of our common stock during the five day period following that
                notice. The number of shares that we are permitted to put pursuant
                to the
                Agreement is up to $100,000 per put. In connection with this Agreement,
                we
                agreed to register the shares issuable pursuant to the
                Agreement.


Subsequent
        to the end of the year, the report on Form 8-K has been filed:
  5)
            On
                March 22, 2006, we filed an 8-K to report the appointment of Mr.
                Elson
                Soto Jr. to the positions of President and Director of the Registrant,
                the
                resignation of Mr. Dennis Thompson from the President of the Registrant
                and the resignation of John Casey from the Board of
                Directors.




46
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**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




**Audit
      Fees**




Audit
      fees are for professional services for the audit of our annual financial
      statements, and for the review of the financial statements included in our
      filing on Form 10-QSB and for services that are normally provided in connection
      with statutory and regulatory filings or engagements. We paid Mendoza Berger
      & Company LLP audit fees of approximately $61,000 and $24,000 in 2005 and
      2004, respectively.




**Audit
      Related Fees**




Audit
      related fees are funds paid for the assurance and related services reasonably
      related to the performance of the audit or the review of our financial
      statements. We paid no audit related fees to Mendoza Berger & Company LLP
      during 2005 and 2004.




**Tax
      Fees**




Tax
      fees
      are those funds paid for professional services with respect to tax compliance,
      tax advice, and tax planning. We paid no professional tax fees to Mendoza Berger
      & Company LLP during 2005 and 2004.




**All
      Other Fees**




Fees
      paid
      for permissible work that does not fall within any of the three other fees
      categories set forth above. No other fees were paid to Mendoza Berger &
Company LLP during 2005 and 2004.




**Pre-approved
      Policy for Audit and Non-Audit Services**




We
      do not
      have a standing audit committee and the full Board of Directors performs all
      functions of an audit committee, including the pre-approval of all audit and
      non-audit services prior to our engagement of an accounting firm. All of the
      services rendered for us by Mendoza Berger & Company LLP were pre-approved
      by our Board of Directors.




47
 *Table
          of Contents*




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      Registrant caused this Annual Report and any subsequent amendments thereto
      to be
      signed on its behalf by the undersigned, thereunto duly authorized.




**Diversified
              Financial Resources Corporation**Dated:
              March 28, 2006
            By:
            /s/ Elson
              Soto Jr.Elson Soto Jr.
              President




Pursuant
      to the requirements of the Securities Act of 1934, this Annual Report has been
      signed below by the following persons in their respective capacities with the
      Registrant and on the dates indicated.


**SIGNATURE**
              **TITLE**
              **DATE**/s/
                  Elson Soto Jr.
              President,
                  CFO, and Director
              March
                  28, 2006Elson
                  Soto Jr./s/
                  Dennis Thompson
              Director
              March
                  28, 2006Dennis
                  Thompson






48